Skip to main content

Capital inflow continues


In November 2010 foreign investors continued their Canadian acquisition binge.  This was one of the first month (in 2010) where all three segment (Stock, bonds & money market) saw positive inflow.  Then again, Canada is the flavor of the month.  Inflation is (more or less) under control [CPI at 2.0% and core CPI at 1.4%], the currency is strong, the government seems to have a plan, and employment is rising. 


In fact, in US dollar terms, the Canadian stock market has outperform the U.S. markets in 8 of the past 9 years (the exception was 2007).  This out performance exceeds 500 bps each year – which is enormous.  Canadians realized this, and have been reducing their foreign equity holdings (a recurrent theme), and shifting towards government bonds.  On another note, as of this morning the gap between the yield on the US and Canadian Treasure bonds in the 10 and 30 years stands at -5bps and -88bps, levels never seen – a clear indication that not all AAA rated government bonds are viewed alike by investors.

Today (Tuesday January 18) the Bank of Canada will meet to decide what to do about short term interest rates; bottom line rates will remain unchanged.  The very strong demand for Canadian long dated bond adds complication to Canada’s monetary policy, since a flat yield curve creates limits to some of the BoC’s policy tools (but at least the BoC doesn’t have the U.S.’s zero bound problem). 

Today, Canada’s sovereign bond rates are as follows:

 01/19/11
Rate
Overnight
1.00%
1 Year
1.44%
2 years
1.76%
5 years
2.33%
10 years
2.99%
30 years
3.68%


If this were America, the difference between short term interest rate and the long end of the curve 2.68% is remarkably small (the US curve is much steeper at 4.43%), an indication that inflation fears are mitigated (Canada’s equivalent to TIPS is pricing 1.24% tracking down from nearly 2% in 2008). 

Bottom line:

Foreigners continue investing in Canada, their perception that the economy is sutainable, where nearly half of its GDP is related to natural resources (metal, minerals, foodstuff and energy) that its governments appear to have "a plan" and that its financial system appears to be functioning.

A note:  Last week the Minnesota Federal Reserve announced that pressures on America's financial system were easing... Just before Christmas the Bank of Canada released its semi annual review of Canada's financial system, they found that stresses to the system were at higher levels, equal to what was faced in 2008...

Only one of these two can be right, my money is on the BoC

Popular posts from this blog

Ok so I lied...a little (revised)

When we began looking at farming in 2013/14 as something we both wanted to do as a "second career" we invested time and money to understand what sector of farming was profitable.  A few things emerged, First, high-quality, source-proven, organic farm products consistently have much higher profit margins.  Secondly, transformation accounted for nearly 80% of total profits, and production and distribution accounted for 20% of profits: Farmers and retailers have low profit margins and the middle bits make all the money. A profitable farm operation needs to be involved in the transformation of its produce.  The low-hanging fruits: cheese and butter.  Milk, generates a profit margin of 5% to 8%, depending on milk quality.  Transformed into cheese and butter, and the profit margin rises to 40% (Taking into account all costs).  Second:  20% of a steer carcass is ground beef quality.  The price is low, because (a) a high percentage of the carcass, and (b) ground beef requires process
Post a Comment
Read more

Spray painting Taylor Swift G650 aircraft (updated)

 First, a bit of paint will not harm anyone.  These climate activities are going to learn two things in the next few days:  (1) Trespassing at an airport is a felony almost anywhere in the world.  That means criminal prosecution.   (2) removing paint from an aircraft is expensive.   So these climate activists are about to find out the reach of the British criminal system and it will not be pleasant, the UK has very strict laws about that, I would be surprised if cleaning the aircraft of all the paint will cost less than $100,000.     I am sure that when they planned (premeditation) this little show they had a very valid logic to doing this.  Tonight, they are probably realizing the depth of their troubles.   I understand that in the UK it's a minimum one-year jail sentence.    Also, good luck travelling with a criminal trespass charge against you.  I am relatively certain that the airline industry will slap them with no-fly status. Update;  It seems that what they threw on the airc
Post a Comment
Read more

21st century milk parlour

When we first looked at building our farm in 2018, we made a few money-saving decisions, the most important is that we purchased our milk herd from a retiring farmer and we also purchased his milking parlour equipment.  It was the right decision at the time.  The equipment dates from around 2004/05 and was perfectly serviceable, our installers replaced some tubing but otherwise, the milking parlour was in good shape.  It is a mature technology. Now, we are building a brand new milk parlour because our milking cows are moving from the old farm to the new farm.  So we are looking at brand new equipment this time because, after 20 years of daily service, the old cattle parlour's systems need to be replaced.  Fear not it will not be destroyed instead good chunks will end up on Facebook's marketplace and be sold to other farmers for spare parts or expansion of their current systems. All our cattle are chipped, nothing unusual there, we have sensors throughout the farm, and our milki
Post a Comment
Read more