Tuesday, April 29, 2008

Canadian economist gloomy, but "sunshine and lollipops" compared to Marc Faber

"My presentation is sunshine and lollipops compared to [Marc Faber's]," said Patricia Croft, chief economist, Philips Hagar & North Investment Management, a Canadian firm. Both spoke at the Refining Wealth Management Conference in Edmonton, Alberta, on April 24. (Read my comments on Faber's presentation). Croft's focus was "Outlook 2008/09--Life in the Aftermath of the Great Global Credit Crisis."

One of Croft's key points: the Canadian dollar is overvalued, so the U.S. dollar will head up.

Over the next nine months to one year, the Canadian dollar is likely to trade vs. the U.S. dollar in the range of 95 cents to $1.10, said Croft. But, "longer-term, the Canadian dollar at parity is significantly overvalued." Based on the OECD's purchasing power statistics, 85 cents to the dollar is more realistic.

Croft expects the U.S. dollar to end 2008 stronger than it is today. Why? It's like the accounting concept of FIFO, "first-in, first-out." The U.S., which was the first to enter recession, will be the first out, she said. She also reckons that an Obama presidency could boost the U.S.

Other observations:
  • The Canadian housing market isn't likely to follow the U.S. example because Canada's mortgage market is more conservative (less than 5% of mortgages are subprime) and Canada is one of only two undervalued real estate markets (the other is Austria).
  • Food price inflation has staying power
  • We're near a major inflection pont for inflation and real interest rates will also rise
  • Good buying opportunities for Canadian investors include Canadian financial debt, Canadian bank stocks, and U.S. stocks
You can view a webcast of Croft's outlook for the second quarter of 2008.

Susan B. Weiner, CFA
Investment Writing
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