Rising Canadian dollar

Good article in the Montreal gazette, thought I would share. -Bradley

Loonie's rise made in U.S.A.



By JAY BRYAN, The Gazette October 14, 2010 With the Canadian dollar rising near parity with the U.S. greenback yesterday, it's reasonable to ask why this is happening and how far it can go.

While nobody has an entirely clear crystal ball, the answer is that we might see this period of currency strength last for several months, maybe longer. It depends largely on developments south of the border.

This is because the ultra-easy monetary policy of the U.S. is probably the single biggest reason for the loonie's apparent strength.

While Canada has real, durable economic advantages, they aren't enough to push our currency up as far and fast as it's moved in the past several weeks -a gain of about five cents since early September. It's more a case of shrinkage in the yardstick against which we measure our dollar: the once-mighty U.S. greenback.

How long will this be the case?

While we've seen the loonie rise to equality with the U.S. dollar before, it's not usually a long-lasting phenomenon. Canada's economy is far less productive than that of the U.S., and most economists would agree that the fundamental value of our currency is well below that of our big neighbour: maybe 85 to 90 cents.

On the other hand, a currency can stay far above or far below its fundamental value for years if flows of capital keep it there. During most of the 1990s and early 2000s, one could argue convincingly that the loonie should have been trading well above its market value, which was below 63 cents U.S. as recently as 2002.

About then, it began strengthening, until by late 2007, soaring global prices for oil and other resource products, which are big export earners for this country, helped to push our dollar several cents above parity for a few weeks.

It then hovered near parity through the first half of 2008 -until the global financial crisis brought it down to Earth with a thump.

With Canada enjoying a milder downturn and stronger recovery from the recession than the U.S., the loonie bounced from recession lows below 80 cents to hover in the high 90s most of this year, even touching parity briefly last April.

The dollar is now benefiting from rising belief that the U.S. Federal Reserve system is about to resume using a technique it tried in the depth of the financial crisis last year. It's known to economists as quantitative easing, but most people just call it printing money.

The idea is that if an economy doesn't perk up much once a central bank has cut interest rates as low as they can go, this is the major weapon it has left.

It can work largely because the only interest rates a central bank controls directly are short-term ones, but in a very tough economy, it can create new money in order to buy up longer-term bonds and other securities, forcing down longer-term rates, too.

The lower long-term rates could help support the deeply troubled U.S. housing market by making it even cheaper to take a mortgage loan and might also have some impact on businesses that need long-term funding in order to expand.

How does all this affect the Canadian dollar? Well, when it's clear that U.S. interest rates are going to stay low for a long time, the incentive for investors to look elsewhere for a better return on their money becomes pretty strong.

An investor looking for a two-year government bond recently could get 1.32 per cent on a Government of Canada issue, but only a paltry 0.35 per cent on an equivalent U.S. government bond.

This creates enormous pressure for funds to flow out of the U.S. and into countries with higher yields, like Canada.

As well, Canada's resource-heavy stock market has recently looked like an increasingly good bet as the price of commodities like oil and copper soared. Copper is up 32 per cent from its low point in July, calculates Diana Petramala, an economist with the Toronto-Dominion Bank.

How long will the party last? Petramala suspects that with the Bank of Canada likely to halt its campaign of rising interest rates next week, the flow of funds supporting the loonie could taper off, leaving it to subside a bit later this year.

But Douglas Porter, deputy chief economist at BMO Capital Markets, thinks this could be a longer-lasting phenomenon.

The next round of quantitative easing in the U. S, which is likely to begin within another month or so, could have an impact that will last for many months. Meanwhile, resource prices remain strong.

Porter thinks this will maintain pressure on Canada's dollar to reach and surpass parity -he's guessing about $1.05, probably next year -although it's not clear how long this will last.

jbryan@montrealgazette.com.

