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Gal^Stad
Investments Inc.

spacer April 2001
Commentary

As the Canadian dollar once again slinks near historical lows relative to its U.S. counterpart, the outcry from the public and government alike has been conspicuous in its absence. Where is the hand-wringing about our "banana" currency? We doubt that the tepid response has much to do with the fact that the C$ has increased admirably against most foreign currencies; more likely, it reflects a mushy consensus that initiatives to try to increase our currency's value are futile.

What can we do to make it perform better? Generally, the government is on the right course, although the recent election campaign did lead to a few too many promises of new spending that might have waited until the debt was reduced further. But, ho-hum, that's simply the nature of political campaigns.

Of course it is an excellent idea to continue to improve productivity. Naturally, we want to continue to run a budget surplus and reduce the debt. Interest rates should be kept at a low enough level to keep our corporations strong and unemployment low. But what else can Canada capitalize on that is being ignored?

Here's one that is key and which we have mentioned briefly before: the United Nations has once again selected Canada as the best place in the world in which to live. This has been the case for seven years running. The beauty of this is that it isn't Canadians themselves waving Styrofoam fingers and shouting, "We're No. 1!" This is not like the U.S. presidential campaign, where time and again the two hopefuls stated, "America is the best nation in the world in which to live." Self-praise is a faint accolade. An independent body of stature has awarded Canada the blue ribbon.

The irony is rich. Here we have Toronto chasing Olympic gold so that Canada can have a brief couple of weeks in the sun -- and likely lose a cauldron of money. Should a Canadian win the odd gold medal, we'll be ecstatic. But when the country wins the Prix d'Or du Monde as the numero uno nation in the world in which to live, it is greeted with a collective yawn.

We should exploit this honour. Market the heck out of it in a world that thrives on show and tell. This should be the cornerstone of a campaign to attract enterprises and top-notch people to this nation.

What does Canada offer? A relatively small but robust population. A number of cosmopolitan centres, yet nature still within a one-hour drive for most of the population. An exceptionally high standard of living with an educated population. Excellent health standards. Tremendous opportunity and freedom to be what one wants to be. A safe haven for investors. Et cetera, et cetera.

Sure, there are things to gripe about. And when it comes to whining, Canadians are quite expert at grasping the negatives while ignoring the positives. Yeah, yeah, taxes could be reduced. Energy prices sure seem high for a nation with our endowment. The health system is not perfect by any means. We don't have any good sports teams. The weather isn't what it used to be. And there aren't enough golf courses and the wrong people are seemingly profiting from them. Whine, whine.

But let's market this country as the best place in the world to be. Make people in other nations appreciate what we have to offer. The question is: Can Canada, as a great place to live, translate to Canada as a great place to invest? Maybe it is a bit of a stretch, but it is amazing what clever marketing campaigns can do. Whoever dreamed up that "Celtic Tiger" promotion had the right idea. If it does work, demand for Canada, the product, will soar and more and more corporations with their top people will want in. This gain from both a corporate and intellectual standpoint will boost the dollar.

Now, this is not one of those "I Am Joe" three-month marketing plans that immediately leads to more beer being consumed on those steamy summer days. It is a process, one that commences and then is realized over a decade. Forget the taste of instant gratification.

What of this great American dollar that we predicted would drop within two to three years in August 1998 on CBC's This Morning and have anticipated often enough since? How valid is its value? Well, once again psychology rules the roost and it appears to us that the bubble will burst at some point before too long. As wonderful a country as the United States is, and as stable as this currency seems, the American dollar is simply another investment. Like gold. Like real estate. Like technology stocks. There is real value and perceived value, and often the two are anything but the same. Right now, the USD is believed to be the Great Wall against a crunch, insurance against disaster. Something always is. Then the bubble bursts and the asset's value shudders downward. We believe it is coming.

It will follow that foreigners will pump their money out of the USA, exacerbating the country's difficulties with reducing the record current-account deficit. Prices will increase, businesses will tumble, unemployment will jump. That will cause some bankers to retch as they comprehend that their derivative plays are not as astute as they thought. Then the USD will be pounded again, dropping further and longer than is necessary before it starts sashaying back, as happened in the early '80s.

And if President Dubya is still around when the greenback recovers, he'll be imagining his sunny halo on the front of the American thousand-dollar bill, with an oil gusher on the back. In his dream, not only will his glowing visage be transferred from hand to hand in the U.S.ofA., but throughout the Americas as dollarization grows and furthers Yankee predominance.

What of the Canadian dollar? While it should appreciate against the USD, odds are that it will also fall against the bulk of the major currencies. Anyone planning on purchasing a foreign luxury automobile or taking an exotic trip might want to pony up the cash now. Businesses might consider locking in the C$ in the futures game. Industry should target countries where they might be competitive given a lower dollar.

Certainly, though, we do not advocate jumpy, panicky action. Our goal, as long-time readers know, has been to reduce our American exposure. While lately we have been focusing on buying Canadian stocks, it seems that whenever our "Canadian content" gets closer to our goal, there is a tantalizing American buy -- or lately, some excellent Canadian sells. Presently, over 70 percent of our portfolio rests south of the border, and while our objective to pare this remains front and centre, it will happen in increments as circumstances permit.

Back to Canada. What will happen when this nation is stripped of its title as the U.N.'s top country in the roost? The Canadian psyche will suffer a major licking. There will be a public outcry about what has gone wrong. But perhaps the saddest thing is that a major marketing opportunity will have passed, and the occasion to appreciate our status as the best ... will have dissipated. Oh, Canada!

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