We have noted that the next recession likely would be triggered by the snapping of some of the global “weak links”. The U.K. was near the top of weak link list, and its currency and asset markets took a “pounding” last week. The U.K.’s conflicting fiscal and monetary policies collided at a time when inflation is a major problem and investor sentiment was already extremely sour.
A just-published report covered a range of topical investment issues, particularly the race between higher inflation and the next recession. It also updated our view on another worrisome global weak link, namely Canada.
Having failed to reduce its debt mountain last decade when the U.S. aggressively deleveraged, Canada then massively added to its household debt burden and further inflated its housing bubble in recent years. Canada followed an inappropriate interest rate policy for far too long and now the outbreak of inflation has triggered a belated increase in borrowing rates. The day of reckoning is at hand.