Author Topic: CAD / USD  (Read 6544 times)

no_free_lunch

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Re: CAD / USD
« Reply #10 on: January 04, 2018, 07:16:16 AM »

Not taking it too seriously: 
- The dems will control the House and possibly the senate in 10 months.  The tax cuts will get quietly rolled back (maybe)
- Is Canadian housing really in a bubble or have our prices just normalized to intenational levels?  Dont know the answer, but I am not convinced there is a bubble, any more than London, Paris, Tokyo, or Manhattan are in a bubble. 
- CDN. interest rates are higher than the US. last I looked. 
- Trump/Nafta:  We have professional negotiators as well in Canada.  We can tax the living daylights out of Facebook. Google, Amazon, Apple, and Netflix, and cause far more damage than softwood lumber tarrifs.  The US needs to bargain in good faith or they may find the whole world throwing tarrifs on all those lucrative tech companies.  You can be sure that the above crew has lobbyists working fulltime in DC to block the loss of Nafta and other trade agreements. 
- Oil prices could go very high.  Shale could turn out to be a disappointment.   At a certain oil price there is a US recession - the US net imports 15 M bpd.  Now of course, if the US has a recession we get one as well but highh oil prices mitigate ours a little. 

5 years ago the CDN dollar was greater than par with the US.  Playing this game could very well lose you 25%. 

There are more moving parts than we can possibly account for in these scenarios.  Right now, I see no deals on US stocks (outside the energy sector), to even be bothered with.  For the first time in my investing career of 20 plus years I hold no US companies.  When there is a major correction I have a list but right now I am sitting out the US rally. 

Interest rates are about .5% higher in the US right now across most comparable government bonds.

I appreciate the feedback of NAFTA.  I hope you are right here.

I guess we won't know if Canada housing is a bubble unless it crashes but it sure isn't a bet I want to make, any more than I have to.

I am sticking with my gloomy perspective on oil.  Maybe in the short-term, the next 2-3 years I am wrong but I just can't get optimistic on it.  The US only imports 2.5m bpd so they are not as reliant.


Uccmal

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Re: CAD / USD
« Reply #11 on: January 04, 2018, 09:12:18 AM »
Actually I was wrong about US oil and so were you. 

Last week they imported 8 m bpd.  I think ( but am not sure) that 2.5 m is from Canada.  The 8 m bpd is down somewhat from the past but isn't likely to suddenly stop anytime soon. 

Its good to be gloomy.  I certaintly wouldn't be a buyer of Cdn. residential real estate in this environment which is too bad because I would like to buy a fixer upper and fixer up. 
GARP tending toward value

EliG

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Re: CAD / USD
« Reply #12 on: January 04, 2018, 09:25:52 AM »
My amateurish view is that CAD is a petrocurrency to a very large extent. Long-term positive correlation between CAD and oil is 0.75 - 0.8 (very robust). I am not aware of any other factor that comes close to explaining the changes in CAD/USD rate.



no_free_lunch

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Re: CAD / USD
« Reply #13 on: January 04, 2018, 09:31:16 AM »
UCCMAL,

Just so you don't think I am making things up, this is what I based the 2.5M net imports on.

https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mttntus2&f=m

rb

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Re: CAD / USD
« Reply #14 on: January 04, 2018, 01:02:13 PM »
Ok, that figures that you guys are looking up is for crude and petroleum products. The 2.5 is low because the US exports a lot of gas and gas products.

If we're talking crude oil. The US imported net 5.9 million bbls per day. Out of those net 3 million bbls are from Canada.

wisdom

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Re: CAD / USD
« Reply #15 on: January 04, 2018, 02:53:39 PM »
In Vancouver, property taxes are subsidized for houses valued at $1.65 mil or under because the median household earns $70,000 (the lowest amongst major Canadian cities) and cannot afford to pay taxes having made interest only payments on their home equity line of credit. The average house in this city peaked at $1.8 mil and condos are around $650k.

When prime was at 2.7%, it only cost $2,700 a month ($32,000 annually) in interest only payments on a $1 million mortgage to own. Which was around the same as rent.

Even long time holders have large mortgages now as the bubble made them believe and they now own fancy cars, furniture, bought a revenue property or 10, helped their kids with down payments because they could not afford to buy.

