Is the Canadian dollar a big threat? I see a MONSTROUS amount of upside on the Canadian dollar as it has been below purchasing power parity for several years, leading to a huge current account surplus. This has to be very bearish for Canadian resource companies with their assets in Canada, especially forest products, mines and oils, whose bottom lines are determined by selling commodities in ultimately shrinking U.S. dollars (and those are going up too lately, in world terms. On the the other hand it should be bullish for bonds, and interest sensitives like banks. And if we are seeing a long term slowing of inflation, maybe slipping into an extended deflationary period, this has to be bad for resource stocks, and good for interest sensitives. Based on this logic I've been mostly short Cdn. gold stocks since last year, buying puts on Placer as a favourite. So far so good. I'm also worried about declining incomes generally, and overextended consumer credit. I guess that is ok if those fewer dollars are buying deflating goods, and purchasing power for goods is thus increasing in spite of falling incomes. Is this a recipe for gradual deflation back to the sixties? If so, this market has a long way to go up, as rates will continue to decline. However I am concerned about the underperformance of resource sectors, which explains the negative relative strength of the toronto market vs. the u.s markets. And this deflationary tendency could be killer on holders of real estate.
Any comments anyone. |
