It was not long ago that some experts were predicting a $200 price for oil but with it down far below predictions, Dr. Warren Jestin of ScotiaCapital warned, speaking at a conference on fuel price held by DTA, “Don’t get fooled by the drop in fuel prices. It will go back up.” Have we dodged the bullet here in Canada? Although Canada is night and day to the USA with our banking system, we are still impacted. USA’s “borrow to buy” model is not in Canada and that sub prime idea proves that not all innovation is good.
“Step back and understand the fundamentals,” advised Dr. Warren Jestin, ScotiaCapital.
Warren Justin, Chief Economist of ScotiaCapital. Warren joined Scotiabank some 25 years ago and is a popular public speaker and media commentator on economic issues in Canada and abroad. His expertise both about Canadian and global economic issues is extensive and his team's research work is leading edge.
Dr Jestin believes Canadian Banks are in good shape
For the last fifteen years the USA has used the “borrow to buy” model which was most prevalent in housing. There was a record number of Americans owning their own home but the model could not be sustained. Consequently, the USA is deleveraging and with eighteen months of housing inventory to clear, this will take years.
The core message is that the growth rate of China is above 10% and even if it slows with the global problems, it will drop to 8% which is still a very attractive opportunity for investment money, compared to the USA growth rate of 1% to 3%. Inevitably, there will be a shift in where foreign investment flows and this will affect our economy.
Fuel Prices Will Return to Highs
As for fuel prices, Dr. Warren Jestin advises to treating the Canadian dollar as if it were on par with the US dollar even if it drops below, since commodity prices will rise up again. By the end of next year, expect fuel prices to also move back up as commodity prices increase again. Supply conditions for oil could be affected by OPEC and whether it decides to cut back production. Oil is being used less as companies become more productive. "Ultimately," John Loewen , CEO of Loewen & Partners, says, "China will determine the price of oil and it is on a growth trajectory."