Wednesday, December 05, 2007

Dollar daze

Since hitting a high of $1.10 on November 7th, the loonie has come down to earth in a big way and is currently trading around 98 cents U.S. There was quite the hubbub for a few weeks as Canadian investors and consumers tried to digest how their suddenly potent currency was affecting their financial lives.

On the consumer side, we read stories about lineups at borders fat with people discount shopping on the other side, and angry shoppers demanding that prices be lowered here. On the investment front, people like my dad who did "the right thing" and diversified a few years ago by buying up U.S. stocks were seeing red as all of them were in negative territory after several years. Even if they were up in nominal terms, they were well down in absolute terms after the effect of the 50% higher loonie was factored in.

People like me, who bought into what they deem to be solid U.S. firms at the loonie's peak purchasing power point, seem to be in position to do well, as those stocks have been given an automatic boost from their intrinsic value.

Long term, I have no idea what's going to happen with currency fluctuations. If I had to bet on it, I'd say that the loonie will spend more time looking up at the U.S. dollar than it will looking down on it in the coming years -- our natural resource wealth notwithstanding. So I wouldn't doubt that I'll be looking fondly back on my purchases of Berkshire Hathaway and ACAS, seemingly at the exact right time.

But I would say that just as the loonie's meteoric rise to parity and beyond was swift and largely built on people getting too excited about Canada's impressive fundamentals, so does the rush to kick it back down to size seem to be happening too suddenly and too universally now. Sometimes we just never learn, but a loonie in the 90 cent to $1 dollar range U.S. while this commodities boom plays out certainly seems plausible to me.

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