© Copyright (c) The Montreal Gazette

Read more: http://www.montrealgazette.com/business/Loonie+rise+made/3669514/story.html#ixzz12KufpnR2

US housing struggles

Got an e-mail this morning from Larry Levin, a popular investment trading expert. I thought you might find his information about the housing situation worth a read. In Canada (where I live) we are not seeing the same situations although the significant drop in real estate values can be seen in some of the most urban centres.
Here is an article which shows you what I am talking about:

http://www.montrealgazette.com/business/Housing+much+longer/3444387/story.html

Back to the article of Larry Levin (just so you know he does have a free newsletter that sometimes has some really good material. Enjoy-

Housing Part III


I have already given the details of the two recent housing reports; however, today I'd like to give you "Rosie's" perspective today. Breakfast with Dave is always a good read.

Burning Down the House

Once again, the consensus was fooled. It was looking for 330k on new home sales for July and instead they sank to a record low of 276k units at an annual rate. And, just to add insult to injury, June was revised down, to 315k from 330k. Just as resales undercut the 2009 depressed low by 15%, new home sales have done so by 19%. Imagine that even with mortgage rates down 100 basis points in the past year to historic lows, not to mention at least eight different government programs to spur homeownership, home sales have undercut the recession lows by double-digits.

In the aftermath of a credit bubble burst and a massive asset deflation, trauma has set in. The rupture to confidence and spending from our central bankers’ and policymakers’ willingness to allow the prior credit cycle to go parabolic has come at a heavy price in terms of future economic performance. Attitudes towards discretionary spending, credit and housing have been altered, likely for a generation.

The scars have apparently not healed from the horrific experience with defaults, delinquencies and deleveraging of the past two years — talk about a horror flick in 3D. The number of unsold homes on the market exceeds four million and that does include the shadow bank inventory, which jumped 12% alone in August, according to the venerable housing analyst Ivy Zelman.

Nearly 1 in 4 of the population with a mortgage are “upside down” and as a result are now prisoners in their own home. We have over five million homeowners now either in the foreclosure process or seriously delinquent. The government’s HAMP program was supposed to bail out between 3 and 4 million distressed homeowners and instead we have only had a success rate of fewer than half a million.

Now back to the new home sales data. Every region in the U.S. was down, and down sharply. The homebuilders did not cut their inventory levels and as a result, the backlog of new homes surged to 9.1 months’ supply from 8.0 months in June, which means more discounting and margin squeeze is coming in the homebuilder space. As it stands, median new home prices were sliced 6% in July and this followed on the heels of a 4.7% drop in June. And, at $235,300, average new home prices are down to levels last seen in March 2003, down nearly 30% from the 2007 peak. If the truth be told, if we are talking about reversing all the bubble appreciation that began a decade ago, then we are talking about another 15% downside from here. The excess inventory data alone tell us that this has a realistic chance of occurring.



The high-end market, in particular, is under tremendous pressure. In fact, it is becoming non-existent. Guess how many homes prices above $750k managed to sell in July. Answer — zero, nada, rien; and for the second month in a row. Only 1,000 units priced above 500,000 moved last month. That’s it! Over 80% of the homes that the builders managed to sell were priced for under $300,000. Just another sign of how this remains a full-fledged buyers’ market — at least for the ones that can either afford to put down a downpayment or are creditworthy enough to secure a mortgage loan (keeping in mind that 25% of the household sector does have a sub-600 FICO score).

This is going to sound like a broken record but it took a decade of parabolic credit growth to get the U.S. economy into this deleveraging mess and there is clearly no painless “quick fix” towards bringing household debt into historical realignment with the level of assets and income to support the prevailing level of liabilities. We are talking about $6 trillion of excess debt that has to be extinguished, either by paying it down or by walking away from it (or having it socialized).

Trade well and follow the trend, not the so-called “experts.”

Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.


Larry Levin
larrylevin@tradingadvantage.com
Trading Advantage
(888) 755-3846__

Part 2: trading Covered Calls with LEAPs

OK, so let’s pretend that you have a general understanding of the “Covered Call”. Let’s mention just a couple items that you have to keep in mind before you start on this.

