Uccmal Posted January 12, 2014 Share Posted January 12, 2014 Fellow Canadians, Virtually all of my holdings are US holdings. The dropping dollar versus the US currency is having the effect of increasing the value of my holdings. This is all well and good but I am trying to figure a way to profit from this. As best I can tell the CDN dollar is down because the US currency is so strong. In theory if the Canadian economy picks up the dollar should rise back up (in theory). Also, this tends to be somewhat self limiting. Goods from Canada get cheaper, cross border shopping crashes and the net effect is the Canadian dollar goes back up. It may also have something to do with the secular change in energy supply, although that effect should have been evident at least a couple of years ago. There may be no way to really profit here. In the past when the CDN dollar was over a buck I have transferred money to my US account. In every transaction I get nicked by the middle men. Also, if I take a big borrow in my US account but carry cash in the Canadian account I get killed on the interest rate spread. This would be no problem if I had a net cash position, but I dont. My net is about zero cash right now. Thoughts, strategies? Link to comment Share on other sites More sharing options...
alertmeipp Posted January 12, 2014 Share Posted January 12, 2014 i have an account with IB and recently sold after USD for CDN. Link to comment Share on other sites More sharing options...
finetrader Posted January 12, 2014 Share Posted January 12, 2014 Using forex with IB is my best way to play this me too I will sell some USD, enough to hedge my US stocks position, when I feel there has been enough CAD depreciation. Link to comment Share on other sites More sharing options...
maxthetrade Posted January 12, 2014 Share Posted January 12, 2014 Currency Futures are by far the cheapest way to play this. I simply roll my future positions every three month to the next expiration date. Very cheap and conveniant at IB. Link to comment Share on other sites More sharing options...
VAL9000 Posted January 12, 2014 Share Posted January 12, 2014 Fellow Canadians, Virtually all of my holdings are US holdings. The dropping dollar versus the US currency is having the effect of increasing the value of my holdings. This is all well and good but I am trying to figure a way to profit from this. As best I can tell the CDN dollar is down because the US currency is so strong. In theory if the Canadian economy picks up the dollar should rise back up (in theory). Also, this tends to be somewhat self limiting. Goods from Canada get cheaper, cross border shopping crashes and the net effect is the Canadian dollar goes back up. It may also have something to do with the secular change in energy supply, although that effect should have been evident at least a couple of years ago. There may be no way to really profit here. In the past when the CDN dollar was over a buck I have transferred money to my US account. In every transaction I get nicked by the middle men. Also, if I take a big borrow in my US account but carry cash in the Canadian account I get killed on the interest rate spread. This would be no problem if I had a net cash position, but I dont. My net is about zero cash right now. Thoughts, strategies? One way to take advantage of this is to look for businesses that export to the US from Canada and have either unhedged USD-denominated contracts, or shorter-term CAD-denominated contracts. I'm thinking that auto parts manufacturers are not in this group due to long-term contracts, but maybe Polaris Minerals - PLS.TO (a Michael Irwin/ABC Funds pick) is. I looked before, but I can't remember the details of their contracts. Probably smaller cap businesses are where you want to focus your time because they are more likely to not have a sophisticated hedging program in place and would also be looked over by the market in general. Exchange rates are very difficult to predict and can be slow to react to "obvious" forces - economic strength, trade balance, prevailing interest rates, etc. Make sure whatever business you choose to invest in can be profitable in both .8 CAD/USD and 1.2 CAD/USD, otherwise you might lose out if the tables turn. I would stay away from the energy sector when employing this strategy because, as you point out, CAD strength and oil prices are correlated. Link to comment Share on other sites More sharing options...
SharperDingaan Posted January 12, 2014 Share Posted January 12, 2014 We are in a very similar position ... Look at hedging, via sale & repurchase, across earnings announcement dates - & not reinvesting any hedge gains in the position. - Repurchase < 30 days of sale, & it will not qualify as a wash sale .. therefore NO taxable gain. - Repurchase the same # of shares & you increase your $C cost base, lowering any future capital gains - Hedges off earnings announcement risk, & any resultant cash hedge gain is yours to keep - tax free ;) Obviously, like most things, it is open to excessive abuse - so use judiciously or suffer the taxman. SD Link to comment Share on other sites More sharing options...
tyska Posted January 12, 2014 Share Posted January 12, 2014 . I would stay away from the energy sector when employing this strategy because, as you point out, CAD strength and oil prices are correlated. Seems to be disconnecting from that trend lately. Oil has been sort of range bound, but the spread has come down. Yet the dollar is weakening steadily. Link to comment Share on other sites More sharing options...
EliG Posted January 12, 2014 Share Posted January 12, 2014 In the past when the CDN dollar was over a buck I have transferred money to my US account. In every transaction I get nicked by the middle men. You can easily bypass the middle men. Look into Norbert's Gambit. You can do the exchange very close to the spot rate. http://www.finiki.org/wiki/Norbert%27s_Gambit http://canadiancouchpotato.com/2013/12/03/norberts-gambit-the-complete-guide/ Link to comment Share on other sites More sharing options...
ERICOPOLY Posted January 12, 2014 Share Posted January 12, 2014 I wonder whether foreign investors were encouraged into US equities by the rising dollar -- could explain the market that only goes up. Might reverse if trend on dollar weakens. Link to comment Share on other sites More sharing options...
