Lex Luthor spoke these words in Superman II. However, he was
aiming for somewhere more northern that I am. Nonetheless, he did want to find
somewhere he could secure his future and make him rich. Whilst I can promise
neither of these, it may be worth having a quick look at the country north of
America that many people seem to forget - Canada.
Many Americans are either too loyal to Uncle Sam, too
mistrusting of anything non-US or just too myopic to realize there is actually a
world outside of its own boundaries - I still find it amazing that only 37% of
Americans have passports (http://www.travel.state.gov). However, even these
people may not realize they are actually investing overseas as they may own
international shares via a global mutual fund or may be putting money into an
American company which has access to foreign markets. A perfect example is
someone like Ford or General Motors.
However, now may be a time to tip the toes somewhere else and
if Americans do not want to risk anything over the water or in a country which
does not speak the same language then Canada may be the option - yes, I know an
unfortunate few speak French but it is not their fault! Let’s face it, even
Warren Buffet is looking abroad these days and if it is good enough for the Sage
of Omaha then it should be okay for the rest of us mere mortals.
Let’s face it, the S&P500 has only returned just over 11% in
the last decade and this is, in reality, only due to the incredible growth
between April 2009 and April 2010 (see graph).
More importantly, diversification away from anything to do
with the US Dollar is vital. As many people know, I am a great believer in not
being greedy but always trying to beat the bank. Never before has this been so
true. By looking at the multi-manager, multi-asset strategy you should be able
to achieve this goal. Personally, I would advocate placing money all over the
place - both sectorally and geo-politically. The more fingers you have in as
many pies as possible the better.
Despite this, I do understand people’s reticence at investing
in places they do not understand and have the potential to be a lot more
volatile than areas closer to home. Canada would seem to be a good solution as
it has a different currency, favours wealth preservation and has an economy that
is not shot to pieces. I know it is about to have an election but at least they
do not have generals appearing in the national media denying the possibility of
a military coup - not yet anyway.
As David Rosenberg, the Chief Economist and Strategist at
Canada’s Gluskin Sheff & Associates states, “In my three decades in the
forecasting business, I don’t remember a time when the upside potential and
downside risk to investing in Canada vis-เ-vis the USA - from an economic,
financial and political standpoint - was as compelling as it is today.”
There are many reasons for this statement but Rosenberg
points to a few salient facts to support his argument:
* Canada is a net oil exporter; the US is the world’s largest
oil importer.
* Canadian employment growth is booming; US employment growth
is moribund.
* Canadian government finances are fairly solid; US
government finances are spiraling out of control.
* Canadian inflation is tame; US inflation is resurgent.
Americans are not the only people looking to invest in
Canada, foreign investment is as well. Last year, almost CAD120 billion came in
from abroad and, in January alone, over CAD13 billion was invested from
overseas.
Rosenberg continues, “The Canadian economy remained very
strong in the opening months of 2011. It looks like the Canadian economy could
outperform the US economy for the second quarter in a row... Canadian
manufacturing shipments jumped 4.5% month-over-month in January, the best
monthly showing in over a year and a half... Wholesale sales were also very
strong, jumping 1.6% month-over-month on an inflation- adjusted basis... On top
of this, the economy has created 84,000 jobs in total in January and February
(adjusted for population, this would be equivalent to about 800,000 US jobs!).”
Rosenberg goes on, “The latest (American) Job Opening and
Labor Turnover Survey (JOLTS) data for January showed that US job openings
dropped 161,000 ... and now stand at their lowest level since July 2009 when the
economy was barely emerging from the worst recession since the 1930s. New hires
also fell 193,000 and are now down in six of the past seven months - the lowest
they have been since October 2009.”
So, big plusses for the economy and employment. What about
the currency? Rosenberg again, “Canada stands out as being one of the few
countries that is not only rated AAA by the major credit agencies but actually
does have a AAA balance sheet. [Accordingly], the Canadian dollar ... has
emerged as a safe-haven currency - like the Swiss franc but with a decent
positive yield and exposure to raw materials... The Canadian dollar experienced
no fewer than five intermittent pullbacks last year and yet still finished 2010
with a 5 1/2% gain, not just against the USD, but versus a basket of non-dollar
currencies too... The added fact that the Loonie has so vastly outperformed its
commodity counterparts such as the Aussie and the Kiwi attests to the view that
the Canadian dollar story transcends the prices of crude, corn and copper.”
Not everything is peachy though. There is a potential problem
with the property sector. Whilst other Developed Markets (DM) have had massive
corrections in the real estate world Canada has not yet been affected.
If there has to be an adjustment to the present situation
then it could have severe consequences for the national economy. Consumers will
cut back and there will be no further property investment.
There is an argument against this though and that is the
present state of things should allow for a ‘soft’ landing at worst. The banks
are in a much better situation than elsewhere in the DM, interest rates are low,
there are so many natural resources they do not know what to do with them and
the mortgage market is much more attuned to the real world than their
counterparts south of the border were in the ‘Naughties’. Also, the housing boom
is due to demand and not greedy speculation.
Nevertheless, it cannot be denied that house prices are
excessive when taken into account against actual earned income and family debt
is on the rise. Economic historians point to other disturbing evidence. In 2009,
residential housing investment - as a percentage of GDP - was at 6.48%. This is
down from its peak of over seven percent in 2007. The previous peaks were in
1976 and 1989. Soon after these dates the housing market in Canada dived.
Without doubt the ration of housing investment to GDP has been a good pointer to
the real estate market corrections before and it may be again.
However, what these historians may not be taking into account
is that any government and business community worth its salt should be following
the wise words of President Harry Truman, “The only thing new in this world is
the history that you don’t know.” By learning from the recent mistakes south of
the border and elsewhere there is no reason why Canada should descend into the
chaos that has happened in other parts of the globe.
There is a lot to be said for Canada. Investing there may not
produce the best potential returns but the volatility will be a lot better,
things are much more transparent and you will have begun to diversify. However,
above all, remain liquid.
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The above data and research was compiled from sources
believed to be reliable. However, neither MBMG International Ltd nor its
officers can accept any liability for any errors or omissions in the above
article nor bear any responsibility for any losses achieved as a result of any
actions taken or not taken as a consequence of reading the above article. For
more information please contact Graham Macdonald on [email protected]
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