March 7

Saudis mobilise thousands of troops to quell growing revolt. The Independent.

SocGen's Three Scenarios For Oil See Crude Price Between $110 And $200. zerohedge.




Growth and renewal in the U.S.: retooling America's economic engine. McKinsey.

for an executive summary, see: Why the American economy will stay slow. Big Think.

Royal Bank of Scotland investigation: the full story of how the 'world's biggest bank' went bust. Telegraph.



Is Canadian housing the next domino? Business Spectator.

February 7

QOTD1:
Faced with the choice between changing one’s mind and proving there is no need to do so, almost everyone gets busy on the proof. ~ John Kenneth Galbraith

QOTD2:
People can foresee the future only when it coincides with their own wishes, and the most grossly obvious facts can be ignored when they are unwelcome. ~ George Orwell


Canadian corporate bonds an expensive proposition. FP.
according to PIMCO's Ed Devlin.

“The fundamental problem with the Canadian corporate bond market is that there is are too many investors chasing too few issuers,” Mr. Devlin said in a recent note to clients.

He noted that 59% of Canada’s main corporate bond benchmark is concentrated in just 10 issuers. By comparison the percentage of the index concentrated in 10 issuers is 20% in the U.S., 26% in Great Britain and 35% in the Eurozone.

Housing prices to drop 25%, [Capital Economics] forecaster predicts. The Star.

Negative annualized stock market returns for the next 10 years or longer? It's far more likely than you think. Mish.

Entranced by China's bubbling economy. Edward Chancellor, FT.

Mr Mansharamani starts out with George Soros’s theory of reflexivity.... markets are determined by a “two-way feedback mechanism in which reality helps shape the participants’ thinking process and the participants’ thinking helps shape reality”. Chaos rules as errors of perception feed back into reality.

The financial instability hypothesis of the late Hyman Minsky complements Mr Soros’s reflexivity.... already inflated asset prices can only be sustained by further price appreciation and ever increasing leverage. 

According to Mr Minsky, when Ponzi finance is widespread, the economy is likely to develop into a “deviation-amplifying system”. All great bubbles have easy money and growing leverage. Mr Mansharamani turns to Friedrich Hayek and the Austrian economists to show how inappropriately low interest rates fuel credit growth and over-investment.

Behavioural psychology also helps explain why bubbles develop. Humans have a chronic tendency to overconfidence. We underestimate the probability of events that we haven’t recently experienced... For instance,...  it was generally believed house prices could not fall because they had been on a continuously rising trend in earlier decades.

Mr Mansharamani surveys recent research into swarm behaviour in the insect world. While ants lay and follow trails of pheromone, the speculative crowd follows a trail of recently minted money. Politics provides yet another prism for identifying bubbles. Great speculative booms are often stimulated by governments, sometimes with the intent of lining the pockets of public officials. All bubbles are accompanied by fraud.

China today has the characteristics of a truly great bubble. The value of the housing stock is set to exceed 350 per cent of GDP this year... Construction accounts for around one-quarter of economic activity in China...

A reflexive process appears to be at work as the anticipation of future Chinese economic growth drives new construction, while new construction drives economic growth.

Ponzi finance proliferates in China. Wasteful infrastructure projects are funded with bank loans and land grants from local governments, which themselves depend on land sales for the bulk of their income. Chinese banks bypass credit restrictions by securitising loans to developers, while state-owned enterprises boost profits by dabbling in real estate. China’s financial system has become in Mr Minsky’s phrase a “deviation-amplifying system”.

December 24

QOTD:

"Yesterday is history. Tomorrow is a mystery. And today? Today is a gift. That's why we call it the present." ~ Babatunde Olatunji

Things I believe. John Hussman.


ECRI WLI turned positive - the first time since May. dshort.

An inflation - or lack thereof - chart show. David Altig. FRB Atlanta.

Head fake. Bruce Krasting.                           

Outlook 2011: Crude oil and gasoline, escalator up, elevator down. Dian Chu.

Garth Turner discusses how Canadian bankers are no less greedy and no more conservative than U.S. bankers were re: mortages.

November 11

must read explanation of QE:
Just what is Bernanke up to? L. Randall Wray.

