14-January-2011

loonie_copy

Dave Rosenberg – Comments on Canadian dollar

+ The C$ will gain at least 20% in the next 5 years, and he believes this forecast will prove to be conservative, not bold. Supported by:

1) Investors are allocating capital towards those regions of the world that offer a secure yield.

2) Investors will be attracted to the Canadian stock market which outperformed the US in US dollar terms in 7 of the past 8 years.

3) The front end of the Government of Canada curve offers a 113 basis point premium over US Treasuries.

4) The long Canada bond is now 88 basis points below US comparable levels, indicating long term stability.

5) Canada is the only G7 country with a credible federal government plan to balance the books over the next five years.

6) Canada promotes domestic competitiveness via a schedule of reducing corporate tax rates from 18% down to 15%.

China

+ Increased bank reserves by 50 bps; 4 increase in the past 2 months.

+ Imposed a car-buying lottery to relieve Beijing traffic; only 20,000 applicants will be able to buy license plates this month.

+ Confirmed its first test-flight of a stealth-fighter jet this week.

Tidbits

Canada’s trade deficit narrowed sharply at the end of 2010 due to a 3.2% drop in imports.