August 17, 2010, 5:00 am

Use The Loonie’s Strength To Invest In the Eagle Market

by: The Financial Blogger    Category: Investing Ideas,Investment, Market and Risk,Trading
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I actually like what is going on in the markets right now as I believe there is a huge opportunity for us to make money over the long term. While many investors thing the stock market is sick, I’d say it is just another rough patch to ignore.

The good side of things is that our Canadian dollar is still pretty strong (fluctuating between $0.95 and $1.00 US) and the US stock market hasn’t recovered as it should have (keep reading to know why).

This should give you 2 great reasons to think about investing in the US stock market:

Our dollar is strong

The fact that our dollar is strong compared to US money is really good news. We presently benefit from the good reputation of our economy (thanks to our Canadian Banks 😉 ). This brings more foreign investors to invest in Canada (either in our stock market or via Canadian bonds, government and corporate). We also host several major players in the oil and gold industries. Since China and India are still very hungry for these resources, our Canadian dollar has remained at a higher level than usual.

However, I think that once the concerns about the US economy are resolved, our dollar will start going down again. The US has a more diversified economy and was built with strong companies with a lot a liquidity and positive cash flows. Sooner or later, this will have an impact on their economy and it will recover from their housing-bubble-credit-swap mess.

In the meantime, it gives you a great opportunity to convert strong Canadian dollars into weak US dollars and buy US stocks. And this leads me to my second point:

US Stocks are being ignored

Since the credit crunch in 2008, there is a cloud of fear over the head of the US stock market. People seem to think that all companies have the H1N1 virus and we best kept our distance from them.

After further analysis, I have realized there are several interesting plays to make on the stock market. If you just take into consideration their PE ratios, you will notice that some US stocks are just ignored by most investors:

CompanyTickerPrice (Aug 13th 2010PE RatioDividend Yield
Colgate PalmoliveCL$77.0218.382.75%
Hewlett PackardHPQ$40.1411.410.80%
Johnson & JohnsonJNJ$58.5212.093.69%
M&T BankMTB$85.1918.343.29%
Procter & GamblePG$59.99173.21%

As you can see, you can probably find great investing opportunities with some companies providing serious dividend payouts as well. If you are looking for a long term investment such as inside an RRSP, I think that some US investments couldn’t hurt ;-).

If you are not completely decided as to which stocks to buy, you can also consider US index ETFs or mutual funds (you can look at this article for more small portfolio investment ideas: investing a $1,000 or less). But take one that is not hedged against the currency to make sure to benefit from the future Canadian dollar drop (it may happen faster than we think if you agree with the idea that we are about to burst the Canadian housing bubble soon…).

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Hey Mike,

I don’t think the bubble will be bursting(a la USA) for Canadian housing, at least not on a national scale. However, i do believe that we might see a slowdown and a slight drop in prices which is normal given every man and his dog bought in in the first half of 2010 before the rates went up. So no bursting for me.

Keep in mind that the loonie is now considered a Petro-Dollar. We are the top oil exporter to the USA. In order for the loonie to fall back substantially we need the price of resources to collapse on a global scale. If that happens, i wonder what state will the US economy be in, definitely not better than ours.


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