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Thread: Jan 03 NYSE

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    God/dess scarlett_vancouver's Avatar
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    Default Jan 03 NYSE

    I'm stock-retarded, but my advisor has advised me, and I'm to buy certain stocks ASAP on the NYSE. However, my money arrived into my account about two seconds after the stock exchange closed yesterday for 2005, so I have a question:

    Is there any reason to think that stock prices in general will be especially high during the first market day of 2006...like, do people whose fiscal year begins Jan 01st buy (or sell) a lot on that day for tax purposes?

    Sorry if it's a retarded question: I'm half curious, and half wondering if I should wait until later in the week to buy. Thanks for any advice!

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    Banned Melonie's Avatar
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    Default Re: Jan 03 NYSE

    Traditionally, US citizens who are holding stocks which have declined in value face the option of selling off those stocks by the end of the year so the loss can be used to offset taxes due on other income. This tends to cause the US stock markets (or at least certain very popular US stocks) to take a dip at the very end of every year. This end of year tax selling often causes the price of certain very popular stocks to drop below their 'true value', which makes these stocks a buying opportunity on the first trading day of the new year.

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    God/dess scarlett_vancouver's Avatar
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    Default Re: Jan 03 NYSE

    Crap. Oh well, I plan on holding them for awhile, so hopefully it's not a huge diff.

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    Banned Melonie's Avatar
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    Default Re: Jan 03 NYSE

    this new years 'tax selling' blip in stock prices is definitely a short term buying opportunity. The next short term phenomenon is that 'Christmas / end of year' bonus checks to US employees that have a percentage withheld for 401k investment wind up being channeled into mutual funds during the first week or two in January ... which prompts an artificial upward pop in the prices of some 'popular' stocks.

    I'm actually waiting for one more upward pop in the US stock markets within the next 2 weeks to sell off the remainder of my US stock holdings and move everything to Europe and Japan ... on the premise that the US dollar is going to lose exchange rate value thus stocks priced in Euros or Yen will 'automatically' go up in US dollar terms even if their Euro or Yen price doesn't change at all. If you're contemplating buying US stocks with Canadian dollars you potentially face the opposite problem i.e. your US stocks may go up say 3% in US dollar terms, but the US dollar drops 5% versus the CDN$, leaving you with a 2% net loss. People tend to overlook the currency risk when buying stocks that aren't denominated in their 'home' currency ... and lately that currency risk has become a significant price factor. This is particularly true of the CDN$ which has moved 5% against the US$ over the last 3 months (creating a 5% exchange rate loss on US stocks owned by Canadians).



    Again I don't mean to delve into the political, but it's no secret that relations aren't the best between the US and Canada right now - and with the Canadian election coming up they are likely to get worse instead of better. Under those conditions it is in the US gov't's interest to intervene in world currency markets to prop the CDN$ - making Canadian products imported into the US more expensive, making US investment in Canada less profitable etc. Therefore I definitely wouldn't ignore the possible results of yet another 5% exchange rate move re the purchase of US stocks with CDN$.
    ~
    Last edited by Melonie; 12-31-2005 at 05:52 AM.

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    God/dess scarlett_vancouver's Avatar
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    Default Re: Jan 03 NYSE

    If you're contemplating buying US stocks with Canadian dollars you potentially face the opposite problem i.e. your US stocks may go up say 3% in US dollar terms, but the US dollar drops 5% versus the CDN$, leaving you with a 2% net loss.
    Yeah, I hear that. No, I'm investing my USD, trying to make a bit of $$ on it while I wait for exchange rates for USD-->CAD to become more favourable. Don't know when (if!) it'll happen, but at the mo it seems better than just converting all my USD over at 1.16 US to the CAD.

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    Banned Melonie's Avatar
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    Default Re: Jan 03 NYSE

    Don't know when (if!) it'll happen, but at the mo it seems better than just converting all my USD over at 1.16 US to the CAD.
    not if you think about it ... 3 months ago US$1000 would have bought you CDN$1210. Today US$1000 will only buy you CDN$1160. If things keep heading in the same direction three months from now US$1000 may only buy you CDN$1110. If your home currency is CDN$, if you're paying your rent and buying your groceries with CDN$, you're actually better off exchanging the US money ASAP and either investing in Canadian stocks or CD's denominated in CDN$. At least with CDN$ CD's you're guaranteed not to 'lose' money, whereas if you invest in US stocks you're gambling that the US stocks will increase by at least the same amount that the US vs CDN dollar decreases in order to just break even.

