Alex Carrick: A Critical Economic Skill Not Taught at University

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All sorts of useful and interesting things are taught at university. What one doesn’t know, however, until one has left academia and spent some time in the “real” world is that there’s one course not offered and it’s perhaps most critical of all – timing.

From a practical point of view, timing is nearly everything.

This truth is revealed everywhere. What if Paul McCartney hadn’t met John Lennon until 10 years later? Maybe we’d still have “A Day in the Life”, but it’s not likely we’d have ever enjoyed the full-throated wail of “She Loves You (Yeah! Yeah! Yeah!”). Or “I Want to Hold Your Hand” – except maybe in the context of requesting help to cross the street.

In a strange twist of timing, “When I’m 64” may or may not have made it onto the music scene, since Mr. McCartney was only aged 16 when he wrote the tune. He polished up the lyrics later. 

Turn to television. If Jerry, Elaine, George and Kramer hadn’t all come together when they did, their lives wouldn’t have been nearly as meaningful. Okay, maybe that’s not such a stellar example, since we know the show Seinfeld was famous for being about nothing. The purpose of the main characters’ lives was to drift sideways.

I never would have met my wife save for a fortuitous coming-together of events. We had a small window of opportunity to get to know each other at our joint workplace before I moved to another location, while Donna stayed on.

Timing is (nearly) everything is a phrase that certainly applies in business and politics – and also, to just as great an extent, in economics.

The U.S. is finally standing on healthier legs. Home starts are recovering nicely, there is an energy boom underway and consumers are continuing to spend.

But the politicians in Washington are playing with fire. They’re allowing sequestration to cut spending in many public sector areas. This will take money out of the economy when it might still be characterized as fragile.

The people’s representatives are taking a chance they have the timing right. They fervently hope the private sector will fill in the gap caused by the withdrawal of some public funding. Gambling is all about timing. The linkage between the two deserves a semester of study all on its own.

The Federal Reserve has to worry about the timing of its next interest rate move. The federal funds rate will be lifted at some future date, but when? Too soon and a hike might stunt the economy’s forward progress. Too late – which, some analysts think may already be the case – and there is the danger of unleashing inflation with a several-years time delay.

Given the degree to which the public printing presses have been cranked up – through several QE (i.e., quantitative easing) programs, Operation Twist and aggressive purchases of mortgage-backed bonds – too much money chasing too few goods will become a talking point.

Mark Carney at the Bank of Canada knows a thing or two about timing. The Canadian economy survived the recession better than any other major industrialized nation.

Unfortunately, the set of circumstances that helped Canada in 2008-2009 and led to a strong recovery are now largely abandoning us. Housing starts are expected to fall this year, after performing admirably in 2012.

Many world commodity prices are continuing to languish. Earlier, we benefitted from an unprecedented string of all-time peaks.

And our governments at all three levels – federal, provincial and municipal – are embracing austerity, where not so long ago they adopted a joint infrastructure stimulus plan.

One exception with respect to commodity prices is lumber. In Ontario, the latest Statistics Canada price index for softwood lumber is up nearly one-third year over year. In the rest of the country, the increase is in a range of +15 +19 per cent. Much-improved U.S. housing starts are the cause.

What does this mean for Mr. Carney? Probably not much, except he may suffer a blow or two to his reputation. But his career – at least for the foreseeable future – is assured. It’s due to the timing. In June, he’s set to become the new Governor of the Bank of England (BOE). Mr. Carney may prove smart and agile enough to lead the BOE with distinction. But he was courted and wooed based on his performance in a set of circumstances that has changed significantly.    

The Alberta Oil Sands are another case in point. There was a time when ongoing mega project development looked like a sure thing. A rosy prospect extended into a far-off future. Such enthusiasm may no longer be warranted.

The precarious nature of the American market has been revealed by Washington’s ambivalence towards the Keystone XL natural gas pipeline. And looking elsewhere, our access to clients in Asia is being restricted by opposition to new supply routes from environmentalists, many aboriginal leaders and B.C. politicians.

In the meantime, what’s happening in America? Our friends to the south have spotted the amazing opportunities embodied in new hydraulic fracturing technology which opens the door to horizontal drilling for “shale” gas and what’s called “tight” oil. New sites are being opened with wild abandon. An energy boom is underway in North Dakota, Texas, Pennsylvania and several other states.

If the current rate of shale-rock development proceeds unabated, the U.S. will be self-sufficient in natural gas in only a few years. A net balance in overall fossil fuel exports versus imports will take a little longer, out to 2020.

Not only does this take away from Canada’s potential exports to the U.S. market, it also opens the door to a new competitor in the international marketplace.

There are some 20-plus refineries on the U.S. Gulf Coast that were originally built to receive liquefied natural gas (LNG) from off-shore sources. The LNG was originally re-gasified and shipped to U.S. customers. 

With the current surge in the domestic supply of gas, however, the direction of sales can be reversed. The developing world is eager for new LNG sources. Furthermore, U.S. Gulf Coast access to markets in the Far East will receive a big boost when the improvements to the Panama Canal are complete in 2015.

Nor is the energy supply within Asia a constant. China has been estimated to hold shale gas reserves that are even greater than in the U.S. The scientific community is saying the geology is more difficult, but Chinese energy companies are signing up foreign partners to gain their technological expertise.

Here’s a final example of how timing can be so important. In many public opinion polls, Mitt Romney was running even with Barack Obama within a week of the recent Presidential election.

Then Hurricane Sandy struck the Eastern Seaboard. It dominated the news for days. Mr. Obama responded well to the crisis. He became the patriarch-in-chief seeing to the needs of his people.

Chris Christie, the Republican Governor of New Jersey, passed on kudos to the president for taking quick and decisive action. The two men were photographed together during fact-finding missions.

The rest is history. Mr. Obama beat Mr. Romney decisively in the early-November vote.

This illustrates another element that comes into play on many occasions – luck. Hurricane Sandy wasn’t so lucky for its victims. But its timing was demonstrably fortuitous for Mr. Obama.

Let’s take this “real world” case study a step further. “Acquiring and nurturing luck” should be a university course all on its own. After all, timing isn’t quite everything.

Alex Carrick is Chief Economist with CanaData, a division of Reed Construction Data (RCD). CanaData is the leading supplier of statistics and forecasting information for the Canadian construction industry. RCD is a division of the global publishing firm, Reed Elsevier. For more economic insight from RCD, please visit www.dailycommercialnews.com/features/economy. Mr. Carrick’s lifestyle blog is at www.alexcarrick.com and he would welcome a follow on Twitter (Alex_Carrick) or Facebook. www.alexcarrick.com

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