Bank of Canada governor, Mark Carney, sent me a Christmas present this week (I was about to switch a large portion of my investments back into equities), but threw cold water (here and here) on the Canadian economy.
There were three facets to Carney's remarks. First, he worried that equities, which have experienced a remarkable comeback over the last several months, are due for a correction as earnings reports begin to show that recent performance, while improved, still has a long way to go. Second, and perhaps more important, he threw a large bucket of cold water on the housing market, reminding both borrowers and lenders that historically low interest rates cannot continue indefinitely and more important that one result of those rates is a substantial overvaluation of housing that is likely to correct sooner rather than later. And finally, he began to hint of monetary and fiscal tightening to come.
Perhaps more troubling, Carney had faint praise for the recovery thus far. The unmistakable message from this is that we are far from out of the woods yet.
So I think that I will hold off on equities for now.
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