12. September 2009 by Dan Walkow, CFA, CMT.

Canada is no stranger to US protectionist policies, to witt; the ongoing bullying of Canada’s softwood lumber industry which has been under attack from special interest groups in the USA for decades now. Ongoing actions by the US have all but brought the Canadian forest product industry to its knees.

So it comes as no suprise that over the past few weeks the US administration has responded to constiuant demands and levied heavy import taxes and duties on China.

On September 9th the US Commerce department levied duties of up to 31% on steel pipe from China.

Yesterday President Obama responded to the tire lobby and imposed a duties on tires from China and the duty starts at 35%. Needless to say the Chinese are not happy.

These actions on top of the recent measure against Mexico where the USA will no longer allow Mexican truckers to operate in the USA.

The American bailout program and subsidies have got Brazil’s attention. In particular Brazil recently brought a case of American cotton subsidies to the WTO and won.

It would appear the labour lobby in the USA has the ear of the administration and these actions are extremely punitive to free trade and the overall economic recovery.

This is shaping up to be a major trade war with the USA against everybody else, expect retaliatory measures, this story is far from over and given what happened historically when protectionism and trades wars erupt the prognosis is not good.

Posted in protectionism, Economics | No Comments »

11. September 2009 by Dan Walkow, CFA, CMT.

US mutual fund investors sold over 4 billion dollars of equity mutual funds over the last week. What did they do with the money? Invested it in bond funds of course, to the tune of 12 billion.

At the same time the US stock market, as measured by the Standard & Poors 500, rose 4% over the same period.

Investment returns on bonds are at multi-year lows yet retail investors would rather take miniscule investment returns so “THEIR INVESTMENT IS SAFE” or is it?

In my opinion investing in bond mutual funds could be one of the more risker trades at this junture. As the economy recovers, along with the demand for capital, interest rates will rise thereby pressuring bond prices and bond mutual funds in particular lower and perhaps much lower. NO SAFTEY HERE EXCEPT FOR VERY SHORT TERM BONDS.

Conversely when you study the Commitment of Traders Report (COT) it also shows that retail investors are fleeing the market while at the same time it shows that professional traders and investors are becoming more bullish. This makes sense. If retail investors are leaving the market but it keeps going up then somebody is buying more than enough to soak up the selling but enough to move the market forward by more than 4%.

Someone is wrong here and my money is on the institutional side as the opposed to the retail investor. This market wants to go higher!

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8. September 2009 by Dan Walkow, CFA, CMT.

In another sign of economic recovery, benchmark 1-gigabit computer-memory chip climbed to a 1-year high of $1.71, an indication of increased demand, according to Dramexchange Technology, operator of Asia’s biggest spot market for the chips.

Just to give you an idea of the profitability of the chip business consider that 1 gig of memory for your computer costs $ 1.71 to make and retails here in Vancouver for about $60. Thats the no name brand! Seems like good margins to me.

I am of the view that we are in for a technology cycle upgrade over the next two years where a new operating system from Microsoft, suppressed corporate spending and capacity busting usage of the Internet will propel a strong market recovery in the technology sector. The technology sector has been the best performing sector since the lows in March and I suspect it will continue for some time to come.

Posted in Investments | No Comments »

7. September 2009 by Dan Walkow, CFA, CMT.

(Click on the charts to enlarge, charts courtesy of Stockcharts.com)

Is the Canadian dollar ready to resume it’s advance? You can see that the leading “commodity currencies” are the Australian dollar, the South African Rand and the Canadian dollar. Both the Rand and the Aussie dollar “have broken out” and it would appear the Canadian dollar is ready to do the same.

Lots of talk this weekend on a ” new world reserve currency” such as the IMF SDRs discussed here a post or two ago. I suspect this possible currency relignment talk is pushing things along currency-wise and in particular the possiblity of a reduced role of the USD.

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5. September 2009 by Dan Walkow, CFA, CMT.

Most people have never heard of the International Monetary Fund (IMF) never mind what Special Drawing Rights (SDRs) are. The IMF is like an international bank where various countries “own” or contribute funds in proportion to their GDP. Sort of.

SDRs are the “currency of the IMF”. There is renewed interest in the SDRs, particularly by the BRIC countries who want to become less reliant on the US dollar as a reserve currency.

At the G20 meeting this weekend there is a “bun-fight” on realigning the proportionate weightings of each country’s SDR allocation relative to their GDP.

As it stands today Europe is over-weighted and the BRICs are under-weighted. The politics are hot and heavy.

Why is this worth paying attention to? It impacts investment policy as it has a direct impact on investing in BRIC securities as well as protecting oneself against a continued devaluation of the USD.

Over time, if the BRICs continue to grow the SDRs must be realigned, but in the short term it is all politics.

Read more at the WSJ.

Posted in Currencies | No Comments »