With QE2, the Fed proposes to buy longer-term treasuries. Since these are not toxic, it will not help the banks. It is like transferring funds from CDs they hold at the Fed to their checking accounts, thereby reducing their interest earnings. I suppose the idea is that the Fed is going to reduce bank income, impoverishing banks to the point that they will finally throw caution to the wind and begin to make loans to struggling firms and households. It is simultaneously a strange view of banking and also a scary remedy to a financial crisis that was created by excessive bank lending to those who could not afford the loans. It’s sort of like sending a covey of nymphomaniacs to the hospital bed of a nonagenarian suffering from myocardial infarction initiated by an age-inappropriate tryst.

Fasten your seatbelt. John Taylor.

On the day after the Fed’s move, [Bernanke] wrote in a Washington Post editorial piece that QE2 would push up the equity market, bonds, and other risky securities thereby stimulating consumption and economic activity. Even Greenspan did not publicly proclaim his “put,” but now Bernanke has made it the centerpiece of US strategy. Equities are already overpriced, with profit margins at all-time highs and PE ratios far above average. Speculation is now more American than apple pie – but this is a very risky time to practice it.

It’s Going to Be Another Long, Hard Winter in Housing. Zillow Real Estate Research.

Annual State of the Residential Mortgage Market in Canada. CAAMP.



other fare:
Robert Reich makes some excellent points about why Obama should take a stand, but Reich is naive if he thinks Obama will do so --- he's clearly gonna cave in.

Oh, look at that, it might as well be official --- the Huffington Post says White House gives in on Bush tax cuts.

The Bank of Canada's revised forecasts

The Bank of Canada's Monetary Policy Report (MPR) released last week laid out its latest views on the economy, which substantiated why it left rates unchanged at 1%.

For starters, after trekking along from 2000-2007, the economy suffered a severe drop-off in 2008/09 which hasn't even come close to being re-couped.

Through June 2010, real GDP remains 4.9% below trend growth, which is up from the 6.6% gap as of June 2009.

And though the economy has turned up since troughing in May 2009, the continuation of that rebound isn't turning out to be as robust as the Bank had hoped and thought.

After growing at an annualized rate of 4.9% during the fourth quarter of 2009, the economy expanded 5.8% in the first quarter of this year, which trailed the Bank's forecast of 6.1%; and then growth decelerated in the second quarter to just 2%, lagging the Bank's forecast of 3%.

The Bank has now revised its growth forecasts down for each of the next five quarters, though it increased its forecasts for the five quarters after that. (This, by the way, is par for the course for the Bank ---- every time it revises its forecasts for growth in the near-term, it must, by the necessity of its mandate, revise its forecasts for later-term growth commensurately in the opposite direction. More on this later.)

Just for point of comparison, I think its worth noting how this forecasted growth, if it materializes as now expected, would compare to trend growth.



Though it does show how underwhelming this recovery has been and is projected to be, obviously trend growth from last decade doesn't hold much relevance as far as the Bank is concerned.

What the Bank is concerned with is how actual economic activity compares to what the Bank views as potential output. And growth of potential output these days is much lower than trend growth of the economy was for the last 5-10 years, because of a slowdown in the growth of the economy's rate of labour utilization, and, more particularly, of labour force productivity.




Canada entered the recession with the economy in a situation of excess demand (actual GDP above potential), but is now experiencing excess supply (actual GDP below potential).

As of July, the Bank believed that the output gap would be eliminated (actual GDP would converge on potential) by the end of 2011. Despite lowering its estimates for the growth of potential output (1.6% in 2010, 1.8% in 2011 and 2.0% in 2012), the Bank now forecasts that the output gap won't be eliminated until the end of 2012.

Here's why this is telling.

The Bank's job is to try to get CPI on target by the end of its forecast horizon, which in this case is to the end of 2012. It therefore needs to eliminate the output gap during that time period.

It previously had thought that it would have CPI on target by early 2012, by virtue of having eliminated the output gap by the end of 2011.

As of July, the Bank was forecasting that growth in 2012 would be 2% because (a) it believed that the output gap would be eliminated by then, (b) it wanted to keep CPI on target, and (c) it believes that the growth rate of potential output would be about 2% in 2012.

Therefore, to keep inflation on track, it would need to keep actual economic activity consistent with the economy's potential growth. Presumably, in order to do that, it would have needed to return to neutral monetary policy in 2011.

But by downgrading its views on economic growth for the last two quarters plus the next four quarters, the Bank is faced with the situation of having to engineer more growth nearer to the end of its forecast horizon in order to meet its objective.

