Invest in Canada » Natural Resources

What’s behind the loonie’s rise?

Maximillian — Mon, 03 Aug 2009 15:51:44 +0000

Last week’s rosy economic outlook by the Bank of Canada – it declared the recession over – helped boost the dollar (CAD/USD-I0.940.011.07%) . Currency markets shrugged off Bank of Canada Governor Mark Carney’s caution that a high dollar could hamper the recovery, focusing instead on his comment that Canada is emerging from the recession in much better shape than most other industrialized nations.

Currency traders are betting that a U.S. recovery will spark a global recovery “and Canada will be the beneficiary of that,” Bank of Nova Scotia currency strategist Camilla Sutton said this week.

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Why Canada could prove a safe bet in this global downturn

investor — Sat, 14 Mar 2009 18:13:51 +0000

Things aren’t looking great for the global economy.

With the bursting of the US housing bubble, it seems more than likely that the world’s most important consumers – the American public – will finally be forced to stop spending, as the equity in their homes disappears. That’s bad news for the rest of us.

As Morgan Stanley economist Stephen Roach puts it: “An unbalanced world remains highly vulnerable to a consolidation of the asset-dependent American consumer.” In other words much of the rest of the world – China in particular – has been relying on US consumers buying their goods to keep their economies thriving.

But in turn, the US consumer has been relying on never-ending house price growth to fuel their spending, in the form of borrowing against the equity in their houses. Now that house price growth has crashed, there’s no more money left in the piggy bank – in fact, many Americans are getting nasty shocks that they actually owe the piggy bank money.

Searching for safe havens

So investors might want to start looking for safe havens. The US slump is being felt in all the major world markets, but there is one region standing out as being a good bet for the longer term. Ironically enough, this safe haven is not terribly far away from the US – in fact, it’s just north of the border.

Canada has a great deal to recommend it. At a time when the commodities sector is doing better than expected in this economic downturn, it is sitting on vast reserves of gold, uranium and nickel, to mention just a few of its natural resources. It also happens to have the second-largest oil reserves in the world after Saudi Arabia, in the form of the Alberta tar sands. It’s not easy to get oil out of the sands – in fact it is very expensive, but with the price of oil slowly creeping up, it will be viable to extract the oil.

Water, water, everywhere

Canada also has an even more important liquid in abundance. A global water shortage is threatening the economic development of both China and India. A full 30% of the global population is expected to experience water shortages by 2025, according to the Centre for Strategic and International Studies. But Canada is one of the most water-rich countries in the world – in fact, it may even be exporting water by then.

And Canada is one of the few developed countries that has not suffered a massive house price crash. Certainly, areas such as Alberta have seen prices soar and drop, boosted by the tar sands. But elsewhere in the country, single-digit annual growth and now decline is more the norm.

Too reliant on the US?

The only concern is that Canada does most of its export business with the US – this accounts for about a third of Canada’s GDP. So the country is by no means immune to a slowdown in its neighbour to the south. But it is also expanding its business relationships with China – the far-eastern giant has been hunting all over the world for resources to feed its expanding economy, and it is now working on a deal to create a pipeline supplying oil from Canada to Asia. And if the resources boom continues, Canada is one of the best-placed developed economies to benefit.

Alberta slips into recession

investor — Thu, 19 Feb 2009 22:19:19 +0000

Falling stock prices and energy revenues have hit Alberta hard, and the debt-free province is now expected to post a $1-billion deficit – its first budget shortfall in 15 years.

It’s a major reversal from even last August, when government officials were projecting Alberta would rake in an $8.5-billion surplus by the end of the 2008-09 fiscal year.

Alberta Finance Minister Iris Evans said the province’s Heritage Savings Trust Fund, a rainy-day savings hit, has been hit particularly hard by the current global financial turmoil. There are estimates its value has dropped by $3-billion from $17-billion.

She said the Progressive Conservative government, which has governed Alberta since 1971, is looking at ways to cut spending. However, she said the government has no immediate plans to abandon a $2-billion carbon capture and storage project. The aim of the project, in part, is to clean up the province’s image as an environmental wasteland.

Ms. Evans said that while Alberta has entered a “sharp period of recession” and will likely shed 50 jobs a day in the coming year, its economic position is still enviable when compared to other jurisdictions.

“This is like riding a very bad tidal wave, but in the best boat possible,” she said. “Alberta has absolutely got more resources available to it than anybody else facing a decline. Where are they going to get the money from?”

Opposition parties have been warning for years that the Tory government’s spending was out of control, and that it was not doing enough to save the eye-popping surpluses it was reaping from soaring oil and natural-gas royalties.

In 2007, the finance minister of the day, Lyle Oberg, speculated a deficit was possible if the province could not rein in its runaway spending. Since 2005-06, total government spending has jumped at least 32 per cent and per capita spending has been higher than that of any other provincial government.

