OT/CanRoys
Hello Jay,
Back from a great long vacation in Western Canada and it reminded me what a beautiful country it is. Someday I hope to go back home, but in the meantime, business is stateside.
Canada is in the throes of an election that will likely result in a minority (Liberal or Conservative) government with the Separatists in in Quebec. If you recall, the last time the separatists took their vote they lost at 49.5% to 50.5%. Too close for comfort. Remember Jean Chrétien, the terrible Prime Minister who did not make the effort of a 90 min flight to see Bush after 9-11 until many months after Blair did. He was chastised by the UN for allowing this to happen. They told him that if every county, state, region, province was allowed a vote like this the world would have another several hundred countries to deal with overnight! Back to Quebec, though, and while Montreal wants to stay in Canada, the rest want out-regardless of the economic consequences (i.e. new currency, military, gov’t etc would be needed and Quebec is a net recipient of transfer payments from Ottawa). So, aside from the stinging economic impact independence would undoubtedly bring, they want out. They are French, what do you expect. Shame on the British for not throwing them out when they colonized! The problem, I see, is that if this issue were to consume a minority gov’t, nothing would get done. Witness the lack of spine the Canadian gov’t exhibits to the Native Indians and Eskimos. In the US they dealt with this ages ago. Remember, foreign investors dislike uncertainty.
Versus the USD, the CDN$ is off +/-3% from 10 days ago and I think it will drop below 69 cents if it does not recover soon. The sell off is being blamed on US interest rates/inflation. I say, what about the blockbuster trade surpluses-much from resources. Obviously the story has changed to an election uncertainty one.
Therefore: short-term weakness in the CDN$.
Canadians are also reminded quite often in the press of a CanRoy sell off a la 1998 when rates went up, and while fundamentally this may not make sense, it is appearing to have a psychological impact among the investor friends I met in Canada (including one Actuary and one accountant-what do they know, eh?) who are net sellers. Canadian Oil Sands-one of the darling CanRoys with their massive reserves- moved below its 200dma today, as I thought, due to Stage 4 overruns, which I truly believe (despite what the CEO says) will result in new issuance and decreased dividends. (I do not hold this nor am I short) How many reasons does a US investor need to sell their CanRoys?
I also do not like the Canadian gov’t and their tax grab on Return of Capital, as Enerplus and Acclaim have reported, because should this bill go through, ROC would be taxed at a higher rate in US investors taxable accounts.
This is, incidentally, a convenient way for the CanRoys to shed non-resident (largely US) investors, as the tax would apply to non-residents. Many believe this bill will fail, but this is Canada, not the US. The civil servants have more power than the politicians and the businesses suffer. |