In other words, because monetary policy works with a lag of at least 12 months, its economic growth forecasts for the next four quarters must be based in part on where it has its overnight rate set right now. So, despite remaining extraordinarily accomodative, the Bank doesn't think economic growth will be either (a) as strong as it had previously thought, or (b) strong enough to close the output gap.

Though year-over-year growth of 3.8% in 2010 followed by 2.7% in 2011, which were its forecasts as of the July MPR, would have done the job, growth of 3.0% this year (compared to 1.6% potential growth) followed by 2.4% next year (compared to 1.8% potential growth), which are its current forecasts, won't.

Therefore, the Bank will be required to enhance growth opportunities in 2012 in order to achieve the growth rate of 2.8% (compared to 2.0% potential growth) required to close the output gap.




Given that the Bank forecasts the output gap will not be closed until a year later than earlier projected, it seems safe to assume that the Bank will not return to neutral monetary policy until a year later than it earlier would have assumed.

As such, if its base case scenario had been that once it started hiking its overnight interest rate in July it would do so in sequential meetings until rates had been normalized, it seems that, based on currently available information, a resumption of that projected path of interest rates will likely wait a year.

Personally, given my expectations for deterioration in the U.S. economy (due to continued household deleveraging, continued reluctance on the part of banks to increase lending, fiscal spending headwinds rather than tailwinds, the end of the inventory bounce, spending cutbacks at the state and local levels, reluctance on the part of the business sector to make capital expenditure investments given its overcapacity, and no imminent rebound in the housing market or in the labour market), plus concerns about the unsustainability of household spending in Canada, as well as the prospect of global forces of competitive currency devaluation impairing Canadian trade balances, I am reluctant to believe that the Bank will be successful at closing the output gap over its forecast horizon.

In any case, on a breakeven basis, the current 2-year yield of 1.43% would be consistent with a time-path of overnight rates that involved the Bank staying on hold at 1% until October 2011, at which time rates would be hiked in four consecutive meetings to get to 2%.

June or July?

Will the BoC hike on June 1, as had been widely expected as of a few weeks ago?

Or will they wait for the July meeting, given they had previously "committed", and reiterated that commitment numerous times, contingent on their inflation projections, to be on hold until the end of the second quarter... and given that economic and market uncertainty --- b/c of the situation in Europe, as well as FinReg in the U.S. --- prevails?

I tend to think that if the Bank was meeting today, given what the ECB is doing, and given what currencies are doing, and given that concerns about the possibility of a global economic double-dip may have mounted in the last couple of weeks, that it would be relatively costless for the BoC to take a wait-and-see approach for another month, whereas it would potentially look odd to hike in two weeks and then perhaps regret it.

That is, of course, if the decision were made today, in the midst of this recent turmoil. But the decision is not today. So that raises the question of what is the likelihood that some meaningful resolution of the European debt crisis is made in the next couple of weeks? In my estimation, this is a problem that is not going away; there is no short-term fix.

That said, there may be band-aids that could be applied that satisfy the market for a while, leading to a bounce-back from the currently oversold condition in stock markets and overbought condition in bond markets. In which case, that raises the question of what is the likelihood that the ECB and European politicians --- who have gotten the market so rattled in recent days and weeks --- actually come to an adequate resolution to satisfy the markets for awhile. Once again, in my estimation, the odds aren't that good; why would they change their stripes over the next week or two?

But let's leave the Euro situation off the table for now. What are the reasons the BoC might hike despite the Euro, and what are the reasons the BoC might hold off?

Hike now:
- by hiking, the Bank would not be tightening so much as starting the process of normalizing rates, and, even with a few hikes, could remain relatively accomodative for some time
- Taylor Rule estimates, based on current levels of CPI and employment, finally suggest that a rate north of 50bp is appropriate
- Q1 GDP is projected to come in up nearly 6% on an annualized basis, following Q4's rise of 1.2% (or 5% annualized)
- Canadian leading economic indicators are up 3% in the 3mths through April and 11% over the last year
- according to the Labour Force Survey, employment has climbed a whopping 148k over the last 3 mths (through April), and even the less volatile Survey of Employment Payrolls and Hours suggests employment has climbed 44k in the 3mths through Februay (pretty consistent with what the LFS said through Feb.)
- retail sales are up 9% YoY through Q1, including up 5.5% ex-autos & gas; retail sales are not just climbing strongly off trough levels, but have surged past the pre-recession peaks
- housing starts and building permits are up significantly off their 2009 lows, and basically back to 2007-type levels
- the Senior Loan Officer Survey says that banks have been easing lending conditions over the last couple of quarters (after a couple years of tightening)
- the Business Outlook Survey suggest future expectations are as positive as they've been over the last decade