Economist Andre Plourde says it should come as no surprise that the resource-based economy is taking a hit now that oil prices have dropped from a summer high of US$147 a barrel to below US$35.

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Now is the chance to make money in Oil.

investor — Tue, 17 Feb 2009 17:04:22 +0000

While no one seems to be looking, the oil sands landscape is poised to change once again as global oil majors take steps to stake out even bigger holdings.

But in contrast to the last wave of foreign takeovers, made at hefty premiums and sometimes for marginal properties, multi-nationals including Paris-based Total SA, London-based BP PLC and Irving, Tex.-based Exxon Mobil Corp. are hunting for top-drawer properties at today’s cheap stock prices or taking advantage of the sector’s downturn to bolster their presence.

As one investment banker put it: “If you are a major, this is a once-in-a-generation opportunity to build a huge position.”

Why now? Oil majors remain financially healthy even in today’s depressed oil-price environment; they’ve been in the business long enough to know that oil prices are cyclical and that the current downturn won’t last; those that missed acquisition opportunities in the past see the current downturn as a re-entry point at low prices; they see access to new reserves globally as a challenge; they have refineries in the United States that need feedstock; there are plenty of buying opportunities that were not there when oil prices were high.

No bottom yet for falling commodities, Scotiabank finds

investor — Thu, 29 Jan 2009 20:28:48 +0000

Global commodity prices have not yet hit bottom, but they are not falling as fast as they have been, Bank of Nova Scotia said Thursday.

“The pace of decline is slowing and the forced, indiscriminate asset selling by funds – triggered by investor redemptions and tight credit – appears to be subsiding,” Patricia Mohr, vice-president of economics and commodity market specialist at the bank, said in a monthly report.

“Many prices are approaching average world cash costs, triggering substantial production cuts, new project deferral and tighter supplies.”

The report showed that Scotiabank’s commodity price index fell in December for the fifth month in a row, this time dropping to 164.5 from 174.1 in November, a decline of 5.5 per cent.

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The waning of the boom

investor — Mon, 29 Dec 2008 18:08:21 +0000

Hungry young tradesmen like Evan Brewer used to be as plentiful on the ground in Fort McMurray as chips at the Boomtown Casino. They’d get off the plane from Atlantic Canada and score big money in the oil sands.

Now Mr. Brewer feels like one of the last of an endangered species. “I just got in under the wire,” says the 23-year-old journeyman welder from Fredericton, as he lines up for the 5 a.m. breakfast of cereal, doughnuts and croissants at the Ace Inn, a favoured downtown hostelry for young men in work boots and hard hats.

With a base pay of $40 an hour and living allowances, Mr. Brewer is pulling down better than $3,000 a week, much more than he ever dreamed of back in New Brunswick, where he was living in his parents’ basement.

But since he signed up at Suncor Energy Inc. in June, the floor has collapsed under the great oil sands bonanza.

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Falling oil prices are hurting the major oil producers

investor — Wed, 26 Nov 2008 17:35:21 +0000

After throwing a wrench into Canada’s oil sands growth and messing up Alberta’s budget surplus, slumping oil prices are beginning to bite into the government budgets of many OPEC members, Tristone Capital Inc. said in a report.

The Calgary-based energy investment dealer said Tuesday cartel outliers Iran and Venezuela are in the toughest spot, requiring oil at US$90 a barrel for their budgets to break even next year, while Nigeria and Bahrain need crude above US$70 a barrel.

Even producers in the Arabian Gulf are getting close to the oil price they need — US$50 a barrel — for their government budgets to break even. Oil settled at US$50.75 a barrel in New York Tuesday, down US$3.75 on worries the U.S. Energy Department will reveal a growth in oil inventories Wednesday, and down nearly US$100 since mid-July.

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Ottawa warns on Gold-backed Web trades

investor — Tue, 27 May 2008 00:00:17 +0000

Canada’s financial intelligence agency warns that criminals may be exploiting Internet-based companies that convert cash into electronic gold, exposing a new front in the international effort to restrict terrorist financing and money laundering.

While other channels of money laundering are successfully being shut down, authorities are increasingly worried about a proliferation of “digital precious metals operators” websites that offer clients a chance to conduct Internet business in units backed by gold and silver rather than paper currencies.

The Financial Transactions and Reports Analysis Centre of Canada, or FINTRAC, says in a report these websites have “achieved critical mass on the Web” and are facilitating millions of transactions on the fringe of the international financial system – the equivalent of a Wild West where legitimate businesses, privacy-seeking individuals and criminals can mingle just out of reach of the law.

At stake is the effectiveness of the financial reporting rules that countries such as the United States, Britain and Canada enacted in response to the Sept. 11, 2001, terrorist attacks. A network that allows individuals to move money around the world means criminals can avoid commercial banks and other financial institutions required to turn over their records to the government.

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