    As I've mentioned before (political correctness not withstanding), the January Canadian election is likely to be a 'watershed' in terms of near term relations between the US and Canada. The 'experts' are saying that if Paul Martin and the liberals win on January 23rd, that US relations are going to get even colder than they already are. This could potentially result in a large and very quick change in the US vs CDN dollar exchange rate, with the US central bank buying Canadian dollars to raise their value. The politico-economic principle behind this is that by making the CDN$ more expensive for US citizens, US tourism in Canada is discouraged, US investment in Canada is discouraged, US purchases of Canadian exports are discouraged, Canadian tourism and export businesses become less profitable, US corporations with divisions in Canada (like automotive) will shift work back to their US divisions to reduce relative production costs, Canadian commodity companies i.e. oil. metals, grain receive fewer CDN$ per gallon of oil or pound of metal or bushel of grain sold (price is set in US$ on international markets), thus the Canadian economy slows down, Canadian jobs are lost, Canadian taxes increase to cover the extra social costs, and all that good stuff.

    I don't know how accurate any of this speculation is, other than being absolutely certain that Jean Chretien and Paul Martin have thoroughly pissed off GWB (which won't be forgotten, and which WILL have consequences), and being absolutely certain that the US central bank can win out over the Canadian central bank (US currency reserve is like 15 times bigger) in regard to raising the CDN$ exchange rate on international markets. IMHO a Canadian citizen holding US$ assets past January 23rd seems pretty risky.

    ~
    Last edited by Melonie; 12-31-2005 at 07:52 AM.

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    Default Re: Jan 03 NYSE

    Most of the items discussed so far are vastly overstated in importance compared to reality.

    W may not like the PM of Canada and visa versa but the market does not give a crap about that--they want to make money. The Fed does not care because they do not want to make their job harder down the road. Furthermore, anything they could do could not have a real impact (jobs/income/prices) for 6 months so it is pointless. It is not to ones advantage to manipulate your currency over petty politics--it just makes you lose money because the market always wins eventually. The Japanese spent billion manipulating their currency and a PM lost his job over it. The Canadian currency should strengthen in 2006 because it should- the greenback should be weaker and will end up so. For a long-term investor(years), rather than a short-term trader(days or weeks), currrency risk is a minimal event. Most sizeable compnies are international and all it does is shift where you make money from Europe to the US to Canada, to Asia. At an individual small company level, it makes a difference if you make more on price, ot lose it on volume. A small Canadian retailer for example buys from Asia and LAm and sells in C$. If the competitors sell cheaper because the C$ appreciated, the C companies margins get squeezed unless sales go up more than enough to offset.

    An efficient low cost seller makes up more on the volume than they lose on price/margins (witness low-cost airlines who make money even with high fuel prices). A high-cost seller (like a dinosaur downtown behemoth like a Hudsons Bay ) takes it in the teeth because they cannot adapt costs quickly. A big retailer who is efficient at selling like Walmart or a host of others just alters their plans on where they expand in the future and deals with all the noise internally. That is why currency changes take a long time to show up in imports and exports.
    The traditional advice holds true--the safe way to deal with a lump sum is to invest it in the market over time--dollar cost averaging to smooth out the bumps and wiggles in your portfolio. Just park the money and invest in thirds or quarters over the next 6 months or as opportunities present themselves in individual things.

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    Default Re: Jan 03 NYSE

    Well if nothing else, Monty and I both agree that the CDN$ is very likely to increase in value versus the US$ in 2006 ... making the wisdom of investing CDN$'s into US stocks right now somewhat questionable.

    As to gov'ts adopting policies of currency manipulation for their own reasons, the Japanese and Chinese have certainly spent billions of gov't Yen/Yuan to position their currencies such that it benefitted their exporting industries at the expense of US based competitors. One need only compare the current financial situation of Toyota vs GM, or Kubota vs John Deere, or for that matter Kawasaki versus Indian, to see that the technique IS effective. The US gov't also has a history of 'shooting itself in the foot economically speaking' in order to send a political message - one only needs to look 90 miles off the Florida coast to see that principle in action.