1- You must always be working in what is called “board lots” this means multiples of 100 shares. So, if you have 1 share of IBM stock that your grandpa gave you, you need 99 at least more to trade options on it. 1 contract means 100 shares worth of stock.

2- Make sure that you like the company that you trade Covered calls on. You might have this stock for a while, so if you hate the company, or what they do, don’t buy them. They are plenty of other companies. For example, I eat Kosher, so even Campfire Bacon company is making some great moves, I still don’t want my futures set on a company that I don’t ideologically support.

3- Principle 3: if you don’t understand what this company does, or how they make money, this is generally not one I want to be involved. I like to be able to know how my success is working. In these covered calls, I am owning a portion of a business (although there are other ways to do this as well, but that’s beyond this example). I have to feel confident how their success is coming.

4- You will also notice that options are not always available for all companies. These are usually only traded on larger companies, actively traded, significantly of interest to the public. For me, this is more often US companies, or a Canadian company that trades on a US exchange. This is hardly ever a ‘flash in the pan’ new penny stock.

Which brings me to my second possibility. What if you are dealing with a company that you want to trade options on, but the cost is high.

Case in point: Google (trade symbol GOOG) trades on the Nasdaq) and as of today is trading at 484.78 (business close: June 7). Personally I like this company, I think it could trade a lot higher (the trend however is going the exact wrong direction), but I will pretend for this, that it isn’t. However, 100 shares would cost me almost $50,000. That’s a substantial cost for 1 contract. But, let’s say I really wanted this. The trend is going the right way (remember, this is just an example, the trend is actually dropping a lot). Other indications are also looking positive, so I want to trade this company.



Also, although this chart comes from the program I use, almost every on-line trading program uses these types of charts. They may look different, but if you can get used to looking at them you will gain a lot of understanding.

There is a cheap way to get into this holding without the full cost investment. This is called a LEAP (Long term Equity Position). So, rather then buying the stock I actually buy an option far into the future, and then sell calls on this month over month.

To make this work, you need to understand the principle behind options. Every Option has two parts that make up it’s cost. The first is a built in value. For example, if you have a stock like GOOG and you want to buy the option for $450 (the stock is already trading higher then that, so the difference is it’s built in value). You would have to pay at least the difference between the “strike price” and the price the stock is trading for. (484.78- 450.00= $34.78) remember this is a per share price so in an option of 100 shares (single contract this is still $3478.00).

The other part of an option that makes it’s value is the “time value”. How long does it take before it expires. When an options expires, the time value reaches 0. It drops everyday until that expiration date. You can sure see this in the last few days before the option expires. However, if you have a very long term option (a year or two) there is so much time available that the time value is not really significant. It is mostly the embedded value that makes the difference.

So, let’s go back to our GOOG example. I can buy a Call for GOOG that expires in January 2012 (deep in the money) , a $350 strike point for $167.90. The reason you buy a deep in the money, is you want wiggle room. You don’t want a sudden drop in price that suddenly makes this not work for you. Back to our example, 167.90 for 1 contract is $16,790. It still costly, but not nearly as costly as owning the stock (almost $50,000).

So, now that you have the call, you can sell an option of the stock. In this case, you likely don’t want to really sell the stock. You actually want the ability for the system to create you money. So, I wouldn’t pick an option that is as likely. So, rather then sell a Call at 490.00. I would more likely sell an option at 500.00 or maybe 520.00. So, a June option for 500.00 would make 4.80 per contract (remember this is times 100 $480.00) for 8 days. If you don’t sell the stock (which we don’t really want to do), you turn around and sell an option for July, and August.

What happens if the stock does reach the strike price you set? Well, then you use your “option” to buy the stock cheap (LEAP) which should have also gone up in value to get your stock and then sell to the person who called you out of position. A bit of a pain, but certainly possible.

