Canada’s Big Week, Stock and GDP Forecasts, Two Commodities to Buy and More!

• O Canada… Olympics, GDP and Aussies send Canadian dollar soaring
• Rob Parenteau with a powerful economic indicator… brace for better-than-expected U.S. GDP
• Stocks rise, but on strange news… Dan Amoss on the perils of buying stocks now
• Plus, Chris Mayer and Alan Knuckman with two commodities worth buying

  Here we go again. The Canadian dollar is rapidly approaching parity with the U.S. variety.

In the last five trading days, Canadians have collectively grown almost 4% richer compared with their slovenly southern neighbors. Over the last 12 months, the loonie is up 22% versus the greenback. At this rate, we won’t be able to tell people when we head off for Vancouver: “Canada, it’s just like the U.S… only less.”

Add in the hockey game on Sunday… then the following nugget… Canucks have earned some bragging rights this week. But they won’t. From our experience, they’re always so… friendly.

  The Canadian economy expanded at its fastest pace since 2000 last quarter, its government reported yesterday. As measured by the funny little statistic known as GDP, the economy expanded at an annualized rate of 5%, beating the Bank of Canada’s projections by nearly two full percentage points.

Unlike in the U.S., growth in the great white north was relatively broad. And now with several quarters of expansion under their belt, there’s extra pressure on the Bank of Canada to start (gasp!) raising rates. Can you imagine? Banks willing to pay interest on savings again? What a world.

“Maybe the BOC will even raise rates earlier than it said it would,” notes Chuck Butler in The Daily Pfennig. “Raise them now, or next week or next month? I don’t think so. But before the summer sun is hot and the tall colorful cold drinks with umbrellas are prevalent around pools… I do think so!”

  The Reserve Bank of Australia raised its lending rate again this morning. Now at 4%, the rapidly rising Aussie rate is one of several reasons the Aussie dollar is up 42% versus the dollar over the last 12 months — the best performing major currency in the world.

Given the Aussie has a whole lot in common with the Canadian dollar — the “comm dolls” if you insist on trading lingo — this will put even more pressure on Canadian central bankers to hike rates.

  But not right away. As if on queue, this morning the Bank of Canada tossed this bucket of cold water on the trade: “The persistent strength of the Canadian dollar and the low absolute level of U.S. demand continue to act as significant drags on economic activity.”

The BoC said its lending rates would remain the same. But as Chuck forecast, it won’t be long. “The target overnight rate [0.25%] can be expected to remain at its current level until the end of the second quarter of 2010,” the statement reads.

  You can expect the U.S. economy to grow faster than forecast over the next few quarters, our resident economist Rob Parenteau wrote in a note this morning.

“If history is any guide,” writes Rob, “the Chicago Fed series is not one you want to miss if you are trying to get a bead on real GDP momentum. Real GDP growth of 3-4% now looks within reach for 2010 on this indicator, while most economists are still predicting barely above 3%.

“Given the lackluster reception of investors to positive Q4 2009 earnings surprises,” Mr. Parenteau concludes, “stock investors appear to doubt what the Chicago Fed series is pointing to, as well.”

  American stocks did rise yesterday, however, thanks mostly to a swarm of international news. Canada did its part. Rumors abound of a Greek bailout. And there were three big merger announcements: Japanese drug maker Astellas Pharma picked up OSI Pharma; German Merck bought Millipore, a biotool maker; and AIG sold its most profitable segment — Asian life insurance — to a British bank so it could repay government loans.

Heh… so… umn… this all, umn, makes America a “buy.” Yeah.

  “One of the most important lessons from stock market history is to not buy stocks trading at peak multiples of peak earnings,” Dan Amoss urges, “especially earnings that are driven by cost cutting, rather than revenue growth. Investors should pay high P/E multiples only for stocks that they’re highly confident can grow free cash flow at an impressive rate over the next few decades.

[Sounds like good advice for confidence in governments, too.]

“Yet in case after case, in the fourth-quarter earnings reports I’ve reviewed, investors persist in awarding lofty multiples to earnings driven largely by cost cutting and temporary inventory rebuilding on the part of their customers. This is typical of market tops. Investors are focusing on what happened in 2009 — which offered an unsustainably good environment for corporate profits — and not worrying enough what earnings might look like three or five years down the road.”

[Oh, cost cutting. That would never happen in government, never mind.]

  Sign of the times: CNBC’s newest attention getter is “Call the Close” — a promo in which viewers, with the help of talking faces in various boxes, try to “guess the close for the Dow Jones industrial average.”