Wait and see:
- as of the end of Q4, real and nominal GDP remain 2.5% and 4.4%, respectively, below the peak levels attained in 2008, so even with recent strong growth, the output gap remains substantial
- recent strong growth may be illusory and unsustainable, given that personal consumption accounts for 58% of GDP while personal income accounts for 53% of GDP, so consumption continues to be driven by debt growth;
- similarly, residential investment accounted for 6.9% of GDP at the end of Q4, presumably higher in Q1, and historically has always peaked right around that 7% level, which may portend a housing market due for some cooling
- C$, trading at 94 cents now, is below the BoC's forecasted level of 96-98 cents --- admittedly, it has only been below the Bank's forecast level for a few days, and, admittedly, a lower C$ should actually be stimulative for the economy, giving more reason for the Bank to remove accomodation, but the fact remains that a sharp fall in currency levels could be a telling indicator for the Bank
- further to last, for instance, oil prices have retreated to $70, the lowest level since last July --- which is good for the domestic demand side of the economy, but is a net negative for a net- exporter of oil, and is reflective of commodity prices more generally
- though merchandise trade exports are, through Q1, up 19% from the 2009 trough, they remain 24% below the 2008 peak --- and are sensitive to commodity prices, which have recently been heading down, as noted, and global economic activity, which is at risk
- similarly, wholesale trade is up 9% from the trough, but still down 5% from the previous peak
- though there has been recent job growth, and the number of unempoyed people, at 1.5 million, is down 6% from the worst point in 2009, there are still 42% more unemployed than at the start of the recession; and the unemployment rate, though down to 8.1% from the peak of 8.7%, remains well above the 5.8% pre-recession rate
- both core and headline CPI in Canada are below the Bank's target of 2%, and with the prevailing output gap and the other trends already mentioned, and with U.S. CPI below 1%, there's no clear reason to believe CPI would be escalating rather than be tame or even falling
- that is especially so given that though monetary reserves are up 30% YoY, M1 is up less than half that, at 13.5% YoY, M2 is up about half that, at 6.7% YoY, and M3 is up less than half that, at 2.9% YoY --- so the money multiplier and monetary velocity continue to decline
- indications of a consumer debt bubble in Canada include the facts that mortgage debt as a % of personal income has surged through the 100% level to 116% (vs. a 1990s peak of 84%) and household debt to 170% of GDP, up from 115% in 2000 (apparently Canadians learned nothing from the U.S.)
- the Fed has reiterated that it "continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period", and it is an open question as to how much the BoC can hike without the Fed hiking without currency movements adversely affecting the domestic economy (more than the Bank would be comfortable with)


Really, what it comes down to is how sure is the Bank that recent strong economic trends off recession lows are likely to be sustained?

Personally, I don't buy into the back-to-normal theory, continue to believe that:
- further leveraging (debt growth) in the Canadian economy will make the fall all the worse when it comes
- the U.S. economy has been living off of federal government stimulus for the last year and will soon fall back when (a) that stimulus wanes, and (b) the next round of credit strains (Alt-A and Prime mortgage delinquencies, defaults and related foreclosures) ramps up, and (c) the crisis at the state and municipal levels becomes impossible to ignore
- China is a bubble waiting to burst (details in earlier posts) --- and the recent stock market moves in China may be suggesting that process is underway
- even if Canada, the U.S. and China didn't have their own inherent risks, the linkages in the global economy are too significant for European retrenching not to become problematic for the global economy at large, and European retrenchment will be not just necessary in the PIIGS, but, because of the prevailing bailout mentality, will bring down the European core countries as well (though German exporters will certainly benefit from a weaker Euro, that won't help Canadian or Chinese exporters, so there will be feedback loop impacts)

So, at the end of the day, what do I forecast?

