Waving the Flag!
David Chapman
The headline of the Toronto Star January 11, 2003 was stark. "N. Korea threatens "Third World War"". And this was from a newspaper not known for its use of hyperbole. So after spewing my morning coffee all over the paper I instantly raced to check my portfolio to make sure I had enough gold. But after thinking about it for a moment I decided if we were all wiped out in a nuclear holocaust it wouldn't matter.
So after settling down, I refilled my coffee cup and proceeded with the rest of the paper. At the bottom right hand corner of the paper was an article that caught my attention. The article was by Toronto Star columnist David Olive titled "U.S. the world leader in bully-boy trading" (see www.thestar.com and look up David Olive under Star Columnists). Being an unabashed Canadian I knew instinctively that this was an article I wanted to read. I offer no apologies.
The article did outline numerous trade disputes or problem areas between Canada and the US including: softwood lumber where Canada keeps winning at international trade dispute panels but each time we win the US ignores it, restates original allegations and imposes more punitive duties on Canadian exports; energy where it has been suggested that the US jointly manage our energy resources, which the US needs; drug patent policies where numerous Americans (seniors especially) are already coming to Canada to obtain lower cost drugs and the US patents are trying to stop it (note similar spats going on with intellectual property, software, music and movies); US handouts to American farmers has depressed world prices but they complain about Canada's Wheat Board even as Canadian farm receipts fell $1.3 billion in the past year; US handouts to entice automakers to build plants in US even as the US relies heavily on Canadian production.
Two areas that the Olive article did not touch on were border security where there have been numerous US threats to shut down Canada's trade with the US unless we harmonized border security. Canada's sovereignty would be compromised. Canada has also proposed decriminalizing marijuana-bringing threats from the US drug czar to shut down the border if we changed our laws. There have also been numerous stories in the US saying that Canada is hotbed of terrorists with a lax border although none of them have ever been proven although there was one incident at New Year's a year ago when someone crossed the border and was caught with considerable explosives. A recent account of 5 terrorists crossing the border at New Years turned out to be a hoax. Yet these issues get big play in the US when it happens but little or nothing when it turns out to be a hoax or completely untrue as most have proven. As well a number of Canadians were held without legal consultation and beaten in some instances then released without ever being charged with anything.
And of course there are other disagreements and differences. Canada approved the Kyoto accord while the US spurned it; we are big on the UN versus the US's tendency to be unilateralist; we supported banning of mines and the world criminal court; we don't have the death penalty nor a right to bear arms; and we maintain our public/private mix for health care versus the private insurance system in the US where upwards of 50 million Americans have no health care coverage.
But throughout all of this the Canadian economy has generally outperformed the US economy over the past year. GDP one year Canada +4%, US +3.2%; Industrial Production Canada +5.2% (Oct), US +1.8% (Nov); Money Supply Broad one year Canada +6.1%, US +6.6%. Canadian unemployment is higher at 7.5% vs. 6%, and consumer prices are growing slightly faster in Canada at estimated one year 2.2% vs. 1.6%. (Note: all numbers from the Economist).
So Canada does have some advantages even if it is colder up here. And at the last Olympics our men's and women's hockey teams both won gold. So in keeping with the spirit of the games I decided to look at some of the companies David Olive suggested we wave our flag at and patronize over its US counterpart. And we will throw in a couple of others. And if the Olympics are a good omen we should win.
First our dollar. While our dollar versus the US dollar has been very weak we made a bottom early in 2002. Since then we have been on an irregular rise. A sharp correction in August successfully tested the lows. We have since been making an higher highs and the chart below points to at least the highs seen earlier near $0.67 and possibly towards $0.70. Rising commodity prices are helping Canada. The US$ topped in early 2002 and has been in a downtrend ever since. The US is reflating its money supply and appears to want to bring down the dollar in a controlled manner. As many others have found out there is no such thing as controlled devaluation. It always ends badly. Canada 1 US 0.
