Insiders Issue Dramatic Warning For Canadian Dollar

Could the Canadian Dollar Hit $0.60?

If you own Canadian dollars, picture this…

You stop in the grocery store after work. CA$7.99 for a carton of milk? CA$9.95 for a small box of cereal? CA$21.00 for two pounds of grapes? Your small bag of groceries rings up for CA$55.00.

While leaving the store, you chat with a nice couple from the States. More Americans seem to be visiting these days. In fact, the parking lot is filled with cars sporting U.S. plates.

Later that night, you are checking out travel deals to Florida. Wow! The rate on this hotel room is great. But once you eye the CAD to USD exchange rate, you opt to visit Grandma Thora in Thunder Bay instead.

Worst to Come for Loonie: Analyst

These ideas would’ve been crazy just a few months ago. After the recent plunge in the loonie, however, they may soon be a reality.

The Canadian dollar plunged to its lowest level since 2003 last week, falling as low as US$0.68 during one trading session. Over the past two years, the CAD to USD exchange rate has dropped 33%—the loonie’s biggest decline versus the greenback in more than 40 years.

But according to some Bay Street insiders, this could just be the beginning.

David Doyle has issued a dire forecast for the Canadian dollar. In a report published last week, the Macquarie Capital analyst predicted the CAD to USD exchange rate could fall as low as US$0.59. The combination of weak oil prices and low interest rates, Doyle believes, could be a one-two knockout for the loonie. (Source: “Canadian dollar will drop to 59 cents US in 2016, Macquarie forecasts,” CBC, January 13, 2016.)

“Once [the loonie] reaches this level,” Doyle predicts, “it should remain subdued through [the end of] 2018 and potentially even longer.” (Source: Ibid.)

“You could imagine a situation [that] is worse today than in the 1990s,” Doyle added. “We’re much more dependent on oil now than we were in the past.” (Source: “Canadian Dollar Forecast To Fall To 59 Cents U.S. As Economic Clouds Darken,” The Huffington Post, January 13, 2016.)

Investors should pay attention. Last year, Doyle was mocked when he said the loonie would drop to US$0.69. Needless to say, they’re not laughing anymore.

And he’s not alone.

Last week, RBC Capital Markets strategist Adam Cole said he doesn’t see the loonie bottoming out until it hits US$0.65. (Source: “Analysts warn of further decay as Canadian dollar nears 68¢ before firming,” The Globe & Mail, January 18, 2016.)

BMO Capital Markets’ chief economist, Douglas Porter, added to the choir. He warned the Canadian dollar could drop below US$0.66. (Source: “‘Currency instability’ now a serious concern for Canada,” The Financial Post, January 18, 2016.)

                                Chart courtesy of www.StockCharts.com

Insiders are worried. Low resource prices have crushed exports, putting thousands out of work. Canada’s economy barely grew in the third quarter of 2015, after six months of negative growth.

Canada’s rediscovery of socialism is also biting. Left wing parties, at both the federal and provincial levels, have ushered in a wave of tax hikes and new regulations. Millennials are shocked to learn that when you scare capitalists from your country, they take the jobs with them.

Call it the social economy.

With investors running for the exits, there’s little to hold up the loonie. Unless Prime Minister Justin Trudeau starts exporting selfies, brace yourself for a lower Canadian dollar.

For Main Street, it means higher prices on everything from food and electronics to vacations priced in U.S. dollars. Last week, Bloomberg reported some shoppers were paying CA$3.00 for a cucumber, CA$8.19 for a dozen eggs, and CA$10.00 for a pound of grapes. One supermarket charged CA$15.00 for a box of “Frosted Flakes.” (Source: “Canadians Are Going Loonie on Social Media About Skyrocketing Grocery Bills,” Bloomberg, January 13, 2016.)

The New York Times has also noticed. In a piece published Wednesday, the publication highlighted some of the crazy prices in the vegetable aisle. (Source: “In Canada, the 8-Dollar Cauliflower Shows the Pain of Falling Oil Prices,” The New York Times, January 20, 2016.)

Cauliflower hit a record CA$8.00 per head. Iceberg lettuce sells for CA$3.00 per head, up from CA$0.90 last year. One head of broccoli goes for CA$4.00, compared with CA$1.50 for two in the past.

Savers are being crushed, too.

In a last-ditch effort to jumpstart the economy, the Bank of Canada has slashed interest rates. Seniors have been hit by a double whammy. Their nest eggs are now earning lower returns, while buying less and less each day.

Most savers, who just stick their cash in a bank, earn less than a half a point in interest. You can boost those returns a little with GICs, but given the “official” inflation rate is over two percent, your real wealth is being chipped away each passing month.

This is no way to build wealth. The media won’t say it, but a weak loonie is effectively a 40% pay cut. Boomers nearing their golden years will have to learn a concept I call the “bologna retirement.”

Or as my neighbor says, “Freedom 75.”

Is Your Retirement Safe from a Dollar Collapse?

So opt for lamb chops over steak. Take the kids to Wonderland instead of Disney World. Maybe even check out Dave Ramsey’s new book, 101 Way to Prepare Alpo and Love It.

Is there anything savers can do? Don’t count on the government. In my books, politicians rank just above lawyers and slightly below ax murderers.

For seniors or retirees-to-be, I have three words: Diversify! Diversify! Diversify!

Forget about multiculturalism. Canadians are financial bigots. Few savers go outside of their national borders, if they invest in equities at all.

The trick is balance. Those who went all-in on Maple stocks just took a 20% haircut. Savers with stashes outside of Canada, in contrast, have made out just fine.

Here’s the game plan:

Go Abroad: Foreign cash will likely hold its value better than the loonie. I have kept a big chunk of my net worth in U.S. dollars. This has allowed me to dodge the worst of the Canadian dollar collapse.

Hard Assets: Hard assets, like gold and real estate, do well through high inflation. Sure, the media laughs at owning precious metals. But over the past six months, gold prices have surged 12% in Canadian dollars.

Dividend Stocks: Wonderful businesses are able to pass on higher costs. Do you think people will skip their Tim Hortons coffee if the price goes up a nickel? Great companies like Timmies can hike prices, resulting in bigger dividend checks for us shareholders.

Nothing fancy here.

No options. No junk bonds. No penny stocks. Sure, everyone loves to shoot for the big fungolas betting on the next Apple, but when it comes to retirement savings, slow and steady is all you need.

The Bottom Line for the Canadian Dollar

Gen Y take comfort. You’ve elected the coolest head of state in the world. Beautiful hair… Beautiful hair… Beautiful hair… You are getting sleepyyyyyyyy.

The adults in the room, however, should be nervous. If the Bank of Canada cuts interest rates this spring, it could spark another sell-off in the CAD to USD exchange rate. That means higher prices at the grocery store—and lower returns on savings.

Insiders are worried. Should Canadians be worried, too?