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Posts Tagged ‘CAD’

The Big Five Canadian banks and their stocks: Royal Bank of Canada (RY), Toronto-Dominion (TD), Bank of Nova Scotia (BNS), Bank of Montreal (BMO) and Canadian Imperial Bank of Commerce (CM), have been paying common dividends since the 1800s.

BMO, Scotiabank, TD, CIBC, and RBC haven’t missed paying dividends on common shares since 1829, 1832, 1857, 1868, and 1870, respectively.

That is, through WWI, WWII, the Great Depression, all the U.S. and international financial crises, and with and without a central bank.

As of June 30, 2010 prices on the NYSE, their annual dividends are:
RY 3.80%, TD 3.40%, BNS 3.90%, BMO 4.70%, CM 4.90%

Whereas the big five U.S. banks (JP Morgan, Bank of America, Wells Fargo, Citigroup and Goldman Sachs)  are only paying:
JPM 0.50%, BAC 0.30%, WFC 0.70%, C 0%, GS 1.00%

They are also listed on the Toronto Stock Exchange, so you can buy in Canadian dollars to hedge against a declining USD, when appropriate.

In February 2009, I wrote how the Big Five Canadian banks were on pace to dwarf the five biggest U.S. banks, with the the five biggest U.S. banks having twice the market capitalization of the five biggest Canadian banks, despite the U.S. economy being nine times the size of the Canadian economy.

As of the end of June 2010, the five biggest U.S. banks are still less than three times the market capitalization of the five biggest Canadian banks.

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History shows that when the CAD was in the low 60-cent USD range in 2002, it was a great time for those holding USDs to convert some of them into CADs, as in just five years, the CAD reached parity with the USD, for an annualized gain of over 12%.

Then there was the 20% drop in the CAD in less than a full month from September to October 2008, which made it another great buying opportunity.

However, given a CAD in the mid 90-cent USD range, I don’t see many gains coming from the CAD in the medium or long-term, and the reason is the historical policy of the Bank of Canada in intentionally keeping it below parity with the USD.

Here is an article from January about the Bank’s current governor, Mark Carney, chiding a reporter expressing comfort with a 96 cent CAD. The Bank governors, prime ministers, and unfortunately, most Canadians, have this unfortunate notion that the CAD should stay below the USD in value, since it “hurts exports,” despite the fact that exports account for less than half of Canada’s total GDP.

For short-term hedging, it’s possible for the CAD to go on a tear, up to $1.10 USD, as it reached in November 2007, but personally, I wouldn’t count on getting many gains from that versus other investments, until the CAD is down into the 80-cent and low 90-cent USD range.

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Scotia iTRADE, formerly E*TRADE Canada, is a Canadian subsidiary of the Canadian public corporation, the Bank of Nova Scotia.

You’d think that being a Canadian company, it would be no more expensive to trade stocks on Canadian exchanges than U.S. exchanges.

However, as their pricing chart shows, if you have combined assets of less than $50,000 CAD and you made fewer than 30 trades in the past quarter, their commission for Canadian equities over $1.00 is $19.99 CAD, up to 1000 shares, and two cents per share thereafter. For U.S. equities, it’s $19.99 regardless of the amount of shares purchased.

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Gerald Celente of the Trends Research Institute, the man who, according to the Washington Times, accurately predicted “the 1987 stock market crash, the collapse of the Soviet Union in 1991, the 1997 Asian currency crash, and the 2007 subprime mortgage scandal,” was on the Alex Jones Show on May 7, 2010, and said at 1:55:46:

I’m not allowed, by law, to provide financial advice. That’s why I always make it clear — this is what I would do. What I’ve done and I’ve said it over and over again, it’s very simple for me. I buy gold — 80%. The rest of my money, I have hedged. I’m in dollars and I’m in Canadian dollars. One goes up, the other goes down. All I want is wealth preservation. Gold is my wildcard. The other ones, all I want to do is stay in.

For some historical background on gold, it reached an all-time closing high by January 21, 1980, of $850 USD an ounce, not reached again until 28 years later, on January 2, 2008. Its all-time high was reached on December 2, 2009, at $1212.50 USD an ounce. From $255.95 on April 2, 2001, that represents a 474% gain in just under 9 years — a more than 50% annualized return on investment.

Timing is key — From January 21, 1980 to January 1,  2008, your return on investment on gold was negative, while it was 1495% with the Dow Jones Industrial Average. From April 2, 2001 to December 2, 2009, gold’s ROI was 474%, while the DJIA’s was only 6.9%.

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Someone I know tried to send money through Western Union’s online site to a Middle Eastern ally of the United States. Western Union has a limit of $1000 USD or CAD for online transactions.

After completing the transaction online, the person was informed they would have to phone a customer service number and answer some questions in order to complete the transaction within 24 hours, or else it would be cancelled.

After answering standard questions to verify their identity, he was told his online transaction was denied and he’d have to complete the transaction at a local agent, and was given a code to receive a $10 discount. When asked for the reasons for the denial, he was told they couldn’t give him the reasons. Was it because he created the account that same day? Was it because it was his first online transaction? Was it because of the destination country, that it was beyond a certain amount, or a combination of those factors? Whatever the reasons were, they wouldn’t say.

When he showed up at a local agent, he was told the discount code wasn’t recognized there, and he’d have to do a new transaction. While the site reported a transfer fee of $61 for an online transaction and $30 at a local agent, it only ended up costing $19 at the local agent. Despite the questions he was asked during the online transaction and afterwards, by phone, the local agent never asked for any identification — so much for consistency.

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Now available at http://www.scotiamocatta.com/eStore

See today’s press release and their FAQ for more information.

Initial product offering: 5 varieties of gold coins (Canadian Maples from 1/20 oz. to 1 oz.), 7 gold bars (Scotiabank bars from 1/4 oz. to 5 oz.), 1 silver coin (1 oz. Canadian Maple), and 4 silver bars (from 1 oz. to 100 oz.)

Advantages over branch purchases:
– Product and price browsing 24/7
– Can buy from anywhere in Canada and ship to any registered Canadian address
– Can buy from 8:30 a.m. – 5 p.m. EST — an hour earlier and half an hour later than most branches are open on most days
– Can buy in CAD, instead of having to buy in USD

Disadvantages compared to branch visit:
– More limited product inventory
– Can’t buy platinum or palladium products
– Can’t buy gold, silver, or platinum certificates
– Can’t sell
– Have to pay GST and PST (if applicable) on the shipping costs
– Maximum purchase limit of $6000 CAD (excluding taxes, shipping) per 24-hour period
– Slower delivery time — an extra day or two
– Currently only available to Canadian residents

For price comparisons and other online buying options, see Kitco and Bullion Direct. Be sure to compare prices (including taxes and shipping), in Canadian dollars.

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Despite Canada running a budget surplus for over 10 years, and the U.S. running a budget deficit for eight years, on September 29, 2008, the Canadian dollar underwent a decline from 96 cents USD to 77 cents USD in less than one full month.

From xe.com/ict, we see that on September 29, 2008, the Canadian dollar was valued at 96 cents USD.
By October 27, it had fallen to 77 cents USD — a decline of 20% in less than one full month.

Luckily for Canadians, the drop bottomed out there, and didn’t continue to an 80% drop in four months, like Iceland’s currency did from July to November, 2008.

What’s the Canadian loonie been up to lately? After its big dive from September-October, and low flying since then, it’s gone up from 83 cents USD on April 29, 2009 to 91 cents USD on May 29 — a 10% increase.

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