Craig Read Posted December 15, 2003 Report Share Posted December 15, 2003 The C$ will fall - I predict to 66 cents within one year. Unlike the overpaid economists that populate our major banks I see no reason for an 80 cent dollar. The major impact will be that politically Jean Martin will not need to enact reforms. We should wish for a higher dollar and ergo higher living standards, but this will not happen. Here is why: 1. Real commodity prices will fall including Oil which is vastly overpriced. 2. War on terror is successful - everyone loves a winner and the winner is the US and its dollar. 3. Foreign direct investment in the US has fallen off 80 % in the past 2 years from its 2000 highs. FDI will recover as the US economy grows. This means more demand for U$. 4. Productivity - the surest way to beat inflation and raise living standards is through high productivity. The US has 3x the level of productivity vs. Canada. This means more profits, higher wages and more capital investment in the US. This stimulates the economy and leads to higher demand for U$. 5. China. China will continue to buy [via its central bank] US T-Bills and Bonds further strengthening the U$. 6. US Deficits over the next year will be narrowed. A growing economy, growing revenues and hopefully some spending reform will cure the deficit gap. 7. Lastly, laughing boy David Dodge will have to stop propping up the dollar through artificially high interest rates, and drop rates which will entail currency speculation shifts from the C$ to the U$. The only reason the C$ is higher is because LB is keeping rates far too high in Canada and has not loosened the M1 supply. The US is the world's reserve currency - about 40 % of reserves are in U$. I predict this will increase not decrease especially as China grows. Get ready for a strong U$ and a weak C$. This means sadly for Canadians - no meaningful reforms. Quote Link to comment Share on other sites More sharing options...
Cameron Posted December 15, 2003 Report Share Posted December 15, 2003 As always, good points Craig. What can we do to help ourselves? What are some positive points that we could set as goals and try to attain them? Quote Link to comment Share on other sites More sharing options...
Craig Read Posted December 15, 2003 Author Report Share Posted December 15, 2003 Well firstly a flexible exchange rate usually equals a falling exchange rate. With 40 % of the world's reserves in U$ and another 30 % in Euros, the Cdn dollar is irrelevant. It is necessary than to adopt an inflexible or 'floating peg' rate - R. Mundell a great Cdn economist is the foremost thinker on this subject. A hard C$ necessitates: -lower debt levels per capita than the US -lower taxes on capital and income than the US -more productivity than the US -real interest rates based on inflation control and not political meddling to artificially boost up the C$ The nationalists will cry that this will gut the social welfare net in Canada. Au contraire - it will allow it to be funded and supported. You can't have policies that are the same as the US when you are a small, country with a commodity based currency - you must offer MORE. Returns in Canada are lower historically than in the US and a soft dollar policy allows Cdn firms to hire cheap labor and forego productivity investments. We need to attract more FDI as well - we are slipping badly in this regard in recent years and are being overtaken by other more aggressive jurisdictions. As well we need to end Federal Corruption - Canada has far too much soft corruption that corrodes investor confidence and its anti-American rhetoric does nothing to improve the investment climate. Quote Link to comment Share on other sites More sharing options...
RB Posted December 16, 2003 Report Share Posted December 16, 2003 Get ready for a strong U$ and a weak C$. i don't see how this is going to happen soon....not with so many imbalances - first the U$ is falling unevenly against other currencies - the dollar continues to fall against trading partners -- the more the dollar falls, it is likely to fall further in danger - a likely collapse the only way to see a balance is to spead the dollar drop evenly this means that the asian currency has to float Quote Link to comment Share on other sites More sharing options...
