Dr. Dreyfuss musings
Wow, the US looks like a banana republic compared to Canada>
Maybe the grass is greener on the other side of the fence.
A country with 10 years of fiscal surpluses, booming growth, a trade surplus with the world, a national health-care system, a strengthening currency, billions of dollars in proposed new tax relief and in transfers from the federal government to the provinces, and only token entanglements abroad--no Iraq malaise.
Sound good? Maybe the next mass demonstrations will be Americans marching on the streets of Canadian cities, asking to be welcomed.
The principal stock index at the Toronto Stock Exchange has returned 50 percent in the last 12 months, in U.S. dollars, compared with 15 percent for the U.S. benchmark Standard & Poor's 500 index.
The Canadian currency on Tuesday broke above 90 cents per U.S. dollar for the first time since 1978. (That makes it better when we come back to the states to shop.)
On Tuesday, Jim Flaherty, Canada's minister of finance, proposed $20 billion Canadian in tax breaks for individuals, as well as a new "universal child care" benefit of $100 per month per child under the age of 6.
The Canadian story is almost too good to believe right now. There's a simple explanation.
"Canada is the world's commodity producer par excellence," said Peter Frank, senior foreign exchange strategist at ABN Amro in Chicago.
From oil and natural gas to gold, silver and industrial metals to meat and lumber--"It's a bit of everything," said Frank.
"Global growth, particularly from Asia, looks to be expanding at a faster rate," he said. "You see a lot of shortages of supply of commodity goods, pushing up energy and non-energy prices."
Unlike the greenback, the Canadian dollar, known as the loonie, is in short supply as well.
"There's no government debt," Frank said. "The world is not awash in Canadian dollars. There is hardly any to go around."
Like the U.S. central bank, the Federal Reserve, the Bank of Canada has been raising interest rates steadily to pre-empt inflation. Higher rates have done little to stall the economy and have made the Canadian dollar even more attractive.
"What's not to like about the country, unless you're a [Canadian] manufacturer. Then you're in trouble because interest rates are going up, and the Canadian dollar is going up," said Andrew Busch, foreign exchange strategist at Bank of Montreal/Harris Bank in Chicago.
"I would imagine that the manufacturers up there are going to scream bloody murder."
Busch said that in past years the Bank of Canada appeared to fight unwanted currency strength by reducing interest rates.
Maybe so, but higher rates and a stronger currency are the byproducts of commodity-based prosperity, and there's no sign that demand for commodities will slow anytime soon, Frank said.
Bush and Frank predict that the U.S. dollar will fall to $1.05 Canadian by the end of the year from $1.106 Canadian.
"We're trying to figure out whether the Bank of Canada makes any change in its monetary policy based on the much stronger currency," Busch said.
"If the Bank of Canada keeps matching the Fed [rate hikes], we'll go to [dollar] parity very easily."
http://www.chicagotribune.com/business/columnists/chi-0605030048may03,1,6715751.column?coll=chi-navrailbusiness-nav
Bill Barnhart
Wow, the US looks like a banana republic compared to Canada>
Maybe the grass is greener on the other side of the fence.
A country with 10 years of fiscal surpluses, booming growth, a trade surplus with the world, a national health-care system, a strengthening currency, billions of dollars in proposed new tax relief and in transfers from the federal government to the provinces, and only token entanglements abroad--no Iraq malaise.
Sound good? Maybe the next mass demonstrations will be Americans marching on the streets of Canadian cities, asking to be welcomed.
The principal stock index at the Toronto Stock Exchange has returned 50 percent in the last 12 months, in U.S. dollars, compared with 15 percent for the U.S. benchmark Standard & Poor's 500 index.
The Canadian currency on Tuesday broke above 90 cents per U.S. dollar for the first time since 1978. (That makes it better when we come back to the states to shop.)
On Tuesday, Jim Flaherty, Canada's minister of finance, proposed $20 billion Canadian in tax breaks for individuals, as well as a new "universal child care" benefit of $100 per month per child under the age of 6.
The Canadian story is almost too good to believe right now. There's a simple explanation.
"Canada is the world's commodity producer par excellence," said Peter Frank, senior foreign exchange strategist at ABN Amro in Chicago.
From oil and natural gas to gold, silver and industrial metals to meat and lumber--"It's a bit of everything," said Frank.
"Global growth, particularly from Asia, looks to be expanding at a faster rate," he said. "You see a lot of shortages of supply of commodity goods, pushing up energy and non-energy prices."
Unlike the greenback, the Canadian dollar, known as the loonie, is in short supply as well.
"There's no government debt," Frank said. "The world is not awash in Canadian dollars. There is hardly any to go around."
Like the U.S. central bank, the Federal Reserve, the Bank of Canada has been raising interest rates steadily to pre-empt inflation. Higher rates have done little to stall the economy and have made the Canadian dollar even more attractive.
"What's not to like about the country, unless you're a [Canadian] manufacturer. Then you're in trouble because interest rates are going up, and the Canadian dollar is going up," said Andrew Busch, foreign exchange strategist at Bank of Montreal/Harris Bank in Chicago.
"I would imagine that the manufacturers up there are going to scream bloody murder."
Busch said that in past years the Bank of Canada appeared to fight unwanted currency strength by reducing interest rates.
Maybe so, but higher rates and a stronger currency are the byproducts of commodity-based prosperity, and there's no sign that demand for commodities will slow anytime soon, Frank said.
Bush and Frank predict that the U.S. dollar will fall to $1.05 Canadian by the end of the year from $1.106 Canadian.
"We're trying to figure out whether the Bank of Canada makes any change in its monetary policy based on the much stronger currency," Busch said.
"If the Bank of Canada keeps matching the Fed [rate hikes], we'll go to [dollar] parity very easily."
http://www.chicagotribune.com/business/columnists/chi-0605030048may03,1,6715751.column?coll=chi-navrailbusiness-nav
Bill Barnhart
posted by Dreyfuss at 6:19 AM
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