Monday, June 06, 2005

o canada!

For several years now I have had some foreign stocks that are easy to buy on the NYSE, in the form of ADRs. I would rather buy Canadian stocks or bonds directly, on the Toronto Stock Exchange, but they don't make this easy. Few US brokerages will trade in Toronto. And to get an account with a Canadian brokerage you need to be a Canadian resident. The three Canadian companies I ended up choosing are Petro-Canada, Imperial Oil, and Potash Corp (a fertilizer company).

Why Canadian stocks? United States debt levels and the US housing bubble makes me think that US equities are not a good thing to own right now. Assuming that the US dollar will continue to erode, and is at risk of a large, sudden devaluation, I tried to figure out which currencies are most likely to hold value. Four of the world's major, floating currencies are said to be closely linked with their nation's natural resource assets: New Zealand dollar, Australian dollar, South African rand, and the Canadian dollar. In an era of commodity inflation, in which we are now in the middle of, these currencies should appreciate. These currencies might be able to withstand the global flood of inflation. But New Zealand just seems to small and isolated. And Australia seems to have severe environmental problems. South Africa doesn't have much oil. I might buy some of their gold krugerrands, though. and it would be hard to keep up with the news in South Africa.
But Canada - that is a different story. They have huge natural resouce reserves, and good access to the 2 biggest markets for their resources: The USA and China. They have a resonably stable government (I am glad I have not heard about Quebecois secession lately). The have a well run banking system, a free press, and they are close by. I can hear the "News From Canada" on NPR.

So, if you buy a Canadian oil company, the stock can go up two ways:
a) if the price of oil goes up
b) if the Canadian dollar appreciates against the US dollar

I think both these things are likely. They are also very much linked: US dollars are petro-dollars. They are linked to the price of oil, because oil is always traded in US dollars.

BTW, Henry Groppe is an oil analyst who is very bullish on Canadian oil. Read this: Oil Forecasting Legend Paints Dire Energy Picture
At the bottom of this page he says:
...Groppe’s favourite group is the Canadian oil patch. “We would classify Canada as perhaps possessing the most attractive combination of circumstances for energy investment of any place in the world. It is only a quarter as intensely drilled and exploited as the United States” and “I suspect that in the next several years the oil sands reserves will be raised to be higher than Saudi Arabia’s.” In that same vein, Groppe predicts “within 10 years we have Canada as being the largest non-OPEC producer in the world outside of Russia.”

The man puts his money where his mouth is, and says that “90% of all of my equity investment assets are in energy, and 65% of that is Canadian.” He also says, “We think there is still a good long run ahead with the kinds of prices that we see”, which should be a positive, and somewhat comforting for investors in the area, considering Groppe’s enviable and unmatched oil forecasting record, both in longevity and accuracy.

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