2/9/2012 7:29 PM ET|
Investors, run for the borders
If the US market has you stumped, take a close look at Mexico and Canada. Some key stocks in those nations could gain whether the US economy perks up or not.
The crosscurrents in this market are enough to give you a headache.
May I suggest that you take two stock markets -- those of Mexico and Canada -- and call me in the morning?
The baffling US market
If you look at only the U.S. stock market, you see a confusing mix of short-term strength and long-term weakness. And you are left wondering, day-to-day, which investors will choose to emphasize.
On the strength side, the U.S. economy is growing faster than any other economy in the developed world. The year-to-year growth of 2.8% in the fourth quarter looks great when you compare it with a stagnant Japan and a Europe that's headed toward a recession this year.
But on the weakness side, as Standard & Poor's reminded investors Wednesday, the United States still hasn't begun to deal with its current budget deficit or the long-term trends feeding that deficit. The credit-rating company, which downgraded the United States to AA+ from AAA on Aug. 5, 2011, warned that the United States faces a one-in-three chance of another downgrade within the next six to 24 months.
Back on the strength side, the Dow Jones Industrial Average ($INDU) is flirting with its May 2008 high, and is within a 10% rally of its all-time high of 14,164.53 set on Oct. 9, 2007 -- when Lehman Brothers still existed and the government didn't own a piece of General Motors (GM, news) or American International Group (AIG, news).
Weakness? The U.S. dollar, which looked strong just a month ago, has fallen to a three-month low. Since its peak on Jan. 13, the dollar had tumbled 3.7%, as of Feb. 8, against a basket of currencies that includes the euro, the yen, the pound, the Canadian dollar, the Swedish krona and the Swiss franc.
So run for the borders
Now I'm not going to suggest that putting your money -- or some of your money, anyway -- into Canadian and Mexican stocks is going to eliminate this conflict, or the risk that goes with it.
But I would suggest that buying Canadian and Mexican stocks right now is a good way to get most of the good effects of U.S. economic growth while avoiding the bad effects of a falling dollar. In fact, if the dollar continues to slide, you might even pick up some extra gains from the appreciation of the Canadian loonie and the Mexican peso.
See whether this strategy makes sense to you.
The Mexican and Canadian economies are closely linked to the U.S. economy, and about 74% of the exports from those countries go to the United States. During the U.S. recession, that wasn't a good thing; Canadian exports of autos and auto parts, for example, and Mexican exports of cement, for another example, fell. With a strengthening of the U.S. economy, however, that trend has reversed.
But Mexican and Canadian monetary policy and interest rates aren't pegged to the actions of the U.S. Federal Reserve. The Reserve Bank of Canada is one of the few central banks in the developed economies that has not marched down the road of further interest-rate cuts. The bank has had a 1% benchmark interest rate in place since September 2010. (Remember that the Fed has set its benchmark rate at 0% to 0.25% until the end of 2014. The European Central Bank kept its benchmark rate at 1% at its Feb. 9 meeting after cutting rates by 0.25 percentage point in November and December. But with the eurozone slipping into recession, the pressure will be on the bank to cut rates in the year ahead rather than raise them.)
The Mexican central bank, the Bank of Mexico, has been among the most reluctant central banks in the developing economies to act to push down its currency to promote exports. In fact, in the bank's last major currency intervention in November 2011, it acted to support the peso, which had tumbled as a result of the eurozone debt crisis. That's a huge contrast to countries such as Brazil, where the central bank has intervened to hold down the price of its currency.
Neither Canada nor Mexico is contemplating anything like a new round of quantitative easing -- something the U.S. Federal Reserve is still studying -- that would add hundreds of billions of dollars to the money supply.
All of that has helped the two currencies rank among the best performers in the world so far this year. The Mexican peso is up 10% against the dollar in 2012 and 8% against the euro. The Canadian dollar hasn't been quite as strong, but it still ranks in the top 10.
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The Canadian job market showed some pretty bad weakness recently. I get that Canda and Mexico are huge trading partners for us and long term their debt positions are much better.
But I think in the near term to intermediate (3 to 18 months) you are wrong. If anything happens with global scares, the dollar will get stronger regardless. I just don't see Canada or Mexico booming this year.
"The U.S. Federal Reserve said it will not raise interest rates until at least late 2014, even later than investors expected, in an effort to support a sluggish economic recovery." In that case if you are trying to save money on CDs, Money Market accounts and etc. the FED doesn't care about you. Considering that the FED believes the world is flat, they are hoping you savers just fall of the edge. America used to urge people to save for their retirement. Many families have nothing saved. The average family nearing retirement has only $20,000.00 saved. Along with Social Security this will not be nearly enough. They need good income from a retirement account where they worked or they won't be able to make it.