Craig Read Posted December 16, 2003 Author Report Share Posted December 16, 2003 Reread my posting and refute the facts. Stating that the Asian currencies 'must float' is nonsense. That is the last thing we need. The US is the world's strongest economy - you always go long on the currency of the superpower. To short it is to lose money. Investment tip; want to make some money ? Call options on the US$ - you can buy some currency funds and go long. Short the C$. Money goes to the land with the highest real returns and with the list i presented that means the US - highest productivity, Corporate profits up over 20 % this year, low inflation, high liquidity and low rates. In March 2004 the US Federal Reserve rates will be increased and I guarantee that the US $ starting in Feb 2004, will climb back up and not stop during the entire year. The C$ within one year will be in the mid 60 cents. This means that Paul Chretien will be able to live off cheap exports and 'job gains' as companies hire low wage cheap labor to push product to the USA. Sad. Quote Link to comment Share on other sites More sharing options...
Galahad Posted December 16, 2003 Report Share Posted December 16, 2003 The C$ within one year will be in the mid 60 cents. Sad. Forgive me for asking, but don't you think that your C$ buys you more in the USA then at home? Wanna compare prices? I'm game if you are! Quote Link to comment Share on other sites More sharing options...
Craig Read Posted December 16, 2003 Author Report Share Posted December 16, 2003 No. Standard of living is 20 % higher in the USA and the gap is widening. As the C$ will fall in the next 12-18 months, your SoL vs. the average American will fall. A weak currency is another tax - it is a political decision based on exporter supporter for the Libs. You can check out a bunch of reports on SoL at: TD Report Best analysis is www.csls.ca - Canadian Institute that studies living standards. We are 12 yes 12 years behind the US in living standards. Contrary to socialised media coverage in Canada you ARE NOT better off. Quote Link to comment Share on other sites More sharing options...
Craig Read Posted December 17, 2003 Author Report Share Posted December 17, 2003 Since i started this post, the C$ has fallen 2 cents. In one year it will be at 66 cents. Why ? The C$ value is 10 % roughly based on currency trading and in particular currency trading tied to commodities. Though only 30 % of Canada's economy is primary resource based, about 50 % in total is tied to resources [secondary and tertiary processing]. Traders who play economic cycles [commodities such as copper and oil are leading indicators], will play the C$ and diversify their holdings as commodity prices [in nominal terms] rise. [in real prices they always fall]. In the past 2 years commodities have surged. This means $ allocations to the C$ and Aussie$. Second, interest rates are artificially high in Canada - slowing growth, slowing local investment but attracting speculative investments from investors, traders and fund managers who arbitrage on rates. In the long term the C$ will decline - the fundamentals aren't not strong in Canada and there is no reason to hold the C$. People like myself hold our investments in U$ - except for real estate we own locally. Why? I have no faith in the capacity of the Canadian electorate or their leaders to be fiscally responsible. Tax, spend, accumulate debts and cheap policies based on a cheap dollar to buy off exporters who support the Federal Liberals. Business, personal investors and banks all know this as well -ergo - most bank reserves and personal investors hold their assets in U$. Ditto for gov'ts who buy bonds. They buy US Treasuries not Cdn bonds for the long term. Quote Link to comment Share on other sites More sharing options...
Craig Read Posted January 1, 2004 Author Report Share Posted January 1, 2004 The C$ had a good 2003 - but it will fall. There is no need for a small country dollar in a regional trading world. The CBC as usual got it wrong: "The U.S. dollar has been under pressure for months, pushed down over concerns about the health of the U.S. economy, and the country's big fiscal and trade deficits." No that is not why the US$ is depreciating. The Fed Reserve is printing too much money - more than 3 x GDP growth. It is liquifying the economy and debasing its currency. It is doing this on purpose to stimulate exports, allow easy credit and sustain consumer spending levels. Inflation will pick up in 2005 - presaged by higher rates in 2004. Inflation in 2005 will be at least 2.5 % and in 2004 probably a shade over 2 %. As interest rates in the US start to climb - around March 2004 - and money is tightened somewhat - the US $ will rise. The only reason the Loonie is doing well is the gap in rates and the movement out of U$ to higher interest bearing notes. Long term betting against the US $ with a surging economy, its huge productivity gains, and lower regulations is a fool's bet. Quote Link to comment Share on other sites More sharing options...
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