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    God/dess montythegeek's Avatar
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    Default Re: Jan 03 NYSE

    Melonie,
    The premise is valid, the conclusion not.
    From 2003, the C$ went from $0.65 to $0.85. A year ago it was $0.81 or appreciated 5%. Another 5-7% is reasonable in 2006, maybe 10% to $0.93. Canada has not yet faced the full brunt of an appreciating currency, maybe a third to a half, since half the appreciation has been in the past two years. A number of Canadian companies are going to get hit hard by further appreciation in the loonie. Timber is already taking it in the teeth, to the point that even canadian sweetheart wood deals can't help the industry anymore. Can. companies are going to take it hard with further appreciation, just like the rust belt/(core manufacturing) did when the dollar was strong in 2000-2001. What has kept the TSE rising was the oil and gas stocks, since gone back to sleep since oil topped out and dropped 15%. The TSE is going to relatively suck for a few years because of weak profits. US companies will gain business (both in the US market and C market) at the expense of Can companies, boosting their profits. Profits get hit first for rising currencies. Hence your conclusion is in doubt that Scarlet would be better off in C stocks. The stocks which should do best in C$ for SV, are interest sensitive issues like utilities and bonds, not manufacturing, retail, or materials cos which compete with US based companies. At this juncture I would take the s&P500 and eat the exchange rate (partial offset) over the TSE for SV for 2006-7, better yet take 35% of an investment and put it in the US stock market, and 25% in c stocks (boring ass utilities and banks), and a 40% in Canadian bonds. Two-thirds would be in local currency, for her, and she is shielded from the deflationary impact of the C$ depreciating, with some protection in case I am wrong.

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    Banned Melonie's Avatar
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    Default Re: Jan 03 NYSE

    Hence your conclusion is in doubt that Scarlet would be better off in C stocks. The stocks which should do best in C$ for SV, are interest sensitive issues like utilities and bonds, not manufacturing, retail, or materials cos which compete with US based companies
    This is true in the general case, although some Canadian stocks such as gold and silver miners, and technology firms with strong links to China should do very well. This is also the reason I suggested CDN$ denominated CD's - both because of the guaranteed return and also because countries with strengthening currencies tend to lower interest rates.

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    Default Re: Jan 03 NYSE

    Quote Originally Posted by Melonie
    This is true in the general case, although some Canadian stocks such as gold and silver miners, and technology firms with strong links to China should do very well. This is also the reason I suggested CDN$ denominated CD's - both because of the guaranteed return and also because countries with strengthening currencies tend to lower interest rates.
    This is a disadvantage of being in a country with appreciating currency. It is less reasonable for a Canadian to buy Canadian gold companies, than it would be for Melonie in the US. If gold goes up 10%, and Canada's currency goes up 10%, then gold in canada is flat in C$. If costs are not in US dollars (all in C$ for example), profits either go down or rise less than what Melonie would see for a US mining stock she owns. Melonie gets both appreciations in US dollars. If gold was flat in US$ and the loonie appreciated 10%-- that is a decline in gold price in Canada, profits would fall sharper in C$. Thus the investment is riskier, with less upside reward for SV. The same item which might make sense for a Melonie, would make less so for a SV. Equity investors do not want to be in an appreciating currency country.

    The connection to China could be a real plus, but would likely be already priced into the stock. Melonie, the advantage of a bond is that the price goes up when domestic inflation is restrained by currency appreciation. A CD gives up this appreciation for the guaranteed return with no price risk/reward. A risk averse person would do part of both, taking a little risk of loss for a possible good upside on the bonds.
    Last edited by montythegeek; 12-31-2005 at 09:39 PM.

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    Default Re: Jan 03 NYSE

    Melonie, the advantage of a bond is that the price goes up when domestic inflation is restrained by currency appreciation. A CD gives up this appreciation for the guaranteed return with no price risk/reward. A risk averse person would do part of both, taking a little risk of loss for a possible good upside on the bonds.
    True of bonds priced in CDN$ owned by people whose home currency is also CDN$. However, a large segment of CDN$ denominated bonds are actually owned by people other than Canadians. Thus foreign CDN$ denominated bondholders face currency risk, thus pressure to sell if exchange rates plus bond interest rates are likely to show a loss in their home currency. This in fact could lead to a 'catch 22' situation for the Canadian gov't, being forced to raise interest rates to slow down flight of foreign investment money, but at the same time causing the loonie exchange rate to rise even higher due to the interest rate increase.

    As to Canadian gold and silver mining stocks, the bet there is obviously that the world price of gold and silver will increase by a margin which is even higher than the exchange rate increase in the loonie.

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