Will we boom, or will we bust?

"This [boom] is going to continue for a number of years."

"There are storm clouds forming on the eastern horizon."

These two quotes are taken from articles written by financial analysts from the Globe and Mail, and the Edmonton Sun published yesterday. Can you guess which one is which?

One analyst suggests that investing in Alberta real estate income trusts is a great place to put your money, the other analyst suggests it’s time to diversify – start getting your money out of anything related to oil and gas.

Are Albertans naturally pessimistic about Alberta’s economy? As I read these articles I found both columnists’ arguments compelling.

On the positive, Rob Carrick from Globe and Mail’s Report on Business:

• the value of Alberta real estate reflects the province’s economy, whichhas been the strongest in the country by far of late and shouldcontinue to do well…Alberta won’t necessarily be the provincialleader in economic growth every year, but over the next five years itshould do pretty damn well…

The negative, from Alan Caplan of the Edmonton Sun"

• Relating to a carbon tax…"when oil prices fall (as they inevitably will if demand subsides), so will oilfield employment. As employment numbers fall, so will demand and prices of real estate. Lower royalties for the provincial government as companies slow their production goals, means less infrastructure spending."
• He further compares the carbon tax to the "dreaded NEP that virtually devastated Alberta’s economy."

What is particularly interesting is that both analysts talk about the last boom we saw in Alberta, and the big bust that followed. Mr. Carrick gives reasons why the bust won’t come this time around:

• Low taxes in the province should help sustain economic growth.
• Oil is another factor. Whereas the economics of oil collapsed in the early ’80s, today demand is too strong and supplies too tight for that to happen.
• The economic activity created by Alberta’s oil sands, which have become much more significant than they were decades ago.
• Alberta’s economic growth rate of 6.8% last year was three times the national average. A provincial economic forecast produced earlier this year by Toronto-Dominion Bank said Alberta will lead this country again this year, though by less of a margin, and then fall behind a few other provinces in 2008. Still, TD sees Alberta leading the country in such key areas as job growth and retail spending.
• CMHC says Alberta’s residential real estate market will be strong but not as hot as 2006. "We expect both [housing] starts and existing-home sales to decline from the record levels experienced in 2006, yet remain among the highest in history."

Mr. Caplan’s argument basically plays on  our insecurities about the past and suggests that central Canada is going to get it’s hands on Alberta’s oil money one way or another, and put the province’s economy on a downward spiral.

I don’t know, maybe I’m a hopeless optimist (that’s what Sheldon would say) but I prefer to agree with Mr. Carrick who writes "This [boom] is going to continue for a number of years."

The complete articles can be found here:

Alberta Real Estate, This Boom May Never Go Bust
A Great Time to Diversify