Well that was fun,… for some: Canada’s election results

by Michael Arbow, MBA

Partner, RSD Solutions Inc.

www.RSDsolutions.com

info@RSDsolutions.com

 

May 2^nd was a rather busy day for the global news junkie but here in Canada, international events took a back seat to the Federal election.  What started as a snooze fest was anything but in the last two weeks of campaigning and provided political risk managers – spin doctors (?) with some valuable lessons.  The end result was the Conservative Party received a majority government after three tries, the number three (New Democratic Party) unexpectedly become the number two and the nation’s number two, the Liberals may be going the way of the 1935 British Liberal party.  A special mention should also go out to the Bloc Quebecois which enjoyed one generation of staying power and was wiped out – perhaps joining the Liberal party in the history books.

 

A week after the fact and the dust has settled, a clearer picture of where that leaves Canada’s people and organizations is beginning to emerge.  With a strong left wing opposition, expect the right wing Conservatives to move a little closer to the centre on some issues, but fundamental to the Conservatives is low corporate and personal taxes and continued support for the energy sector (read; oil sands) and possibly agriculture.  Also expect the Conservatives to push for a national securities regulator and be pretty hands-off on the financial and greater business community.  End result: the Canadian dollar will continue to strengthen against the US dollar and likely most OECD currencies.  Expectations for yearend are already $USD 1.09 (CAD .92/1.00 USD) and I can see Patricia Croft’s and David Rosenberg’s three year expectation of $1.20 still a possibility.

 

So the story of the loonie’s rise continues and if anything is now reinforced.  For Canadian exporters, the argument for delaying effective hedge strategies is continuing to get weaker.  The question then is:  what discussions does your risk department have prior to and after an election?  Canada has shown, the unexpected can happen and the results can be significant. 

 

For more on this story click on the link to the Globe and Mail article:

http://tinyurl.com/4xo2jct

 

“15 reasons to (still) love the loonie”: Exporters and global investors take note

by Michael Arbow MBA

Partner, RSD Solutions Inc.

www.rsdsolutions.com

info@rsdsolutions.com

 

Note:  This is a re-posting of an earlier blog which I thought was worth posting again as the Canadian dollar nears $1.06 USD/CAD and the CAD strengthening story is still intact. 

 

I have been blogging about the long term strengthening of the Canadian dollar (the loonie) for around 2 years now. More recently David Rosenberg summarized in 15 quick reasons why the loonie is currently rising against the US dollar (see list below). What is interesting is that 13 of the 15 reasons are arguably long term habits of the Canadian economic and political system and thus reinforce the continuing steady rise of the currency. 

What is also interesting to note about the past two weeks is that the traditional “flight to safety” to the USD in the face of geo-political and economic uncertainty has not been happening (gold, silver and the Swiss Franc are the current safe havens).  I believe that is a significant event and should have the risk managers looking more closely at their US market/investment exposure.

 

15 Reasons to love the loonie:  

1. Better growth than in the U.S.A. and without need for stimulus

2. Responsible central bank, limiting growth in its balance sheet

3. Better fiscal backdrop

4. More conservative political environment

5. Triple the exposure to raw material than the U.S.A.

6. Investors get 115 basis points premium over US Treasuries at the front end of

the government yield curve

7. Canada in the top 15 net oil exporters globally … U.S.A. top importer

8. TSX dividend yield at 2.36%; S&P 500 dividend yield at 1.82%

9. Housing market in balance in most of the metro areas; no foreclosure

supply coming

10. Inflation is low and stable with minimal risk of deflation

11. Economic recovery being fuelled principally by business spending

12. Corporate tax rates on a sliding scale down

13. Immigration and capital flows running at record levels

14. Vancouver rated top city in the world to live (Toronto 4^th, Calgary 5^th)

15. Stable banking system with consistent dividend growth”

 

from:    David A. Rosenberg  (March 2, 2011)

Chief Economist & Strategist Economic Commentary 

Gluskin Sheff + Associates Inc.

 

The Loonie: A new safe haven currency

by Michael Arbow MBA

Partner, RSD Solutions Inc.

www.rsdsolutions.com

info@rsdsolutions.com

 

The past few weeks have been filled with world altering events and uncertainty and the end story for those in Japan, much of the Middle East and the Euro-zone has yet to be written. With uncertainty, the appreciation in the price of gold has happened and is expected but what is not expected is an unwavering Canadian dollar (CAD). In terms of world currencies, when the going gets tough, generally, the tough go the US dollar (USD). However since February 1^st the CAD has traded above par to the USD and that is with long Canadian government interest rates at 80 basis points below comparable US debt and 7 bps below German debt (each holding AAA debt ratings). 

To me this suggests that the CAD is becoming a safe haven currency.  This move is substantiated by double digit immigration and high levels of international capital inflows both of which demonstrate that Canada is globally the preferred place to live and invest.  This new disconnect – that is the Canadian (resource based?) currency as a safe haven, is something to be proud of for Canadians but it will and can cause problems for our exporters. 

Bank of Canada Governor Mark Carney stated last week that the world is in a multi-decade commodity boom.  The effect of this according to economist Patricia Croft and David Rosenberg is that over the next 3-5 years a $1.20 USD/CAD exchange rate could prevail. To me, the trend has become fact.  For Canadian exporters and those investing in the United States, what steps is your organization taking to ease the potential pain?   

“15 reasons to love the loonie”: Exporters and global investors take note

by Michael Arbow MBA

Partner, RSD Solutions Inc.

www.rsdsolutions.com

info@rsdsolutions.com

 

I have been blogging about the long term strengthening of the Canadian dollar (the loonie) for around 2 years now. More recently David Rosenberg summarized in 15 quick reasons why the loonie is currently rising against the US dollar (see list below). What is interesting is that 13 of the 15 reasons are arguably long term habits of the Canadian economic and political system and thus reinforce the continuing steady rise of the currency. 

What is also interesting to note about the past two weeks is that the traditional “flight to safety” to the USD in the face of geo-political and economic uncertainty has not been happening (gold, silver and the Swiss Franc are the current safe havens).  I believe that is a significant event and should have the risk managers looking more closely at their US market/investment exposure.

 

15 Reasons to love the loonie:  

1. Better growth than in the U.S.A. and without need for stimulus

2. Responsible central bank, limiting growth in its balance sheet

3. Better fiscal backdrop

4. More conservative political environment

5. Triple the exposure to raw material than the U.S.A.

6. Investors get 115 basis points premium over US Treasuries at the front end of

the government yield curve

7. Canada in the top 15 net oil exporters globally … U.S.A. top importer

8. TSX dividend yield at 2.36%; S&P 500 dividend yield at 1.82%

9. Housing market in balance in most of the metro areas; no foreclosure

supply coming

10. Inflation is low and stable with minimal risk of deflation

11. Economic recovery being fuelled principally by business spending

12. Corporate tax rates on a sliding scale down

13. Immigration and capital flows running at record levels

14. Vancouver rated top city in the world to live (Toronto 4^th, Calgary 5^th)

15. Stable banking system with consistent dividend growth”

 

from:    David A. Rosenberg  (March 2, 2011)

Chief Economist & Strategist Economic Commentary 

Gluskin Sheff + Associates Inc.