December

The Laurel Comment
“I believe in being strongly partisan on issues that require choice”.

-Ralph McGill 1963
Publisher Atlanta Constitution
Commentary

The past six weeks have proven to be an exceptionally newsworthy period and perhaps one of watershed proportions. November began with Democrat majority victories in the House and Congress giving the party and the American people important oversight control of committee chairmanships for the first time since 1994 (less their short lived Senate majority in 2001-02 due to the Jeffords defection).

The Iraq civil war continues to rightfully occupy centre stage in the hearts of thoughtful Americans. During the recent election Republicans were seen running from both Bush and his Iraq debacle leading the President to finally dump his incompetent defense secretary Donald Rumsfeld. This has in turn been followed by the resignation of the abrasive U.N. ambassador John Bolton. At this writing we await the release of the Baker Hamilton report on the Iraq war, a document which we expect to have little immediate impact on policy while fully respecting its underlying guidance on future administration decisions.

The Middle East, prior to the Iraq invasion was an area fraught with enormous problems both social and political, and the exercise of American military might has not alleviated but worsened relations in the area. The Bush administration which had little understanding of the Sunni-Shia split at the outset of this ill-conceived adventure is finally learning something about the lay of the land. Look for them to soon abandon both the Shia and the Malaki/Sadr government as they seek backing from their largely Sunni co-conspirators in the rest of the region whose fear of a strong Shia Iran outweighs their distaste for Israel and America.

In Canada, November began with the Harper government’s surprise move on income trusts, a story still in the making and if this wasn’t shocking enough the western based Conservative party reached out to soft nationalists in Quebec with its “Quebec nation” motion. First seen as a political coup for Harper many later understood it as a boon to the Liberals who would no longer have to contend with this divisive issue at their convention. It may be argued that this “coup” allowed “Clarity Act” creator Stephane Dion to win the leadership. At first glance it would appear that the Tories got what they wished for with the victory although many others believe that this underestimated man of character is and will be a force to be reckoned with both in his native province and more surprisingly…across the land.

So as Republicans continue to flee the war and their party’s leadership, we can envision Canadians of all parties flocking to the “practical green” policies of Stephane Dion.

The next Canadian election promises to be about character versus ideology…a strongly partisan choice.

Markets

World markets have also brought us their share of surprises in 2006 as oil, commodities and most broad indexes have enjoyed record performances. On the surface of things this all seems to paint a rosy picture of things to come despite the underlying weakness found in most economic projections.

The failing factor however is something to consider when comparing numerical performance with reality. During the last five years the U.S. dollar has lost 35% of its value against the Euro. The Canadian dollar, even with its recent declines, has gained over 40% on its U.S. counterpart, while gold and silver, considered to be U.S. dollar hedges in some trading circles, are each ahead more than 100% during the same period.

Meanwhile the Dow Jones Industrial Average has soared to new all time highs…or has it? In U.S. dollar terms the Dow is up 26% during the same five year period, more from its absolute lows in late 2002, but you get the point. In essence U.S. dollar buying power has markedly depreciated in this time frame leaving foreign investors of both bonds and equities poorer for their efforts.

While growth in China and India continues to fuel world expansion their U.S. dollar reserves have also appreciated and this too has not been an entirely happy outcome. In recent months there has been much talk of currency diversification among foreign holders, the serious evidence of which we are now seeing in the rise of the Euro and the breakout in precious metal prices.

For Canadians this has been a double edged sword with one side being much more blunt than the other. The TSX and Venture exchanges have done extremely well of late despite the income trust fiasco, lower oil prices and a falling dollar. In effect the saw off is a net benefit to Canadian manufacturers, diminishing breed that they may be.

Finally, this Canadian dollar decline may not be so much a reflection of Canada’s economy or fiscal health as it is of the international attachment it has to its U.S. counterpart. The world is awash in paper currency, the real reason for market strength and the best reason for owning precious metals.

Remarkably

The amazing victory of Stephane Dion was happily coupled with the defeat of born again Albertan Conservative Ted Morton. Maybe this leaves room in America for the emergence of a strong Barack Obama candidacy.


Happy Holidays
Geoff Ryan
geoffreyryan@hotmail.com