The past year Canadian equity investors have ad to accept that the index is likely to more volatile due to its high concentration in two cyclical factors. The market’s volatility over the course of the year serves as a reminder of the importance of international currency diversification within portfolios - not only to help control the effect of being exposed to weakness in the domestic currency market but also to provide exposure to greater breadth and / or a different mixture of foreign currency instruments .
The headwinds created by the rising Canadian dollar currency have eroded return on foreign holdings in recent years.
Clearly the significant role and significant risks clearly highlight the roles played by foreign currencies. While this has been frustrating , it does present investors and speculators an opportunity to acquire foreign currency holdings at a substantially reduced costs versus previous trend and holding patterns.
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Sphere: Related ContentIt has been a remarkable 5 years for the Canadian dollar , currency and equity markets. During 2003, 2004 and 2005
Canadian stocks rose 27% . 14 % and 24% . respectively and it appears that the 2007 market will again be another strong year for currencies , currency and equity financial markets. Strong performance however masks some of the challenges faced by the Canadian , North American , U.S and foreign equity and currency exchange markets.
With roughly 44 % of the Standard and Poors S & P Composite index in energy and materials , Canada’s performance has and will continue to be influenced by the global economy and by extensions - commodities and the foreign currency exchange fluctuations. While the materials sector has performed exceptionally this year due to more than robust earnings and consolidations, the CRB index ( a rough measure of commodity prices standardized for currency fluctuations) is down approximately 17 % from the its May 2006 peak. The year to date decline in oil and gas prices has caused the energy sector to lag the rest of the markets this year.
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Sphere: Related ContentThe Canadian dollar is heading for a new range of around 86 cents slightly improving the relative merits of the Canadian financial exports and export situation. While the Canadian resource sector will remain strong currency wise it will not post the outsized expansion seen since 2003 , due to foreign currency forex factors and forex factors in. Similarly corporate profits will rise , but at a considerably slower pace than in the past several years.
Inflationary pressures will diminish as core inflation values decelerate especially in relation to the US dollar and foreign currency forex merits and factors. Economic growth is likely to continue at sub pace values in Canada and the US as both countries bump against capacity constraints , particularly in the labour market . Construction of commercial , retail and industrial sites will remain strong in lagged response .
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In the coming year , the weakest sectors will begin to show some life as the layoffs and production cuts in manufacturing due to currency adjustments begin to dissipate and the housing market adjusts to interest rates plays from the federal reserve monetary policies.
The Canadian dollar is headed for a range around 86 cents, slightly improving our export positions. While the resource sector will remain strong it will not post the outsized expansion seen since 2001. Similarly corporate financial and currency profits will rise , but at a considerably slower pace in the past few years.
Inflation pressures will diminish as core inflation values decelerate. Interest rates will be maintained a historically lower levels. This will occur with or within Federal Reserve authority directions. Economic growth will likely continue at sub pacing levels and the U.S. economy will be continue to be lumped against financial and foreign currency restraints.
Labor market and labor market costs will continue bump against capacity restraints. Construction of commercial , retail and industrial sites will continue to remain strong. Lagged response to the drop in office vacancy rates and rises in industrial utilization will come into play as this environment bonds will likely perform well. Global diversification os warranted as dollar and dollar resource stock will not longer eclipse other financial growth and forex foreign currency trading investmenting and investments.
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Sphere: Related ContentTurning points were readily apparent in 2006 as most commodity prices crested. The Canadian dollar peaked. Inflation pressures re-emerged and reintegrated reenergized. The fiscal economies of both Canada , the U.S.A and the E.U . slowed.
In this uncertain enviornment the Federal Reserve and the Bank of Canada stopped raising interest rates and moved to the sidelines. In late 2006 a decline in manufacturing was led by the auto industry as production cuts and layoffs continued through out the year end of 2006.. Housing activity in the us nosedived all year , while the second half slowdown in residential activity in the U.K. was relatively mild. Despite these drag on the economy , employment and real incomes grew in both countries and shortages were more than evident.
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Sphere: Related ContentReserves in Saudi Arabia’s humongous Ghawar field which pumps roughly five million barrels of oil per day ( meeting 6 % of world demand) are declining 8 % a year in fact. Saudi oil production has been declining 8 % a year. Saudi oil production has been dropping since 2004.
Mexico’s big oil field Cantarell. peaked in 2004 , are slightly over two million barrels per day. Since then , its production is down to just 1.6 million barrels per day. In the next three years Cantareil will produce less than half a million barrels per day. Soon after that Mexico will have to start importing ooil.
The world consumes 173 billion barrels of oil per day - 14 Prudhoe Bays - every 2.4 years. The world will consume 10 % of the remaining conventional crude pol reserves .
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What can and could be the driving force behind oil’s next surge. In the end the oil market is a dynamic with Russia , with its vast oil, diamond and gold reserves that is the missing card.
The supply chain from the oil well has never been tighter. The International Energy Association sees global oil demand totaling 86.1 million barrels a day ( bpd). That implies year over growth in oil demand of 2 %. The world suppliers ( OPEC supplies 40% of the world’s oil) are currently producing 85 million barrels per day.
Spare petroleum capacity according to the IEA , is capacity that can be turned on for 30 days and sustained for 90 days.
A comfortable level of spare global oil capacity would be five or six million barrels per day. Recently that number has been less than three million bpd. And one to two million bpd of that spare capacity in Saudia Arabia.
Before 1970 , the U.S. had spare capacity. The once rich West Texas oil fields are now populated by thousands of low volume stripper wells.
Indeed there are possibilities that countries that say that they have spare capacity - particularily Saudi and Kuwait- may be overstating their reserves.
Sphere: Related ContentThe End of Cheap Oil and the Coming 20 Trillion Dollar Investment
The end of peak oil has been known for many years . The reality of peal oil is now being felt all over the world. Gas prices are rising steadily. Blood is being shed over dwindling ding oil supplies . Demand for costly energy has an absolute frenzy. Oil pricing has now reached a critical point for investors.
The next twelve months will be crucial. Nine out of ten of the largest oil fiends have already entered into decline. One major oilfield alone has dropped 20 % in production so far.
Oil prices have tripled since 2000 . Oil companies are involved to boost their production and reserves . Shell Oil produced twice as much oil as it discovered. This is in additon to novel oil production sources like oil sands.
Factor in Iran’s strong push toward nuclear weapons and ever increasing rhetoric .
The next twelve months will present the biggest , boldest energy related profits that you will see in decades.
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Sphere: Related ContentTrillion dollar wave of spending coming from a growing Chinese and Indian middle class. Hundreds of millions of people who want things like roads and electricity , plus everything Americans want: 2 cars. a flat screen tv , laptop computers, a nice home a college education for their kids.
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Sphere: Related ContentEven though we had a great first half run in 2007 , that is no the point. While we are on a roll and the markets are having a great run- there are still lots of ways that we are going to beat the Forex Foreign Currrency Exchange Market.
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