Saturday, March 17, 2007

A few macro trends worth keeping in mind

There is now a growing concern that environmental policy is likely to play some role in inter-provincial politics that directly impacts Alberta. And it is most certainly going to impact Oil Sands investments. Whether it is going to be just a temporary hold off, a minor economic impact in the form of reduced profitability or a full blown investment withdrawal remains to be seen.

Secondly, if the forecasted US recession does occur and there is a consequent slow down in Asia, $40 oil could become a distinct possibility. When that happens, the economic incentive to continue to invest in oil sands will reduce further.

Thirdly, we still have the US sub-prime meltdown going unabated and it likely to have some impact on us. Even though cheerleaders would let us believe otherwise. My question to them is simple: Did anyone in the US believe, even as late as just 2 months ago, that their sub-prime sector was in trouble? So it ain't going to concern anyone here till it hits here. Even if we agree that lending standards have been tighter than in the US, the same speculative elements are commonly seen here as well- leveraging against current equity to buy more real estate, novices holding multiple properties, bidding wars for run down properties -not to mention the rampant consumerism flamed by HELOCs.

The above items would concern any long term investor. But for a foolhardy flipper and newly minted landlord, this is noise that will go away soon. We will see how some of the real estate investors will emerge once everything settles down in a few years-a lot richer with increased confidence or a lot poorer with humility and experience.
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