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November 26, 2009
World voting with its feet on the dollar
As an American living in Canada and a do-it-yourself (DIY) investor, I've decided to short the US dollar and to keep the majority of my holdings in Canada resource companies (oil and gas, gold mining). This is a play that has worked well so far. When the resource-heavy Canadian stock market felt serious pressure during the credit crisis I was able to pick up some bargains.
I am far from alone in this strategy. PetroChina's purchase of a $1.9 billion stake in Alberta's Athabasca Oil Sands Corp. and Korean National Oil Corp.'s plan to acquire outright Harvest Energy Trust for $4.1 billion are transactions which are bringing serious new money into the Canadian oil and gas sector, which is well on its way to recovery from its lows in March. China and other creditor nations have demonstrated a desire to diversify out of US dollar reserves and one way is through the acquisition of Canadian resources.
Now it looks like the Russians are also looking to Canada. Canada's Globe and Mail reports that Russia plans to move away from the US dollar by purchasing Canadian loonies:
The rally in the dollar, which is up more than 16 per cent against the greenback so far this year, began overnight and then surged further after a Russian central bank official said that "technical preparations are under way for operations with Canadian dollars." Analysts said Russia's plans are part of a move by central banks to diversify from the U.S. dollar, which in turn sank even further today. The Globe and Mail continues:
Dennis Gartman, the influential author of the Gartman Letter, says the U.S. dollar's decline is an "international vote" against the Obama administration's policies, with an exodus of capital chasing better returns. Mr. Gartman wrote: "The dollar rallied from the time of the President's nomination into his inauguration and for a short period of time thereafter ... However, since March, when it became clear that this Administration's philosophy was manifestly left-of-centre, capital has weakened steadily and indeed the dollar has become the currency of choice in the now all-important 'carry trade' as speculators and investors are confident and comfortable borrowing dollars, selling them and re-investing the proceeds abroad." The greenback sank to a 16-month low today.