According to the U.S. National Bureau of Economic Research, U.S. and Canadian job markets have struck a divergent path since December of 2007 when the recession in the USA began. This chart explains how divergent those paths have been in graphic terms.
At this writing, Canada has reproduced all of it's recession job losses and, in fact, has increased that number by 2%.
When the Canadian dollar was trading at .77 cents I wrote an article that basically told you to "hold on to your loonies". I reiteratted that sentiment over a year later when the loonie was trading at .97 cents to the usd again telling you to hold on to your loonies. Now, even with the Cannuck buck trading at over $1.04 usd I am reiterrating that same sentiment. Hold on to your loonies!
In the 1950's the Cannuck buck traded around $1.08 to $1.10 to the usd. I believe those levels will be reached again and will hold true for the forseeable future. There are many reasons for this opinion, not the least of which is the massive debt load of the U.S. and a number of it's states. The U.S. bond market is in for a financial tsunami at some point beyond when quantitative easing ends, and maybe before that time.
The U.S. has been, for the past year, buying up to two thirds (2/3) of all of it's own debt on the bond market. As that giant Kenseyian experiment ends, listen carefully for the underwater earthquake that could eventually spawn a Tsunami called hyper inflation.
Markets usually like inflation. Commodities like inflation. Even housing likes inflation and remember, the U.S. Federal Reserve always errs on the side of inflation. The problem is, once this Genie is out of the bottle, no one really knows where it will go, but it does not bode well for the usd.
Since commodities love inflation, and Canada is a country rich in almost every single commoditiy from water, to wheat, grains, cattle, oil, gas, gold, silver, lithium, diamonds, gypsum, lumber, seafood, coal, etc. etc look for the cad to strengthen, even from these levels. As two billion more people from China to India, Brazil, Russia and Indonesia join the middle class, the demand for all commodities will climb, and climb and climb.
Anyone who thinks the commodities bull market is over will miss out on huge upside. This lull is a buying opportunity and when everyone gets extremely negative over the next month or so, it will be even a better buying opportunity.
Look for Canadian interest rates to remain above U.S. rates, to rise slowly and strengthen the Cannuck buck.
The Canadian dollar went to parity last week for a short time before dropping back to the .99 cent U.S. range. It dropped another half cent later in the week to around .985 US.
This surge and short pull back can be easily explained in the context of the U.S. dollar. Essentially, it is dropping, like a stone, in the face of more quantitative easing (QE2) on the agenda of FED chairman Ben Bernake.
The American dollar has taken a hit against every major currency this year, and there may be more pain (or gain depending on your view) to come. From the Euro to the Yen, the greenback has taken a beating. Even the Canadian dollar and the Australian dollar have gained 25% or more on the greenback this year. $500 bucks ain't what it used to be.
Back in January, $500 usd would buy approx $625 Canadian or $375 Euros. Today that same $500 buys only $535 Canadian or $333 Euro. As Americans continue to travel abroad, they are painfully reminded of their reduced (and still reducing) purchasing power. As 2010 progresses, I believe that the non traveling U.S. public will become very aware of their reducing wealth as denominated in the greenback. Smart Americans are in this stock rally or invested in gold and other commodities, or both. Better stores of value are sought in the market every day and this trend will continue, albeit with some hiccups, as 2010 becomes even more of a watershed year for the giant U.S. economy.
The Elephant in the room is the giant and growing U.S. Debt which now exceeds $12 Trillion dollars and is growing daily, with no end in sight. It is why the dollar is still declining and will through much of 2010. 30,000 more troops for war in Afghanistan, $1 Trillion over the next 10 years for medicare, bailouts and bombshells and the list goes on, with nothing to stop the bleeding at this point. Here is the daily update on the U.S. deficit clock.
India is buying up Gold for it's foreign reserves. China is following suit. Russia is adding Canadian dollars to it's foreign reserves. Individual investors and investor groups from Beijing to Brazil are stocking up on gold and especially gold stocks. This does not bode well for the greenback, or for the standard of living in the good ole U.S. of A. At over $12 Trillion in debt (and counting) and with two unfunded wars being prosecuted on three fronts, not to mention the health care debacle, both spending cuts and new taxes are the medicine needed to stabilize this sick fiscal patient, before he goes into a coma for the next ten years.
Doctor Obama, it's time for your Uncle Sam to take his medicine and there is no sugar to sweeten the taste. Let's get on with it, before it gets any worse (unless of course, the medicine is hyper inflation over the next three years or so). If that is the diagnosis, then gold will double in the next 12 months.
The United States dollar is going down! The U.S. Government will be over 13 $Trillion in the hole by the end of this year. Unless something drastic is done to reduce the slide, by 2015 it will be 23 $Trillion in the hole. This summer rally , (some green shoots aside) was predicated on the back of a sinking u.s. dollar . Many American investors are so busy getting angry and waiving the flag to prop up King Dollar , that they are blinded to one of the best investment plays this year and probably through 2010.
Smart Canadians are ignoring the whining from their own Governments and businesses about a high Canadian dollar being bad for exports and they are taking advantage of a situation that Ottawa doesn't want to acknowledge. The Canadian buck will outstrip the U.S. buck over the next year. So how can you play this for the betterment of your Retirefund?
Back in January, when the Canada buck was trading for around .77 cents U.S. I traded my u.s. dollars into Canadian dollars. I have gained about 20% with this simple strategy, however there is another good market strategy that I, and many others, are making some money with. Commodities such as oil, gold, natural gas, are denominated in U.S. dollars. If you bought some of these commodities, with your Canadian dollars, back in March, you have no doubt made good money.