- the Bank does nothing June 1 other than change its commentary to indicate its intention to hike
- the Bank hikes 50bp in July
- the Bank hikes by 25bp once more in early September
- by autumn, things will be visibly messy again
- there will be a European recession, and a double-dip U.S. recession, a significant China slowdown, and, consequently, another Canadian recession
- though domestic demand in Canada will not lead, it will follow; Canadian domestic demand will be the tail, not the dog --- the Canadian recession will not be driven solely by external demand, but the housing and debt bubble in Canada will be pricked by the next global recession
- further BoC hikes will be off the table for a long while, not until the Fed hikes
- the Fed won't hike until perhaps 2014 (yes, Dorothy is not in Kansas anymore; like The Vapors, she, and the FOMC, are Turning Japanese)


p.s. see Canadian Economic Review

Some thoughts on the MPR

The market reaction to the release of the MPR was all about the unconventional, but I'll start with the conventional.

The Bank reduced its forecasts for growth prospects, as expected, relative to the January MPR Update, to -3.0% expected this year, +2.5% next year, and +4.7% in 2011. It attributes the downgrades primarily to the significant unforeseen foreign weakness propagating through trade, financial and confidence channels (adverse feedback loop), and to delays in implementation of policies to stabilize the financial system (particularly in the U.S.).

But the Bank remains relatively more upbeat than some other forecasters (see previous post), and continues to project a more robust recovery in Canada than in other countries. So, though the recovery will be delayed and more gradual than previously anticipated due to the unanticipated intensification and synchronicity of the global recession (particularly acute in Europe and Japan, with knock-on effects on global trade), the Bank continues to expect above-potential growth in Canada in 2010 (albeit with a lower estimate of potential output growth).

The Bank has a long list of factors that it views as supportive of this prediction, including the scale of its own monetary policy response, the relatively well-functioning Canadian financial system, the past C$ depreciation, fiscal stimulus, a gradual rebound in external demand, the strength of balance sheets in Canada (household, business and bank), and the end of residential housing stock adjustments both in the U.S. and here. More generally, it believes that bold policy actions globally, an end this year to the U.S. housing drag, and a relatively robust China will all be positive factors for the global economy.

However, there are obviously numerous challenges also. Though Canadian households have entered this downturn with balance sheets that are not as stretched as elsewhere, they have reacted with a similar increase in their desired savings rates. And, though Canadian households have generally had lower rates passed on to them, businesses are facing difficult financing conditions. Further, U.S. weakness has mostly been in sectors that have a large impact on Canadian exports (housing and autos). Also, there has been significant unwanted inventory accumulation. And, due to the steep drop in the terms of trade, there has been a similar sharp drop in real gross domestic income (which is forecast to decline 6.4% this year). Investment in housing is expected to fall all this year and business fixed investment is expected to drop sharply. And the output gap, which is estimated to be about 3% currently, is expected to widen to 4.5%.

Perhaps the most notable change in the Bank's report is that it has dropped its estimate of the economy's potential output (i.e. the pace of output growth that would be non-inflationary). Previously, it had viewed potential as 2.4% (for this year, and 2.5% going forward). Because of the structural change going on in the economy (especially in autos and forest products), it now views potential output as just 1.2% for this year, 1.5% next year, and 1.9% in 2010. Clearly, lower potential output estimates, if accurate, will make it easier to close the output gap and thus start get inflation back towards the 2% target (not anticipated for 10 quarters, in Q3/'11).

The Bank notes that if the economy deteriorates any further than currently expected, because its overnight rate is currently at its effective lower bound for conventional monetary policy, it would need to react with unconventional policy. And, given the degree of uncertainty related to such new policies, it would therefore need to use prudence with these initiatives (i.e. it will be cautious about how much it uses these programs, if at all). Therefore, it says that implies that inflation risks remain tilted, though slightly, to the downside.

All this will likely be very sensitive to its assumptions on the stabilization of the global financial system, given that it continues to maintain that such stabilization is a precondition for recovery. And the Bank seems to be unimpressed so far with the pace of progress in this regard. The Bank did not really outline its expectations for further credit losses in the global financial system, nor for the pace of resolution of impaired legacy assets, so its hard to evaluate this element. Another risk is the ever-present one of the potential destabilizing resolution of global imbalances. (The Bank did not comment on the fact that it seems that most government stimulus that has been enacted so far seems to aggravate existing imbalances, i.e. that American stimulus is somewhat focused on reviving U.S. consumption, while Chinese stimulus is somewhat focused on the investment and export sectors.) The Bank's forecasts would also be sensitive to its assumptions on the currency (C$ = US$0.80), oil (from $50 now to $60 at year-end, to $70 in 2011, based on futures) and non-energy commodity prices (increasing progressively with global economy).


