Revisiting the Canadian Loonie

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The Daily Reckoning | Saturday, February 25, 2012 Look what a whole lotta dollar will buy you in today’s market, Readers weigh in on American manufacturing, democracy and Obamacare, Plus, all this week’s reckonings...ready...for...you...to...read... --------------------------------------------------------------- “Miracle Eyes” Heal the Blind In the 21st Century, a new dawn of medicine has emerged that could soon restore the sight of 10 million people worldwide. It’s a medical breakthrough that is unprecedented in human history. In fact, this amazing technology could eventually improve... and extend... every life of every person on earth. And one tiny California Company, priced under 80 cents per stock, is at the forefront of this revolutionary medical treatment. Click here to get the full details on this explosive penny stock that could significantly advance the field of regenerative medicine — and possibly make you ridiculously rich. Joel Bowman, en route to the Marlborough Sounds, New Zealand... Joel Bowman Can’t chat. It’s 5am. Must catch taxi. Then plane. Then ferry. Then rental car. We’ll check in again from the north of New Zealand’s South Island next week. In the meantime, we leave you with some decidedly less staccato musings from our executive publisher, Mr. Addison Wiggin. Please enjoy... [This week’s feature essay first appeared in these pages on March 1, 2012.] The Daily Reckoning Presents Buying “Loonies” Isn’t Crazy AddisonWiggin The US dollar has been rallying strongly for several months. That’s what we call a “gift horse.” And just as the saying goes, “Don’t look a gift horse in the mouth.” Instead, look for ways to exchange your strong dollars for other currencies and investable assets that don’t fly out of Federal Reserve Chairman Ben Bernanke’s printing press. For many Americans, foreign investments are more of an accident than an objective. They might own a few foreign stocks through a global mutual fund. Or they might have some exposure to foreign economies and currencies through the shares of an American multinational corporation like Johnson & Johnson or GE. But American stocks and bonds remain the steak and potatoes of traditional American investment portfolios. Foreign stocks and bonds are merely the spices and sauces. This provincialism — epitomized by the spectacular success of Warren Buffett’s Berkshire Hathaway — has served American investors very well for several decades. But a reassessment may be in order. Simply stated, the America of the future may not reward investors as handsomely as the America of the past. For example, despite doubling from its lows of March 2009, the S&P 500 index has produced a negative total return during the last five years... and only a miniscule return during the last 10 years. The US dollar’s role as the ultimate “safe haven” currency is also due for a reassessment. While the dollar may be safer than the euro, for example, the dollar is hardly safe in any absolute sense. The dollar is safer than the euro... just as a rabid squirrel is safer than a rabid wolf. But you don’t really want to cuddle up at night with either one. America’s federal debt has exploded to more than 100% of GDP — an astonishingly large Greek-like debt load. Yet none of America’s political or financial leaders seem to have any plan for reducing the nation’s debt... except maybe to add a graveyard shift to the dollar-printing production line at the Philadelphia Mint. Our advice: Spend your strong dollars while you can. Reallocate them into other currencies and asset classes. Throughout the eurozone crisis of the last few months, the US dollar has been attracting widespread “flight to safety” demand. But the dollar is not merely rallying against the euro; it is rallying against almost every investable asset on the planet. For example, a dollar buys 36% more silver today than it did six months ago. A dollar also buys 20% more wheat, 13% more corn... and even 2% more “American house.” If we broaden out our analysis to include stocks and currencies, the results are similar. A dollar buys 32% more French stocks today than it did six months ago... as well as 34% more Indian stocks and 18% more Japanese stocks. Among world currencies, a dollar buys 11% more Norwegian kroner today than six months ago... as well as 15% more Swiss francs and 8% more Canadian dollars. It is that last financial asset — the Canadian dollar — that we find particularly compelling as an alternative to holding US dollars. The Canadian dollar, known affectionately as the “loonie,” possesses many virtues. In no particular order: Canadian government finances are fairly solid; US government finances are spiraling out of control. Canada stands out as being one of the few countries that is not only rated AAA by the major credit