Your desire is to use this as a system to continue to make you money

What if you get tired of this stock. Maybe Google gets upstaged by some new company, or for some reason you just don’t want this trade anymore. All you have to do is sell of the option for whatever value is left. You chose to be deep in the money so as long as the stock is still trading higher then your option there will always be embedded value.

If you want to hear an audio on this, then listen to the “covered calls with LEAPs” pod cast. This is episode 99.
http://www.podbean.com/podcast-detail?pid=17574

Like I said before some good education…and the price is right (free). God’s continued grace to you and yours. -Brad

Line by line what I do for monthly income

I have been getting requests from friends to show the how of what I have been doing. My business is based on running an investment company. My company (entitle Financial Wisdom Inc.) has a trading account that buys and sells stock and options. There are about a million ways to do this, but I will show you line by line a real example that I am running.
The first tool I will explain is called a “covered call” I own some stock. Some I purchased simply to sell covered calls, some are leftover from my former employers (BMO and BNS). For this example I am using Crocs Inc.



My son (Noah)
and I were looking at stock and saw that this company had a nice positive trend. Basically while so many companies have stock prices going down or sideways (nowhere), this one was actually going up, and going up at a pretty good rate. There is a lot more analysis I did with my son, but this will show you what interested us. The price was also very attractive (about $10.00 a share). So, I bought 1000 shares (or $10,000 worth of the stock). To be honest, my entry price was $10.25. The stock is doing fine, but to be honest, I have no loyalty to the stock. I can keep the stock and sell it as it has an up day, but I am using a covered call plan.
If you sell an option, those options expire on the 3rd Saturday of the month. Yes, I know the markets are closed on Saturday, but that’s just the way it works. US options can be traded (called) at any point in time in the month until expiration. So, today is June 7. The June calls will end on June 19. Since I own this stock, I can sell a contract which says. “Hey, if this stock reaches a certain I price I will sell it to you at that price.” For this contract, people pay money. In my case, I have said I would sell my stock if the price (called the strike point) reaches $11.00 on or before June 19. Remember, I don’t care about holding this stock. If it sells, it sells. There isn’t a lot of time left until expiration, so I only got a price of ($.15) which is a fancy way of saying I got $.15 per share of stock or (.15 X 1000) in this case $150. Had I chose a longer expiration date (3rd week in July) I would have gotten $550.
Whatever happens, I got that money up front, and if I still have the stock on June 20th, I will sell another option for July, and August, and September until someone buys my stock.
I told my wife, it’s a lot like renting a house. I bought a house for $10,000 (you can only imagine what kind of house you could buy for that), buy as a slum rent lord, I am making $150 a month on my apartment. The bonus is not bad tenant. No backed up toilets in the middle of the night. No excuses for rent checks being late.
So, what can happen?
Best case would be: the stock goes to $11.00 If it goes past $11.00 then I will dump my stock at exactly $11.00. Now if the stock price goes to a million per share (no fear of that), then I will say…”bummer I guess I lost that opportunity”, but if the stock hits $11.01 on or before market close on June 18, then I will likely be called out of position. They will buy my stock. I will have made .75 per share ($750.00) plus the $150 up front money. Total $900. I made the money with a $10,000 investment, so my yield is actually 9%. That sounds pretty good, but you need to understand, that would be 9% in a 30 day time line. If, I could keep this up, my yield would be 9% times 12 months or 108% for the year. So my $10,000 would make $10,800 (and I would still have the $10,000. By the way, this it totally utopian. This is not likely to happen under any circumstances, but I am laying out the best case scenario.
Possibility 2: I think Croc (trade symbol CROX on the NASDQ exchange) will hit $11.00 maybe not by June 18, but sometime. If, we reach June 19 and we are still under $11.00, then I will make sure I have the same deal set up for July, and August etc. until my stock is sold. I collect my slum lord rent checks.
Possibility 3: Bought the stock at $10.25 what if the stock goes down. Can I still sell options on it? Yup. It helps to curb even a small amount of loss month over month.
Possibility 4: Crox appears to be a flash in the pan (maybe they are lying about the money they are making). Maybe no one really buys those cheap comfy sandals. Maybe everyone finds out about this at once by a CNN expose. The stock collapses and 0. In this case, I have lost my stake $10,000. I still get to keep the monthly premium until the stock has no value. By the way, I also don’t think this is likely.
There are many variations of how we do this, but I wanted to put this one out. If you can follow this, you can also understand some more advance plans that I will explain later.