Canada's central bank, the Bank of Canada is an arm of the Government. We have foolishly sold almost all of our gold. But David Dodge who has a good reputation runs it. The US Federal Reserve is a private company that doesn't report its actual finances. The US still (or at least is supposed to) hold all of its gold the largest of any central bank in the world. But Easy Al whose reputation has suffered runs it. Call it a tie. Still Canada 1 US 0.
Rogers Communications Inc. (RCI.B-TSX) owns Rogers Video. Blockbuster Inc. (BBI-NYSE) has the world's largest video chain. Personally I don't get my videos from either but if I had to choose I would go to Rogers just because it is Canadian. In both instances being lambasted by 10000 copies of the latest blockbuster hitting you in the face as you come in is a real turnoff. And their unknowledgeable staffs haven't a clue about the latest art house hit. Rogers chart is rolling over at the 200 day MA. Blockbuster recently collapsed and is trying to recover but usually those patterns fail and we go to new lows. They both look weak. Still Canada 1 US 0.
Rona Inc. (RON-TSX) is a recent consolidation of Lansing Lumber and others. Home Depot Inc. (HD-NYSE) is probably the best-known North American warehouse retail store offering building materials, home improvements and others. In my neigbourhood they are across the street from each other. But Home Depot's parking lot always seems full while Rona's is only about half full. Generally I am indifferent but Home Depot has a nice feel to it and their staff seems more knowledgeable. Rona's chart has only a short history but at least there was a low, a successful test of the low then an attempt to go up again. Home Depot's chart is one in a downtrend with no sign of a bottom. Another tie so still Canada 1 US 0.
Cara Operations Ltd. (CAO-TSX) is an integrated restaurant company that owns such franchises as Harvey's, Second Cup and Swiss Chalet. Harvey's makes a great hamburger. McDonalds Corp. (MCD-NYSE) on the other hand has ubiquitous ads; it suffered recently through its first loss; its stores have been bombed and trashed; and, it has been forced to close a number of its franchises around the world. Still the chart looks like it might be trying to recover after all of the bad news. Starbucks Corp. (SBUX-NASDAQ) has a bad reputation for pushing out neigbourhood coffee shops and frankly I find their lattes too sweet. The chart is breaking down from a rolling yearlong top. Cara is a very thin trader and their chart just looks so so. But Harvey's makes a great hamburger so be damned advantage Canada. Canada 2 US 0.
Canfor Corp. (CFP-TSX) is an integrated forest products company operating out of BC, Alberta, and the northeastern US. Canfor has consistently showed a profit. But it has been impacted by the softwood lumber dispute. Still the chart is coming up nicely after making lows in October. It probably is corrective. Georgia Pacific Group (GP-NYSE) is also a forest products company. GP has also recovered from the October lows but has moved sideways of late. Both charts have a similarity. So it's a tie. Final Canada 2 US 0.
See we won again. But I am waving the flag and offering no apologies for being an unabashed Canadian.
January 15, 2003
Charts and technical commentary by David Chapman of Union Securities Ltd.
69 Yonge Street, Suite 600, Toronto, Ontario, M5E 1K3 (416) 604-0533, (416) 604-0557 (fax) 1-888-298-7405 (toll free) email david@davidchapman.com
The opinions, estimates and projections stated are those of David Chapman as of the date hereof and are subject to change without notice. David Chapman, as a registered representative of Union Securities Ltd. makes every effort to ensure that the contents have been compiled or derived from sources believed reliable and contain information and opinions, which are accurate and complete. Neither David Chapman nor Union Securities Ltd. take responsibility for errors or omissions which may be contained therein, nor accept responsibility for losses arising from any use or reliance on this report or its contents. Neither the information nor any opinion expressed constitutes a solicitation for the sale or purchase of securities. Union Securities Ltd. may act as a financial advisor and/or underwriter for certain of the corporations mentioned and may receive remuneration from them. David Chapman and Union Securities Ltd. and its respective officers or directors may acquire from time to time the securities mentioned herein as principal or agent. Union Securities Ltd. is an independent investment dealer and is a member of the Toronto Stock Exchange, the Canadian Venture Exchange, the Investment Dealers Association and the Canadian Investor Protection Fund.
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