Now, many Americans, whose pride (and pocketbooks) have taken a big hit during this dramatic downturn in their economy, are championing the return of King Dollar. Can't blame them. If your house is losing value, and your dollar is losing value, and the Gluttons of Wall Street have swallowed a good portion of your retirement funds, you are definitely in jam. However, average Americans are once again being led down the garden path into believing their dollar will go higher over the next few years. Feeding those false hopes, every time the dollar goes up a bit (as it did on Monday) the talking bull heads on CNBC (Kudlow, Kneale etc) waive the flag and declare the return of King dollar. I believe they couldn't be more wrong.
In fact, I am so convinced of this that, when I see a rise in the U.S. dollar, and a corresponding drop in our commodities market, I see it as a great buying opportunity for those commodities, especially if you are paying for your shares in Canadian dollars. As I have pointed out before, we have had the best balance sheet of the G20 for the past 8 years (We've been in the black until the crisis hit this year) Our banks have stayed conservative, avoiding the toxic Derivatives debacle and have entered this summer rally strong. We have the second largest deposits of oil and natural gas in the world, the largest deposits of potash, lumber, gypsum, seafood, nickel, uranium and arguably, diamonds. We own 20% of the worlds entire supply of fresh water, with only .03% of it's population. We own the largest claim to the arctic, which is suspected to harbor 25% of the total world's oil supply, and finally, the largest consumer on the planet, is right next door.
Don't get me wrong though. The Canadian dollar and commodities market is by no means the only place with good value these days. They will go sideways for the next month or so, but by the end of the year the Loonie will approach parity. The BRIC countries , or at least two of them, are good investments. (Except China for the rest of this year) The Australian dollar, who's commodities feed into the Chinese economic realm may also be a good bet. We have some excellent, small Canadian companies that are basically overlooked south of the border, until they dominate a market (RIM). They are essentially, under the radar, so to speak. Find them, research them thoroughly, ensure they have good management, good science and technology , and then don't be afraid to invest. You could hit the RIM of 2010-2011!
If you are American, you should be in the stock market right now. Having cash, or cash equivalents sitting on the sidelines for any length of time is a recipe for losses, period! Sadly, the gluttons of wall street are the ones who will actually benefit from the dollar crisis they have caused. Stock Markets go up as currency devalues. It is actually that simple.
The Canadian Government and Canadian manufacturing don't want a strong Canada buck, but they won't have any choice in the matter. It is time our manufacturing and export companies grow because of innovation instead of a weak currency. Those days are gone.
A Canadian buck with a 5-8% premium over the U.S. dollar (a la the 1950's and 60's), is a Loonie I can live with. All of our retirement funds, and our travel budgets, have gone up over 20% this year because of it. The Loonie now buys 20% more than it did 6 months ago. It will go higher still. Here is a quote from Warren Buffett from his "The Greenback Effect"!
"The world "properly" worries about greenhouse emissions causing global warming", says Buffett. "Unchecked carbon emissions will likely cause icebergs to melt. Unchecked greenback emissions will certainly cause the purchasing power of currency to melt. The dollar's destiny lies with Congress."
The U.S. dollar seems to be strengthening this week, but, Don't be fooled. It is going to dive much lower over the next few years. That according to Dow Jones News Wire and even George Soros, who actually doesn't like any currency today. Soros says that:
"the usd is a weak currency, except for all the others"!
Now, how do we mortals interpret that statement? Soros went on to point out that China's currency would be an interesting story if they let it float on international currency markets, but they won't.
If you had almost two trillion dollars in international reserves like China does, and you wanted to try and keep that value in today's market, where would you try to store that value? In China's case, they seem very unhappy that the majority of their monetary reserves are in the usd. So, where do we put our two trillion?
Commodities, that's where! This spring there has been a rally in commodities. Now do you think that China's hoarding of commodities might have a little something to do with that run up? Soros certainly thinks so. I believe a fund manager who made over 1 Billion on the currency market just last year alone should know a thing or two about this subject. The Chinese obviously believe that they will hold more value in commodities than in the u.s. buck. I think they are right, but how can we mere mortals gain from this knowledge.
Back on June 16th, I mentioned in this blog, that a number of hedge fund managers have stocked up on gold as of late. They will probably sell it into a buying binge of scared investors during the next downturn in the markets. If you buy it then you will make them lots of money, and lose your own. There is, however, a silver lining. As I mentioned in that previous blog, I believe silver is undervalued . This week, it appears, Analysts from Dow Jones agree with me. They are calling for a short drop in the price of silver, possible to the $12.90 level, but then call for it to reach $15 over the next few months.
If you are nervous, and don't believe my "favorite company" tech recommendation ( Wilan Technologies ), then silver might be a good place to store some value in the short term, while you "wait and see" along with the other Trillions of dollars sitting on the sidelines.
That is, of course, if you are a U.S. citizen. If you are Canadian however, you might want to sit tight as silver, gold, and commodities are most affected by the decline in the u.s. dollar over time, and what does Canada have an abundance of? You guessed it! And the Canadian dollar will rise because of it, against the greenback.
Though the Canadian Government doesn't want parity, it's coming, and soon.
Predictions: ( I know I shouldn't make them)
End of year - U.S. dollar - Canadian dollar at par
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