U.S. inflation expected to decline further: BMO

This article taken from the Financial Post. It sounds good (limited inflation for US economy, but if you read the details as to the why, you see all is not as roseyas one might suspect. Enjoy, Brad

By John Shmuel May 31, 2010 – 10:35 am

Inflation in the U.S. remains weak and is expected to decline further despite a surprisingly solid American economic recovery, according to BMO Capital Markets analyst Sal Guatieri.

Core consumer prices have risen 0.9% year-over-year from 2009. Much of that has been bolstered by a 38.3% hike in gasoline prices during that period. Without gasoline, consumer prices have increased a mere 0.5%.

Mr. Guatieri notes that inflation will likely continue to decline further because of several stress factors on the economy. That includes a high unemployment rate which is keeping consumer spending in check.

“The unemployment rate is about four-to-five percentage points above its steady-inflation level. The current high rate discourages workers from demanding wage increases, while draining pricing power from retailers,” he writes in his report titled Deflation Déjà Vu. A high vacancy rate meanwhile will also drag down inflation.

“Rents should continue to soften in the wake of a near record-high 10.6% rental vacancy rate and record-high mortgage delinquencies and foreclosure inventories,” Mr. Guatieri notes.

The disinflation, as Mr. Guatieri refers to it, contrasts with gains made in Canada, where the inflation rate rose in April and retail prices surged.

Canada’s April inflation rate was 1.8%, compared with 1.4% in March, according to Statistics Canada. The April increase caused the country’s core rate to edge up to 1.9%.

Despite continuing decreases in inflation in the U.S., Mr. Guatieri highlights a number of factors will prevent deflation from taking root.

Some services, such as medical care and education, are not considered to be in excess supply and will keep balance out deflationary elements such as rental prices. Mr. Guatieri also highlights that expectations remain near the preferred 2% inflation rate. He also points to a rise in commodity prices due to global demand and an expected GDP growth number of 3% as reasons that will alleviate the downward pressure on deflation.

“All in, these factors will likely prevent CPI inflation from slipping below 1% and core inflation from breaching 0.5% this year, and could lift inflation slightly in 2011,” he writes in his report.


John Shmuel

US Mortgage Delinquencies Rose and Spread in Q1 | EconomyWatch.com

US Mortgage Delinquencies Rose and Spread in Q1 | EconomyWatch.com

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Really good article comparing Quebec and Greece

Great article, wish I had written it, but thought it would be good to share. Enjoy.

The disturbing similarities between Quebec and Greece

By Licia Corbela, Canwest News Service May 11, 2010 In Greece, citizens on average, retire at age of 58.

Germans, who are helping bail out the bankrupt Greeks, work on average until the age of 65. Naturally, German citizens are wondering how this can be considered fair. Why should they work seven years longer on average so Greek citizens can live a life of leisure and be less productive?

What's more, in Germany, most working people pay taxes. In Greece, only 20 per cent pay taxes. Again, unfair. And yet equalization between "have" European Union states and "have not" European Union states continues, even though it's not making things equal -- it's rewarding laziness, leisure and possibly even criminal tax evasion. Why pay taxes if some hard-working Germans will do it for you? Thus the riots in Greece. They believe they are entitled to those entitlements.

Dysfunctional? You bet. Canadians would never stand for such a thing, right? Think again.

