Commodities are a good investment bet these days, according to Jack Ablin, chief investment officer at BMO Harris Private Bank in Chicago.
During a conference call today, Ablin said the current commodity market differs from those of the past in that global growth is no longer inextricably linked to the economic environment in the United States.
“As long as we’ve got a Fed that wants to combat U.S. growth, even at the expense of a weaker currency, I would bet on commodity prices going up,”
he said.
The BMO Harris CIO is less upbeat when it comes to the disastrous housing sector south of the border.
“The rest of this year is still pretty dismal and next year is dismal,” he predicts. “But right after the U.S. election, it looks like we could see a stabilization and a slow increase in housing once again.”
He says there has already been a 4% loss in value in the housing market, but that a further 6% decrease is needed and therefore, the worst is still to come.
Canada doesn’t share these housing market woes with its American brethren, said Paul Taylor, the Toronto-based chief investment officer at BMO Harris. “We don’t have the same loose lending practices that they do in the U.S. — the so-called NINJA borrowers (no income, no job, no assets),” he said.
But what does have a strong effect on investment decisions, he said, is the strong loonie. “It is a de facto hike in interest rates and the Bank of Canada has to be mindful of that,” said Taylor. “To the extent that we allocate money to U.S. equities, we also allocate into U.S. dollars. To the extent that we allocate outside of North America, we end up inheriting some currency exposure.”
“We have an underweight in U.S. equities and that is largely related to our concern that U.S. dollar weakness is not short term,” he added. “It will be an issue that persists as we move forward.”
And it’s for the same reasons, he says, that his investments focus more on equity markets outside of North America.
Taylor bravely looked into his crystal ball and forecasted targets for Canadian stock indexes. “If we get a U.S. economy that grows by somewhere between 1 and 2%, or beyond that, we believe that we have a pretty good backdrop once we get through the next couple of quarters,” he said. “We’ll probably end up with a return that is through 10%, that actually ekes into the low double digit range.”
BMO Harris sees a 30% chance of the U.S. sinking into an outright recession. This prediction comes one day after a BMO Capital Markets revised forecast that said BMO economists are now ready to admit the U.S. economy is in recession.
Possibility of U.S. recession means investors must be nimble
BMO Harris cautious of U.S. equities in weak-dollar economy
- By: Regan Ray
- January 24, 2008 January 24, 2008
- 17:10