Five Reasons to Invest in Canada

iShares MSCI Canada Index (EWC) provides investment results of publicly traded securities in the Canadian market. Following are 5 reasons I am buying EWC now:

1.“Peak Oil” theory. As shown in chart below, NYMEX Feb 09's crude oil price is $40.8 and Dec 09’s price is $58.45. Though it is unlikely that the oil price will be back to its all time high of $147 set last summer, it is unlikely to stay in the $40 range too long either. In theory, traders can physical buy oil at $40.8, rent tankers to store it, then sell at $58.45 a year later and make a nice 43% premium. (Of course you need to deduct interest charges and storage costs, including insurance.)

Canada is basically a resource-based economy. According to Yahoo Finance, Industrial Materials (15.6%) and Energy (26.3%) sectors account for more than 41.9% of EWC, with such main players in industry such as Canadian Natural Resources (CNQ), Encana Corp. (ECA) and Suncor Energy Inc. (SU).

2.The US dollar will plunge. With a trillion+ dollars of stimulus planned, sooner or later the US dollar will depreciate. Accordingly, foreign country ETFs such as EWC will appreciate, other things being equal. Besides, you certainly want gold in your portfolio if you believe US dollars will plunge. The biggest and second biggest gold companies (based on market cap) in North America are Canadian companies: Barrick Gold (ABX) and Goldcorp Inc (GG).

3.Thanks to the Canadian government’s conservative regulation, Canada’s financial system is in much better shape than the US’s.

4.Unlike the US’s proposed $1.2 trillion deficit in 2009, Canada is the only G8 country still running a surplus (until last month).

5.For years, the US unemployment rate was around 1% – 1.5% lower than Canada’s. However, now it is 7.2%, while Canada's is 6.6%.

You can certainly buy each individual ETFs such as OIL and GLD. However, those commodities ETFs don’t pay you dividends of 2.8% like EWC does.

Disclosure: I am long EWC.

Comments

[cjwirth:]

Investing in Canada for the short term is wise, but not for the long term.

Because of the Peak Oil ever worsening economic depression, eventually all investments will decline in value as oil production slows. This includes the tar sands. As natural gas production declines, tar sands production will cease.

In the long run, declining oil production means that land will become more valuable. But surviving on land in colder areas will be tough without oil.

With increasing costs for gasoline and diesel, along with declining taxes and declining gasoline tax revenues, states and local governments will eventually have to cut staff and curtail highway maintenance. Eventually, gasoline stations will close, and state and local highway workers won’t be able to get to work. We are facing the collapse of the highways that depend on diesel and gasoline powered trucks for bridge maintenance, culvert cleaning to avoid road washouts, snow plowing, and roadbed and surface repair. When the highways fail, so will the power grid, as highways carry the parts, large transformers, steel for pylons, and high tension cables from great distances. With the highways out, there will be no food coming from far away, and without the power grid virtually nothing modern works, including home heating, pumping of gasoline and diesel, airports, communications, and automated building systems.

Cutting and moving wood without trucks, horses, and wagons will be a major effort and very time consuming. There are not many horses around and it will take decades to breed enough horses to go around. Horses require food, care, vets, and medicine. No one is making wagons these days locally.

Wood stoves break, just like everything else. You could keep one or 2 extras, but eventually you have none and can't get more, because there is no transportation on the highways.

Asphalt roof shingles need to be replaced, and houses need to be painted and maintained.

Food must be grown in with a short growing season, and all of the farm stuff that used to be in a 1890 Sears catalog is no longer available. Last summer I took a tour of a farm and saw how dependent farming is on oil -- transportation and manufacture of plastic feeding bowls, containers to store grains/feeds, straw, roofs for animals and storage areas, wire, rope, wood boards, cement, fencing, antibiotics for animals, asphalt shingles etc. Seed and hardware used to be available at the local hardware store, no more.

Then there is clothing which is manufactured and transported from afar. Making cloth is a major operation from growing cotton to making cloth. I have studied the textile mills of Lowell National Historical Park in Lowell, MA for years, as I used it as an example of the confluence of capital, technology, and labor for a course I taught on Global Urban Politics at the University of New Hampshire. I know that the parts in those factories were manufactured in many places with a vast transportation network. After the last power blackout, those factories will not be built again. And there are not many sheep around, nor animals to make wool or leather cloth out of. Eventually down coats and comforters wear out, as do blankets. It sounds like just keeping warm will be a major problem.

Documented here: www.peakoilassociates....

I used to live in NH-USA, but moved to a sustainable place. Anyone interested in relocating to a nice, pretty, sustainable area with a good climate, rain, and good soil? Email: clifford dot wirth at yahoo dot com or give me a phone call which operates here as my old USA-NH number 603-668-4207. survivingpeakoil.blogs.../

Jan 12 08:42 AM

[nym:]

When did NH get "a good climate"? Why wasn't I notified? You might have mentioned going back to using stored pond ice for refrigeration.

Jan 12 11:00 AM

[fran:]

don't fail to consider two factors--
1] are the finacials conducted in loonies or dollars?

2]trading partnership relationship--who is buying how much from whom? with what currency

Jan 12 11:05 AM

[bernie 1:]

Hao Jin didn't mention if he is a resident of Canada or elseware. We who invest are not doing it because we love smelly black oil or the other fuels that are being touted. We are in it to try to make a profit on our investments. I have three Royalty Trusts from Canada,an ETF from Canada & all of these are in my retirement fund. Before my dividends are paid 15% comes out for Canadian taxes. As I pay no U.S. tax in my retirement account I still do well. But now the treasury minister of Canada wants to add enough tax in four years to bring me up to about 64% tax on these investments. I do hope that he doesn't think we in the U.S.A. will keep investing up North under those conditions. Doing business outside of the U.S.A. is fine as long as it's financially viable. If these outragous taxes go through in the next four years does he really think Americans will put their investment money in Canada? I think not.

Jan 12 11:07 AM

[gordontravels:]

I think it's wise to consider who else uses oil. Some of the largest countries in population want the life we in the states and Canada have. Dow Chemical produces over 30,000 products and need oil. Each and every machine needs oil and fuel.

What is stopping OPEC and Russia from discontinuing market prices and simply setting prices? Even poor Venezuela under the Socialist has priced their economy at $60 a barrel. Mexico's largest field is sucking in salt water and production has declined over the past few years to near 1 million barrels a day and they will become a net importer of oil in less than 5 years. Many major fields around the world are now in decline and injection technology is expensive. Then there's war.

I don't mind riding a horse but it won't be necessary even though I live out in the country. The high prices we just experienced taught many to conserve and the drop in price hasn't turned that around... yet. The U.S. is using 2% less gasoline now than it was this time last year. Oil is being held and refinery capacity is static. One slip and prices go up. Gasoline here was 1.499 a gallon last month. It is now 1.75. The industry will survive and even with alternative energy....

You buy 100 barrels of oil at $40 a barrel. You cut your use and buy 50 barrels and the price is $80 a barrel. What is to stop this from happening?

If the taxes go up in Canada then I would surely look for something that wouldn't eat into my profits. Canada may soon open a stimulus package said to be $50 Billion which is 10% of their GDP. Much less than the U.S. and under a conservative government.

Although I don't consider myself happy to invest in a Socialist Nation I think the opportunities in Canada are good and maybe in the short term or mid... as for the long term... that takes more time to see.

Jan 19 07:13 PM