What if the Dow starts going down, instead of up? Think they’ll keep this one running? 

  Commodities are rising alongside stocks today. Gold is up about ten bucks, to $1,125. Oil is a breath from regaining $80 a barrel.

“The grain market is trying to mark a bottom,” says our resource trader, Alan Knuckman. “Bearish USDA numbers pushed prices down in January, but we’re already seeing movement back up: Soybeans continue to make new highs weekly as they build strength to attack $10 a bushel. Corn has made a 30 cent move that some are attributing to high snows that may impact spring planting.

“Nearly everyone saw record snowfall this winter, and the late beginning to the 2009 season is still fresh in traders’ minds. The 52 inches of snowfall (here in Chicago) versus the 30-inch average is one bullish fundamental variable that traders cannot ignore. While good crops in South America typically pressure prices around this time of year, the weather has gotten everyone’s attention — even when you take off your trading cap.

  “The recession took a big bite out of molybdenum pricing,” Chris Mayer reports with another commodity opportunity, “but it is also the rebound.

“There are good reasons to see moly prices rise. First, there is the long-term demand curve:

“That’s roughly a 75% increase in a decade. And that assumes historical demand is the best guide. But there are good reasons why moly demand might rise more. This demand is mainly from energy uses and infrastructure investment. Nuclear reactors need moly. Deep-water wells need moly. Tar sands and heavy oils use moly in their pipelines.

“So these are strong new sources of demand that did not impact demand as much in the past. And then you look at where the moly will come from. The financial crisis halted or delayed the development of new mines. China is a potential source for new supply, but its mines are on the higher-cost side of the scale. They will need higher moly prices to encourage investment and bring the new supply online.

“In the meantime, a cash-strong moly producer has a window to make a lot of money.” Just like the one in Chris’ Special Situations portfolio. Get the ticker here for just $1.

  “I agree with your comments,” a reader writes of our China debate, apparently siding with those who’ve asserted China is more capital friendly than the U.S., “and have been saying the same things to friends and family in the U.S. for the last 14 years that I’ve been here in Beijing.

“However, you must also mention the enormous risks and variables here in China, such as no rule of law; in-your-face and never-ending corruption; signed contracts that are meaningless to a large extent and are where the negotiations really begin; a totally unethical culture that believes, as one local Beijing partner told me years ago, ‘I screw you before you screw me’; stealing from foreigners being seen as patriotic; two sets of rules, i.e., one for the Chinese and one for everyone else; and on and on…

“Keep in mind, too, that the communists pounded the citizenry so far down that there was only one way to go, and that was up. China is no economic miracle. Neither was Japan, South Korea, Taiwan, Singapore, India, Ireland, et al.

“Miracles are, by definition, very rare. Yet in almost every case, the U.S. included, when government gets out of the way and people are basically left alone, they prosper. That, and a very healthy ongoing dose of foreign direct investment doesn’t hurt.”

  “The cause of obesity IS investment,” another writes, this one referring to Patrick Cox’s bullishness on new obesity-fighting drugs. “We have spent the last 100 years replacing labor with the profitability of technology and business and sitting around staring at glowing screens.

“Meanwhile, food has been relegated to machines, pesticides and the profiteers having the cheapest inputs (corn syrup and flour) at the highest prices (Twinkies and supersized meals), all subsidized by government loans, grants, and tax breaks. To invest in ‘curing’ obesity, one should be buying garden tools and land. Cheap food doesn’t help anyone.”

  “Americans, especially kids,” writes another on The 5 blog site, “don’t need more drugs in order to lose weight and deal with diabetes. People just need to cut way back on sugar and carbs, and also focus on portion control when eating.

“I’m usually not against any type of investment idea. However, making money off getting kids hooked on prescription drugs — because Americans in general refuse to have a good discussion about the processed crap that’s in a lot of our food — just seems wrong to me.

“Also, the drugs are not going to make people any smarter or more individually responsible. It will only disable people further. I.O.U.S.A. will never work out its problems if it continues to be a fat, lazy and dependent culture that continues to think that problems can be simply solved with magic pills.”

The 5: Hmmmn… well, what to say? We’re not fans of the cozy relationship between banks in New York and functionaries in Washington, either, but we don’t mind seeking profits from their mistakes.

Cheers,

Addison Wiggin

The 5 Min. Forecast

P.S. Futures magazine just released their forecast for U.S. stocks in 2010. They’ve graciously included my bullish remarks within. Check it out.