SharperDingaan Posted January 12, 2014 Share Posted January 12, 2014 We invested in Europe via US ADR's, & because CAD was overvalued; while the ADR's trade on the NYSE they are really European equities. The expectation is that whatever we make will be upped by another 15-20% (re CAD depreciation) when we eventually repatriate the USD proceeds to Canada. New fund flow will probably stay in Canada if CAD remains at .90-.92, or lower; realized gains on USD denominated holdings will also just stay in the USD denominated market. The bulk of the funds also transferred long ago, what's left is now pretty much dribble. We find the FX game to be high risk, & with a tipping point around the .90/range. For the timing risk, uncertain horizon, costs & process exposure involved we really need around 5-10c each way of the perceived tipping point; about a 1 in 10 year occurrence. SD Link to comment Share on other sites More sharing options...
Uccmal Posted January 12, 2014 Author Share Posted January 12, 2014 Thanks all for the ideas. I have used Td Waterhouse to now. It may be time to change to so,ething a little more sophisticated. I will address my further questions in individual queries: maxthetrade: can you show me an example of this. The dollar is around .92 right now. I think the CDN dollar is going back up. How would you do this. Tx. Al Link to comment Share on other sites More sharing options...
Uccmal Posted January 12, 2014 Author Share Posted January 12, 2014 SD, I thought a wash sale was only important when you were trying to book a capital loss. I.e. Before you bought back a losing stock you needed to wait >30 days to book the capital loss. I didn't know you could use the same rule to shield capital gains. Link to comment Share on other sites More sharing options...
Uccmal Posted January 12, 2014 Author Share Posted January 12, 2014 Elig, thanks, I have been thinking about this in regards to my Registered holdings. Link to comment Share on other sites More sharing options...
SharperDingaan Posted January 13, 2014 Share Posted January 13, 2014 Uccmal: If you do the repurchase within 30 days, for tax purposes it is though the trade never existed. If earnings disappointed you will be repurchasing a few days later, & keeping the change - but your cost base will have risen :) Shalab: We use CAD as our home currency. Distributions are usually via long term UK property purchases where the CDN side is contributing the DP as a equity stake; & the UK relatives are financing, servicing, & managing the property. At termination the equity stake is gifted - & never returns to Canada. SD Link to comment Share on other sites More sharing options...
nodnub Posted January 13, 2014 Share Posted January 13, 2014 Uccmal: If you do the repurchase within 30 days, for tax purposes it is though the trade never existed. If earnings disappointed you will be repurchasing a few days later, & keeping the change - but your cost base will have risen :) SD I think in Canada this only applies to losses, not gains. It's called the "superficial loss rule" in the Canadian income tax act. There is no corresponding superficial gain rule that I am aware of, but I am not a tax accountant. In summary, if you sell an investment with a capital gain and buy it back within 30 days you still owe tax on the gains from that sale. (and of course, your cost basis is raised to the new purchase price...) Link to comment Share on other sites More sharing options...
SharperDingaan Posted January 13, 2014 Share Posted January 13, 2014 Agreed that it is in the superficial loss category for CRA purposes - If you have a superficial loss in 2013, you cannot deduct it when you calculate your income for the year. Great thing about Canada is that the tax rules are principles based. Just as you cannot deduct the defined superficial loss from your income, by that same principle - you cannot add a similarly defined superficial gain to your income either (ie: the inverse). Obviously if you abuse the principle through very large transactions, you will invite discussion; hence the judicious use caveat. SD Link to comment Share on other sites More sharing options...
maxthetrade Posted January 13, 2014 Share Posted January 13, 2014 maxthetrade: can you show me an example of this. The dollar is around .92 right now. I think the CDN dollar is going back up. How would you do this. Tx. Al You simply buy one CAD/USD march future contract (6CH4) for every 100k you want to be long CAD. Commission is ~$2.5 at IB. A couple of days before expiration you sell the march contract and buy the june contract. IB has a tool (Spread trader) that allows you to do this simultaneously so that the market can't move against you before you have executed both trades. Link to comment Share on other sites More sharing options...
alertmeipp Posted January 29, 2014 Share Posted January 29, 2014 So, a question for Canadians, do you guys measure your performance in USD or CDN? Link to comment Share on other sites More sharing options...
tengen Posted January 29, 2014 Share Posted January 29, 2014 So, a question for Canadians, do you guys measure your performance in USD or CDN? CDN for me. Link to comment Share on other sites More sharing options...
Uccmal Posted January 29, 2014 Author Share Posted January 29, 2014 So, a question for Canadians, do you guys measure your performance in USD or CDN? CDN for me. Well, I have always used CDN, since the currency was much lower. So, it handicapped me before and now its working in my favour. Over time it nets out. I decided to do nothing in the end. There is too much unpredictability. Link to comment Share on other sites More sharing options...
EliG Posted January 29, 2014 Share Posted January 29, 2014 So, a question for Canadians, do you guys measure your performance in USD or CDN? CDN. I live in Canada and plan to retire here. Most of my expenses are and will remain in Canadian dollars. What matters to me is the size of my retirement nest egg in Canadian dollars. Link to comment Share on other sites More sharing options...
SharperDingaan Posted January 29, 2014 Share Posted January 29, 2014 CAD, Sterling. We measure each of our major investment areas in their local currencies, & do not hedge the FX risk. FX exposure is in everything we do, averages out over the long term, & the vehicles we use are our choice. SD Link to comment Share on other sites More sharing options...
jm25 Posted January 29, 2014 Share Posted January 29, 2014 How low do you think this could go? I don't think $0.80 is out of the question. Link to comment Share on other sites More sharing options...
Guest 50centdollars Posted January 29, 2014 Share Posted January 29, 2014 How low do you think this could go? I don't think $0.80 is out of the question. 40,80 is coming Link to comment Share on other sites More sharing options...
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