Vol. 80 - THE BLACK CLOUD

Dear member,

The black cloud which has been squarely positioned over the United States is finally blowing north to Canada and east over the Atlantic Ocean to Europe. Our global financial community is entering a new phase of the credit crisis and the United States is no longer the center of misfortune. The United States has been suffering through one of their worst financial debacles in history and is in the midst of a full blown recession. Canada and Europe were dealt blows last week as both their currencies and markets took major hits.

The Canadian dollar endured its largest weekly drop in 37 years, closing at $93.69 US on Friday. On top of that, a decline of 55,200 jobs was reported for the month of July alone; the largest monthly decline since the 1991 recession. This news sent shockwaves through many financial circles and the markets. There is a clearly defined shift emerging as Canada is now following its big brother the United States down an unpredictable and dangerous road. On top of these numbers, commodities have been plummeting, sending many Canadian stocks lower. Oil prices have been deflated recently and closed at $115.20 US a barrel on Friday; a three month low.

BMO Nesbitt Burns Inc. head of foreign exchange trading, Mr. Firas Askari commented on Canada's markets. "We're entering into our downturn as well as Europe, while the U.S. might be stabilizing. They're ahead of the curve. My sense is that the U.S. went through an awful few months, and we're just entering those few months now." What supports these thoughts is that the US dollar has been on fire and hit a six month high against the euro Friday.

We hate to dwell on negatives but some information can't be overlooked, especially in times like these. The word stagflation is being talked about more and more in various economic circles across the country.

Stagflation is defined as: A condition of slow economic growth and relatively high unemployment - a time of stagnation - accompanied by a rise in prices, or inflation.

When products rise substantially in short periods of time, inflation is occurring. When inflation is combined with a slowing economy and a rising unemployment rate, stagflation is occurring. What is being done to combat this? And how might stagflation affect the markets and our lives?

Every country in the world outside of Europe has its own central bank. There are two banks that move the world: The European Central Bank (ECB) and the Federal Reserve Bank. The ECB has a mandate to: maintain price stability. The Fed's mandate is: the pursuit of price stability and full employment. Both mandates revolve around curbing inflation, whereas the US also aims to have limited unemployment rates. Both banks are failing miserably. Inflation in Europe has ballooned recently to over 4% (their goal is just below 2%). Inflation in the US has soared to 4.2% while the unemployment rate is at 5.5%. Europe has raised interest rates to combat inflation, whereas the United States has lowered interest rates to ward off a full-blown recession.

Energy and food prices have exploded this year, creating a very