agencies, but actually possesses a AAA balance sheet... or at least something close to AAA. Canada’s GDP growth is outpacing US GDP growth. Canadian employment growth is booming; U.S employment growth is moribund. The Canadian economy has created nearly 800,000 jobs during the last five years, while the US economy has lost more than 5 million! In other words, the Canadian labor force has expanded by 4%, while the US labor force has contracted by 4%! As a result of these trends, Canada is becoming an increasingly attractive investment destination, relative to the US The Canadian dollar, in particular, is increasingly attractive. The Canadian dollar’s appeal is hardly a new story, but it remains a very relevant story. As the nearby chart illustrates, the Canadian dollar has been trending higher against the US dollar for several years. We expect this trend to continue — more or less — over the next several years. But investors should expect some bumps along the way. Currencies can sometimes bounce around even more than stocks. The Canadian dollar plummeted more than 25% during the depths of the 2008 credit crisis, for example, as terrified investors piled into the US dollar. Once the crisis eased, the Canadian dollar recovered. But the lesson is clear: Currencies can be volatile. If you have a mind to Fed Reserve-proof a strong dollar, we like the Canadian dollar. Regards, Addison Wiggin for The Daily Reckoning Joel’s Note: It’s hard to put one’s finger on the exact date it began, but harder still to deny that the American Empire is in gradual, inexorable decline. It’s nothing personal. All things come to an end...even world dominance. Some say the beginning of the end ticked over in 1913, with the passing of the Federal Reserve Act and the introduction of the Income Tax. Others argue all was well until Richard “Tricky Dick” Nixon cut the dollar’s last, tenuous ties with gold in 1971. Or maybe it was when the military industrial complex found the excuse it needed to kick into overdrive at the beginning of this millennium. Who knows? In any case, the writing has been on the wall for some time. What we do know is that, as the managed economy attracts more and more meddlesome parasites, each with a nosier fix than the last, the boom-bust cycle increases in both frequency and magnitude. This general trend has led Addison to forecast the “Mother of All Bubbles.” Find out what he’s talking about...and discover the safe haven investments you can employ to help protect yourself, right here. KO’s Cancer in 36 Hours! A little-known biotech company is making medical history... but with FDA fast track review status for their cancer treatment, this small company might not stay “little-known” for long... So you must move fast if you want to get in on the ground floor of what could be the biggest medical breakthrough in decades... Click here to learn more now. ALSO THIS WEEK in The Daily Reckoning... How to Engender the Return of a Bull Market By Bill Bonner Salta, Argentina Did you miss us, Dear Reader? You won’t believe this...we hardly believe it ourselves...but after months of planning and preparation for our expedition to the high, dry mountains of Argentina, we’re still here in the city of Salta... Our project has been delayed...by floods. As you may recall, it is so dry up at the ranch that visitors wonder what the cows eat. We tell them we have developed a new race of low-fat, low cholesterol cattle we call “sand fed beef.” But what ho! Now we are still in Salta, a city about a 5-hour drive from the ranch, and we are stuck. The Great Comeback No One Will Believe By Chris Mayer Gaithersburg, Maryland Something surprising stirs in the US economy. Something no mainstream pundit would’ve dared predict. Something most people probably won’t believe. US manufacturing is staging a comeback. Caterpillar, the world’s largest maker of earth-moving equipment, gave us some tangible confirmation in the latest earnings roundup. Based on the business it sees, Cat expects US construction spending will increase in 2012 for the first time since 2004. And Eaton, another large industrial, followed that up by saying it expects its markets to grow faster in the US in 2012 than anywhere else. If it plays out that way, it would be the first time since the mid-2000s that the US led the way. The Cloud That Rains Money By Ray Blanco We live in a time when you can pick up a tiny computer, ask it a question out loud and have a satisfactory answer provided in a matter of seconds. It’s amazing if you stop to think about it. Voice-recognizing digital personal assistants have become commonplace. One such assistant is among the most important new features unveiled in Apple’s latest smartphone. Called Siri, it recognizes natural language questions and accesses a plethora of web services to provide an answer. Android-based phone users (like yours