Positive thoughts on Canada

Posted by David Rosenberg - Gluskin Sheff

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We’re not sure if you saw the Financial Times yesterday but the Bank of Canada Governor, Mark Carney, was interviewed and it’s an interview worth reading to get a sense of the pragmatism that exists here. He is arguably the best head of the central bank that I recall and there’s a pretty impressive list of predecessors (none of them serial bubble blowers, as an aside).  It’s inappropriate to debate at this time how Mr. Carney stacks up against Ben Bernanke, except to say that Carney’s expiry date is 2015 and so the one thing investors are not going to have to put up with in Canada for at least the next five years is uncertainty over the longevity as to who is controlling the monetary levers.

My overall views continue to evolve but what has not changed are my opinions regarding the secular bull market in raw materials (hard assets) and income.  At least now we are getting a better buying opportunity with the recent giveback in most commodity prices, and by extension, the Canadian dollar. I still emphasize that what investors get in Canada that they do not get in many other areas, specifically the United Sates, is exposure to the resource sector, and despite China’s recent restraint measures, and undoubtedly more will be coming, the country is unlikely to relapse back into a downturn any time soon from what I can see.

In terms of income orientation, the TSX dividend yield is 2.7%, which is a 70 basis point pickup over the S&P 500.  And with respect to valuation, the Canadian stock market is close to fair-value on a Shiller normalized P/E ratio versus a near-10% overvaluation south of the border (data back to 1965). On a price-to-book basis, the TSX (1.9x) is 20% less expensive than the S&P 500

In terms of macro fundamentals, and believe me, I am not that bullish at all over the economic outlook, but at least in relative terms Canada seems to be posting a more “organicrecovery” than is evident in the United States, notwithstanding the prospect of a “blowout” GDP number this Friday. The Canadian economic revival has been far less reliant on aggressive monetary and fiscal support, though there is no doubt that the moves here to revive the housing market have perhaps been too good to be true, as home prices have surged to record highs.  But what is critical is that there is no job crisis in Canada, which is why the political atmosphere, proroguing aside, is far less poisonous in Canada at the present time.

….read more on Canada HERE. (scroll down to page 3 of 6)

a secular bull market.  DR01262

…..read David Rosenberg’s report HERE. Ed note: Check out the great chart below. Canada’s on top in Freedom as well!