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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: ild who wrote (13776)	10/20/2004 10:34:18 PM
From: mishedlo	Read Replies (2) \| Respond to of 116555

From Mazepa on the Motley FOOL who comments on the loonie breaking 80 cents Canadian Loonie broke 80 cents US. have not spoke to my friend but I am sure he is making plans to start laying off his staff and winding down (packaging industry). He said 80 cents was the line in the sand. He has no advantage over US companies. His biggest clients are from the US. They will now probably start buying from US companies. The Gov in Canada seems to think a strong Loonie is not going to cause any pain for them. Lets just see about that :) When the 2-4 billion or so a day of trade to the US starts to dry up. There beef industry has been decimated. Softwood Lumber is dead. Taxes are at an all time high. Takes more then 6 months of working for the man before you see a cent for yorself. Closing down 5 coal burning pwr generation plants (in Ontario) without having anything to replace them. Talk about blackouts. They are already short power. Electric rates set to double. Gasoline is going to hit a dollar a liter (about 4 bucks a gallon CA). Housing in Toronto has doubled in price in just the last 4 years. Can you say bubble? Maybe I am just seeing the glass half empty instead of half full. Regards... ============================================================ Dollar breaks 80 cent (U.S.) barrier Highest level in more than a decade FROM CANADIAN PRESS OTTAWA - Analysts scrambled today to make sense of mixed economic signals, including some pointing to weaker growth even as the loonie closed above 80 cents (U.S.) for the first time in more than a decade. The dollar, which has been climbing toward the 80-cent mark for weeks, closed today at 80.29 cents (U.S.), up 0.74 of a cent from the previous day to levels not seen since March 1993. Although that might suggest domestic strength, analysts said the currency's gain was driven more by weakness in demand for the U.S. currency than by Canadian factors. The loonie's move was "predicated mainly on the fact that we've seen substantial broad-based weakness in the U.S. dollar," said George Davis, chief technical analyst at RBC Capital Markets. "We've seen some weakness (in the greenback) against the euro, pound sterling, Swiss franc and the Aussie dollar, and that has helped the Canadian dollar move higher." Strong commodity prices and hints the Bank of Canada will follow up on Tuesday's interest-rate hike with further tightening have helped the currency. But not all domestic measures are looking strong. On the positive side, Statistics Canada reported today that wholesalers posted their sixth consecutive month of gains in August - a better than expected increase of 0.7 per cent, powered by sales of machinery and electronic equipment. The agency also revised July's increase in wholesale activity upward to 0.5 per cent from 0.1 per cent. However, the composite index, a measure of future GDP performance, grew at a much slower pace in September than during the summer, Statistics Canada said. Growth of 0.3 per cent in the index last month followed advances of 0.5 per cent in August, 0.7 per cent in July and a two-year high of one per cent in June. Said David Wolf of RBC Capital Markets: "Overall, this number had been at the bullish end of the economic spectrum through the first half of the year; it is now at the bearish end." Analysts were also expecting weak retail sales numbers for August to be reported Thursday. All these mixed signals have clearly worried the Bank of Canada. Financial markets had expected Tuesday's quarter-point increase in short-term interest rates. But many were taken aback when the central bank dramatically cut its outlook for 2005 economic growth, from the 3.5 per cent predicted last summer to something less than three per cent. That's a more pessimistic outlook than most private-sector experts have produced. Bank of Canada governor David Dodge is scheduled to elaborate on his views Thursday in the bank's latest Monetary Policy Report. But questions about the strength in the economy are becoming louder. Strong commodity prices have helped buoy the currency and added to Canadian growth. But there have been signs of weakness in the U.S., whose huge budget and trade deficits have hurt the American dollar. And shakiness south of the border tends to rattle Canada. Even the strong oil prices that mean rich returns for Canada's oilpatch can hurt growth, by slowing the global economy and eventually reducing demand for Canadian goods. But even if the U.S. expansion slows, it won't be by much, said Tim O'Neill, chief economist with Bank of Montreal. "The concern about the U.S. recovery is overstated," said O'Neill, who predicts American growth will run close to an annualized rate of four per cent in the last half of this year, slowing slightly to 3.5 per cent in 2005. thestar.com =========================================================== Mish comment I believe this outlines the very problem countries face with a weakening US$ It is why Japan supports the US$ no matter how stupid it seems to everyone and it is probably why China keeps the RMB pegged. If the US$ sinks low enough and Europe loses exports to the US Europe will be faced with 3 choices, none of them any good 1) Be content to lose market share to Japan and China 2) Start supporting the US$ through forex intervention 3) Cut interest rates Note: This also explains why the US does not care too much if the US$ falls, in fact by begging China to float the RMB they are practically demanding that the US$ fall. If Canada hikes twice more (perhaps even once more) Canada govt bonds will be a screaming good buy IMO. A very conservative play too! Agressive players will look to buy Canadian BAX interest rate futures. Mish Mish