Juggling Dynamite

On Friday we confirmed that Canadian manufacturing sales declined 3.1% in December to $48.0 billion, the largest decline since May 2009. Sales decreased in 16 of 21 industries, representing 82% of the manufacturing sector. Durable goods sales were down 4.2% while non-durable goods sales declined 2.0%. More than two-thirds of the decline in Canadian manufacturing sales was concentrated in Ontario. It is important to note this weakness appeared in Q4 2012, before the deceleration of Q1 2013. The Canadian dollar this morning has broken the support trend it had held since the QE’finity promises from central banks in the summer of 2011. Decoupling from the global downturn, Canada is not.

Chart source: Cory Venable, CMT, Venable Park Investment Counsel Inc.

“A report by the OECD found that multinational companies were managing to avoid paying tax altogether by taking advantage of different country’s rules.”

The UK, France and Germany are the main countries pushing for changes, with the Finance Minister of France saying his country is “strongly determined to fight against tax fraud, tax avoidance, and tax evasion…We must avoid situations in which some companies use international and domestic law to be taxed nowhere.”

Here is a direct link.

To the surprise of many, precious metals and commodity prices have continued to weaken since 2011 as the US dollar has been attracting international inflows. As marked in the chart update below, the $83.50 area on the US dollar index (against a basket of world currencies) is the level to watch for a confirmation of this bullish trend for the greenback; and the likely continuation of pain for commodities and commodity-focused economies like Canada, Australia, Brazil and Russia.

There are a couple of factors that may well continue this move over coming months: contracting world demand suggests further weakness for commodity prices, at the same time that the US dollar receives relative “safe haven” inflows from international capital looking for the most liquid places to park. In addition, in a world of near-zero deposit rates most places, currency appreciation offers the prospects for capital gains in the US dollar as it rallies from a 40% decade-long-decline between 2001 and 2011. With US stocks now priced for flat returns and ungodly volatility from present levels–literally return free risk– it is not necessary to hold dynamite for exposure to attractive return potential as the global economy slows down. But one does have to think outside of the group-think box.

Chart source: Cory Venable, CMT, Venable Park Investment Counsel Inc.