truly), on the other hand, have enjoyed voice recognition to navigate, search or compose messages since summer of last year. The Folly of Intellectuals By Patrick Cox Marco Island, Florida I have referred often to a theory of business cycles that was first described by the Austrian Joseph Schumpeter, but amplified by contemporary American Thomas Sowell. Both are brilliant economists who have described in mathematical detail how free markets produce the most wealth and well-being for society, including for those at the lower end of the financial spectrum. World oil production is about to be shaken to its core... You won’t believe which nation analysts at Wall Street’s biggest banks expect to become the world’s biggest energy producer by 2017 — or the effect it will have on America... our economy... our future... Click here to see who is set to become the new king of oil — and how you can use the news to go for big profits as early as this MAY! The Weekly Endnote... And now, it’s over to a few readers for some thoughts, ideas and rumors... First up, Reckoner Nick M. from Las Vegas opines on the state of American manufacturing... Good article on the return of US manufacturing. Love that “Hockey Stick” labor rate chart for China and the stationary 2% assumption for the US. Reminds me of the old budgeting graphs I used to get from Marketing people. I suspect, as I did during budgeting sessions, that many powerful “Return to the Norm” forces will affect both curves. Obviously, the energy card is a major change element in our favor if we can keep Congress’s hands off. But as you note consistently, Congress has already set the stage for massive inflation here and China will handle its financial, technical and people resources to avoid that exponentially increasing curve from occurring and significantly impacting their competitive position. I do hope you are right but suspect that our Federal Government will figure out how to make “a sow’s ear out of a silk purse” with the help of some very inventive and well financed lobbyists. To which “loyal long-suffering reader” Danny H. replies... Where have you guys been? Manufacturing has been kicking butt the last three years...but don’t tell our dumb-@$ politicians lest they spoil the party. Unfortunately for job creation: we have a freeze on hiring or creating new positions because we are concerned about the cost of Obamacare. Guess who is going to pay for those 16 million or whatever free health care plans. We will invest in productivity to make certain it’s not us. And finally, Reckoner Guy L. has this to say about Bill’s point that Democracy — at least as it is practiced in the US today — is bunk... Congress has a 12% approval rating yet it continues to govern the USA, spending the people’s money, doing bail outs, printing monopoly money, putting on more debts, making more promises they can’t afford let alone past promises they can’t afford. 66% of people in Germany are against the Italian bailout; yet the German government is voting in favour of this and even taking steps forward in the direction of future bailouts they have already been warned about! Democracy: the government of the elite to screw the people. How does it change...only when they have no more bread to eat and someone tells them to eat cake...but governments today have learned from history which is why 46 million Americans are on food stamps. --- Hmmm...manufacturing on the up-n-up...but food stamp numbers heading higher too. So what’s the deal? Are we looking at a leaner, meaner America, one poised to turn the tides of history and reinvigorate the 21st Century? Or will the gradual, over-managed decline of the Empire continue inexorably until the emerging markets overtake her? And, does it really even matter? We have our own take on the situation but, as always, we welcome your thoughts too. Email them to the address below, look out for both next week and... ..enjoy your weekend. Cheers, Joel Bowman Managing Editor The Daily Reckoning ------------------------------------------------------- Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor at joel@dailyreckoning.com How to Engender the Return of a Bull Market How Austerity Hinders an Economic Recovery Opposing Trends in Debt and GDP Growth US Dollar Settles Into a Trading Range Bernanke Shakes up the Markets ECB Turns Into the Fed The Daily Reckoning: Now in its 11th year, The Daily Reckoning is the flagship e-letter of Baltimore-based financial research firm and publishing group Agora Financial, a subsidiary of Agora Inc. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas. Published daily in six countries and three languages, each issue delivers a feature-length article by a senior member of our team and a guest essay from one of many leading thinkers and nationally acclaimed columnists. 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