Equalization in Canada was established to ensure that "have-not" regions could enjoy the same programs as "have" regions and most Canadians wouldn't quibble with that. But that has not happened. In fact, the reverse has occurred. The have provinces have fewer services than the have-nots.

According to a Dec. 2009 report by the Institute of Statistics of Quebec, Quebecers' average age of retirement is 62 whereas in the rest of Canada it is almost 65. While the Quebec Pension Plan and Canada Pension Plans are identical and carry the same penalties for collecting your pension earlier than 65, those who stop working earlier are less productive and contribute less to Canadian society in terms of income and taxes.

In light of the fact that Quebec received $8.6 billion in equalization payments in 2010-11 out of a total equalization pot of $14.4 billion, it's safe to say that citizens in Canada's "have" provinces -- British Columbia, Alberta and Ontario -- are paying for Quebecers' early retirement, as theirs is the only province which has such a generous, early retirement benefit.

In other words, equalization is not very equal.

What's more, Quebecers can take advantage of $7-a-day daycare, whereas, in most other provinces, $7 wouldn't even buy you an hour of daycare.

Quebec has a generous pharmaceutical program unlike any other in the country, and Quebec university students pay considerably less for tuition within Quebec than students from elsewhere in the country.

To attend McGill University in 2010, Quebec students pay $3,475 for tuition and fees. An out-of-province student attending McGill pays $7,008, or $3,533 more than a Quebec student -- more than double. Five of the six cheapest universities in Canada are in Quebec -- but they're only the cheapest for Quebecers. Those same universities are among the most expensive in Canada for non-Quebecers.

Sherbrooke has the lowest university tuition and fees in the entire country -- but again, only for Quebecers, who pay just $2,381. To attend the same university, a non-Quebecer, from Alberta, for instance, must pay $5,914 or $3,533 more than his Quebec colleague. When that Alberta student works through the summer in Alberta to save for tuition and living expenses, the taxes he or she will pay helps subsidize the Quebec student's tuition.

Lately, Quebecers such as Conservative MP Maxime Bernier have criticized Quebec's overreliance on equalization, saying Quebecers are "spoiled children."

That's got Quebec's provincial government fighting back. In its 2010-11 budget document, the Jean Charest government is arguing that it should receive even more equalization than it's getting because Alberta's oil industry is keeping the Canadian dollar high, which in turn harms Quebec's manufacturing sector. This is not a joke.

"A rise in the world price of a barrel of oil favours provinces that have that resource," states the budget document in Section E. "However, the rise in the Canadian dollar that accompanies the rising price of oil hampers the exports of the other provinces.

"An adequate equalization program can mitigate this phenomenon by increasing the revenues of provinces that are negatively affected by the rise in the dollar, without reducing the revenues of provinces that benefit from the higher price of oil."

In other words, Quebec, which received $8.6 billion of the $14.4 billion doled out in equalization this year, is arguing that it's not enough. It wants more and it blames Alberta's oil industry for its troubles. It's a curious argument since it can be argued that Alberta's oil industry is fuelling Canada's economy and largely provided the money was sent as equalization to Quebec.

In 2007, the last year Statistics Canada figures are available for all provinces, B.C., Alberta and Ontario were the only provinces that paid more into Confederation than they received. Alberta paid a total of $37.064 billion in taxes and transfers to the federal government and the feds returned $17.567 billion in services and programs, meaning that Alberta contributed $19.5 billion net to the rest of Canada.

But Charest, who complained in Copenhagen that Alberta's oilsands industry "embarrassed" him, is making the argument that despite Alberta's largesse, it's to blame for the trouble Quebec is in.

In short, it's all Greek to Quebec -- and that's frightening.

© Copyright (c) The Vancouver Sun


Read more: http://www.vancouversun.com/business/disturbing+similarities+between+Quebec+Greece/3011792/story.html#ixzz0nixkfSjU