I do not invest in market, other than 401k low risk.
I am electrical engineer, saving 1/2 million since 1994.
Woman once said, it is not how much you earn, it is how much you save.
I am saving $ 2500 / month
Go ahead and throw money to the wind.
It is your money and business.
First off, I'd like you to know I'm mad. Well, not mad. More like perturbed. You see, my big secret besides the ETF VNM in Vietnam was Canadian stocks. Now the jig is up. And I haven't purchased all my positions yet.
My portfolio, or I should say one of four and the one that my wife let's me play with, is only worth 45K. The rest are not worth much more and we own three houses (ugh). Point being I don't have the cash to go out and short stocks or make leverage plays, at least not with impunity. I just buy and hold ''em in my traditional IRA 'till I get a feeling and sell, mostly short term. I'm now realizing a Roth is the way to go since I have made at least 10% a year, trade semi-frequently, and could do without the tax on IRA gains. But to the point.
You let your readers in on a good thing. Canada is the way to go. Mexico? Not my expertise. But Canada is as surefire a play as one can get. Makes me want to sell my houses or borrow to go all in. And here's why: (You can check me and flesh out the details in a subsequent article.)
There are two knock you over the head, make it three, reasons to go Canadian. One, they aren't in half the trouble we are. Two, Bush signed a treaty that dispels the usual yearly 15% foreign Canadian capital gains tax if your money is in an IRA or 401k. (I think you can't do REITs; check on that for me, will ya?) And thirdly, Canadian companies are charged a corporate tax rate at least 30% less than ours. You see where I'm going? The currency exchange rate can be a benefit, too, but it's all related.
Sooooo, bottom-line, your money will work its tail off in Canada. I'm convinced enough that when I get the Canadian stocks I want I'm holding them long term. Just put them in my portfolio and forget about 'em. Got three on the radar and I ain't spliin' the beans. Just wish I had more dough, though, Joe. I mean Jim.
There is a separate group of shareholders for whom this new CRA rule may have different implications: registered shareholders. You’re a registered shareholder if the stock you own is registered in your name on the underlying company’s books, which is kept by the company’s transfer agent, and you’re in physical possession of a certificate that represents your ownership interest. Beneficial owners’ shares are held in what’s called “street name” because their stock is registered in the name of their brokerage firm on the issuer’s books. Such brokerage holds stock in “book entry” form.
Penn West Petroleum Ltd (TSX: PWT, NYSE: PWE), for example, issued a press release last week and notified its shareholders of the impending change, a proactive step it took because of the fact that a significant proportion of its shareholder base is comprised of individual investors as opposed to institutions. According to Penn West:
Registered non-resident shareholders whose names appear on the records of the registrar and transfer agent of Penn West will receive a form directly from Penn West’s transfer agent requesting information to confirm tax treaty eligibility. Until such form is completed and returned to Penn West’s transfer agent, any applicable Tax Treaty Rate will not be applied. To qualify for any applicable Tax Treaty Rate on Penn West’s fourth quarter dividend of $0.27 per share payable on January 13, 2012, registered non-resident shareholders must return such form to Penn West’s transfer agent on or before December 30, 2011.
Non-registered, non-resident shareholders’ eligibility for any applicable Tax Treaty Rate will be determined by each shareholder’s broker and not by Penn West or its transfer agent. Non-registered shares are generally held in a brokerage account and are thus registered in the name of the investor’s broker or a depositary. Certain brokers may require additional information or certifications in order to determine a non-registered shareholder’s eligibility for any applicable Tax Treaty Rate. Non-resident, non-registered shareholders are encouraged to contact their brokers or other tax, legal or financial advisors in the event that they have any questions or concerns in this regard.
Registered shareholders of Penn West stock should complete and remit this form as soon as possible. If you are a registered shareholder of any other Canada-based dividend-paying corporation, whether it was ever a trust or not, complete any such forms if they’ve already been forwarded to you. If you are a registered shareholder of a dividend-paying Canadian corporation and haven’t received such notification as Penn West has provided, it might be a good idea to send an e-mail or phone an investor relations representative at the relevant company.
I’m thinking as long as the illegal weed market remains strong! Mexico should remain a strong treading partner! Canada has the dying market wrapped up in morgues across the USA One thing about being born is you have to Die! So I see them both as strong treading partners in the future!
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