Looking around at the activity in the market this week - Vancouver is toast if it does not change soon. Hasn't been like this in years. R.I.P.

PS. If the housing bubble goes, Canada will be in a recession.

HalfMeasure

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Re: CAD / USD
« Reply #16 on: January 04, 2018, 03:08:03 PM »
I had a bit of an eye opening conversation with a friend - a teacher earning ~ 75K/yr.

On the topic of investments, he told me how he had purchased multiple properties - one for rent and had recently flipped another one.  Both close to the Toronto area.

Me: So how did you manage to finance the down payments?
Reply:  Well, you can purchase with 0$ down.
Me: Really?  What lender?
Reply: Any lender?
Me:  What????

It turns out, you can 'purchase' your down payment through private lenders who will lend you $50K - $150K at 7 - 10% Interest rates. 
You lie on the mortgage application.  There are no real verifications.

Its actually genius:  if you have some (any) cash flow, you purchase multiple houses for no money down in this fashion, flip them (declare them your primary residence) and book the profits.  You can't loose - house prices go up as there is a greater fool/genius doing the same thing.  Banks appraise the homes at the higher valuation and issue larger mortgages.   And hey, if the housing market crashes - return the keys to the bank and declare bankruptcy- oops...  you still earn your $75K/yr and can afford rent/food like before.   The kicker, is the banks are doing this with the money of the savers who have deposits at the bank backed with insurance by the taxpayer.  It isn't people who purchased houses though loans from their parents or who bought 20 years ago driving up home prices, its the speculators who are flipping.  I think its the same story as the 2008 US housing bubble, except Canadians are laden with more debt than even Americans back then.

One way I see the CDN dollar possibly going up - is if there is a large burst of the credit bubble with asset price deflation, there may be a flight to currency.  All of a sudden, currency/money becomes more valuable as people sell everything - stocks, real estate, collector assets.  However, they may also fly to the USD, gold, crypto etc.  I'm just speculating...

I think I've seen this movie

alpha

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Re: CAD / USD
« Reply #17 on: January 04, 2018, 04:04:41 PM »

Doesn't Canadian crude trade at a steep discount compared to other oil benchmarks because of it's lack of export markets? And aren't they already near their export limit because of lack of pipeline capacity?

My understanding was USA purchases the Canadian oil at a discount because the Canadian sellers have no other export markets?

What about the prices of other natural resources (gold, nickel, uranium, potash, rare earth metals) Isn't Canada in a position to start exporting some of the rare earth metals used in batteries?

rb

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Re: CAD / USD
« Reply #18 on: January 04, 2018, 07:19:34 PM »

Doesn't Canadian crude trade at a steep discount compared to other oil benchmarks because of it's lack of export markets? And aren't they already near their export limit because of lack of pipeline capacity?

My understanding was USA purchases the Canadian oil at a discount because the Canadian sellers have no other export markets?

What about the prices of other natural resources (gold, nickel, uranium, potash, rare earth metals) Isn't Canada in a position to start exporting some of the rare earth metals used in batteries?
Well it's actually a lot more complicated than that. The fact that it's landlocked does play a part in the price. But a huge part of the discount is the fact that Canadian crude is a heavy grade. Heavy crude is cheaper than light crude. So generally you expect WCS to be at a discount to WTI.

Keystone XL also got approved so there's new pipeline capacity coming online. But even without that you can still put it on a train and then on a ship. On top of everything oil isn't really traded but is actually sold to customers. Say that you have XYZ refinery in the Midwest that buys crude from a certain oilfield in Alberta. That refinery is optimized to process that particular crude. Say there's even a pipeline for ABC field to XYZ refinery. The refinery doesn't have many options. It will buy that crude from ABC field. It's not easy for refiners to change suppliers. We call that black stuff oil and think it's all the same but it's really not.

Anyway that's a sort of explanation from a simpleton like me. I'm sure someone from the oil business can explain it better because this stuff is surprisingly complex.

Jerry Capital

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Re: CAD / USD
« Reply #19 on: January 04, 2018, 10:24:52 PM »
The oil price is no longer gonna move CAD (the 2 yr differential will) because GDP from oil production in Canada is now a rounding error.

A sustained move to even $75 per barrel for multiple years would be required to get serious new CAPEX too boost its percentage of GDP enough to be relevant to move the CAD.