Now, turning to the unconventional. The Bank views its commitment to keep its overnight rate at its current low level for over a year (and future conditional statements about the future path of policy rates) as its first main instrument of unconventional policy. It hopes that because long-term rates represent averages of current and expected future short-term rates (plus term premiums), that it can influence the government yield curve lower, and in turn support prices of other financial assets, and, in turn, aggregate demand.

That we already knew on Tuesday. And, unfortunately, there's really nothing in the MPR about quantitative easing (QE) (which would involve purchasing government or private assets, paid for by expanding the money supply), or credit easing (CE) (purchases of private sector assets, but sterilized, so the monetary base doesn't change) that's new or noteworthy either. The only new info is (1) that if it does purchase private assets, it will be restricted to those exhibiting a clear market failure, and (2) is the publication of the principles it will use to guide its actions. Newsflash #1, its focus is on its inflation target. 2) anything it does should be concentrated where it will have impact (perhaps purchasing 5yr GoCs would have more impact than buying 2s, particularly given that the impact the Bank is ultimately worried about is on private sector interest rates). Its principles of (3) neutrality (limit potential distortions) and of (4) prudence (don't unduly risk the Bank's balance sheet), seem to indicate a preference for QE over CE.

Other asset implications? Given how little detail is provided on this new monetary policy framework, its really hard to know. Probably there will be just as many guesses out there in the market today as to what they might do as there were yesterday (GoCs? provies? CMBs? corporate bonds? CP? ABCP? ABS?).

Ultimately, it appears that the Bank's outlook on the economy and inflation, and its conditional commitment to low rates, should be favourable for lower rates along the government curve. And, if anything, it appears that the Bank remains relatively optimistic that global financial instabilities will be resolved soon enough to foster the growth its looking for. Not that it can do anything about it, but that leaves the Bank relying on Timothy Geithner too much for my liking.

Really, what it comes down to is, will the Bank's forecasts be more accurate than those of the IMF and OECD, or not. If so, then no QE or CE. But, if not, it will take longer to get inflation back on target, with potentially a larger miss in the meantime, implying an announement in June (or more likely at another future fixed action date) about what particular QE or CE measure it decides it needs to employ.

But, in any case, it seems clear that the Bank feels there's a greater burden of proof that there's a need in order for it to go down that road. It too may be looking at 2nd derivatives and green shoots and hoping to not need to invoke too many extraordinary measures.

Back to the '50s for the Bank of Canada

The Bank of Canada announced this morning a 75bp cut to its overnight target rate, dropping the level to 1.50%, the lowest since 1958.

The extent to which many central banks keep cutting their policy interest rates has to date overwhelmed what even the most bearish economic observers anticipated even just 3 months ago, never mind a year ago.

I've done pretty well this year managing my money market portfolios by staying consistently long (max long, as far as my mandates would allow, for the vast majority of the time), but I've got to admit, I didn't see this coming.

If one held the view that this economic environment would deteriorate to worse levels than recent previous recessionary periods (early '80s, '90s and '00s), it was not hard to envision that monetary policy would need to be at least as stimulative now as in those cycles. So its not terribly surprising that the Bank dropped its rate to below the past cycles' lows of 2.00%. The surprising thing is that the job is likely not yet done.

After today's statement from the Bank, it would no longer be surprising if the Bank took out the historical low of 1.12% set in the '50s by cutting at its next scheduled meeting on January 20th by another 50bps to 1.00%. The statement, which uses language like "deteriorated significantly" (i.e. the world economy), "broader and deeper" (i.e. the coming global recession) and "severely strained" (i.e. the global financial markets), and the absence of any mention of two-sided inflation risks (although there is some acknowledgement of countervailing factors, including the amount of monetary medicine injected into the patient to date, as well as the depreciation of the C$, which will help offset some of the effects of plunging commodity prices and falling global demand for our exports), is quite dovish. And the forward-looking policy bias remains toward further easing, with the extent of such extra stimulus being data-dependent.

In other words, as much as the Bank would surely like for its job to be done, it seems that its actions will be determined by the evolution of the economic outlook, and on that front, there seems little reason for optimism just yet. Will the Bank at some point go on hold to see how well its actions to date are acting? Surely, yes. But it seems clear now that if 2% and 1.5% weren't going to be viewed by the Bank as lower bounds, then there's little reason to expect 1% to either.

Look out below, as the only lower bound that will truly stand in the Bank's way is 0!