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Gluskin Sheff’s Rosenberg: Canadian Economy Sings While US’ Fiddles

By John Morgan   |   Wednesday, 05 Dec 2012 07:59 AM

The Canadian stock market has beaten the U.S. stock market by an estimated 100 percent over the past decade, and that outperformance is likely to continue, David Rosenberg, chief economist at Gluskin Sheff + Associates, predicts.

In a column written for the Financial Post, Rosenberg attributed the superior performance to a range of factors, including strong banks and raw materials, but also to some less tangible reasons, including the Canadian dollar.

The Canadian dollar continues to benefit from “the spread,” he wrote.

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“Which spread?” Rosenberg asked. “The productivity spread. The inflation spread. The monetary policy spread. The political spread. The fiscal spread. The unemployment rate spread.”

Rosenberg said the unemployment rate is 2 percent lower in Canada than it is in the United States, while industrial operating rates are 2 percent higher. Meanwhile, inflation is also lower. He predicted Canada’s potential gross domestic product (GDP) growth is poised to overtake the United States’ GDP growth.

While the engine of the U.S. economy is housing, Rosenberg stated, Canada’s expansion hinges on more productive business capital spending.

“So yes, it’s nice to have mass consumerism and a housing recovery, but it is business spending that builds the private-sector capital stock, that in turn generates the two things an economy needs for sustainable growth without the heavy hand of government assistance: job creation and productivity.”

The Gluskin Sheff strategist said Canadian dollar strength is actually forcing cost discipline on businesses there, while helping Canadians acquire U.S. technology at ever-lower prices.

Rosenberg was less than bullish about the outcome of the November U.S. elections.

“In the U.S., we have the same political configuration that has brought us the weakest recovery on record, endless rancor and divisiveness, and the same central bank that has constantly pursued a policy of financial repression for its citizenry,” he wrote.

Meanwhile, the Bank of Canada held key overnight rates steady at 1 percent for the 18th consecutive announcement Tuesday. The BOC said that while “underlying momentum appears slightly softer than previously anticipated, the pace of economic growth is expected to pick up through 2013.”

Editor's Note: How to Pay Zero Taxes . . . Legally

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