Here's The Best Super Bowl Ad from Last Night. Shown Only In Canada

The best Super Bowl ad from last night - which was only shown in Canada.

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Video: The Curious Case of Canada

Contributor Eric Jackson says everyone loves Canada's economy these days because of its commodities and its relatively low debt. However, there are some big problems below the surface that its Central Bank must grapple with.

Thu 01/06/11 13:58 PM EST -- Eric Jackson

Stocks in this video: DXY | USD | MACRO | CAD

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Canada's Curious Case

By Eric Jackson, Senior Contributor01/05/11 - 06:00 AM EST

Canada's economy has been the best performing of the G8 nations coming through 2008 with flying colors.

It has been heralded by many in the U.S. business media as being an example for the U.S. to follow. It's common now to hear pundits suggest Americans to seek the safe haven of the Canadian dollar from the risk of the US dollar's debasement. Recently, no less an authority than Bill Gross suggested savvy investors buy Canadian debt as a hedge to what's on offer here in this country.

Canada deserves pats on the back for its ability (and good fortune) to steer itself through the last few years. However, there are some ominous warning signs on the horizon for its economy and it's not entirely clear where it -- or its currency -- is headed next.

First, let's review what Canada's done right.

1. In housing, Canada kept strict oversight of income verification and documentation. You just never could walk in to the equivalent of a Countrywide in Canada and get approved for an obscene amount of money.

2. All mortgage loans in Canada are "full recourse," meaning that the borrower is fully responsible for the mortgage even if he or she defaults. Banks can keep coming after the individuals who took out the loans, long after the property has gone into foreclosure.

3. No tax deductibility of mortgage interest. Although some Canadians complained about this in 2005 when house prices were booming in the U.S. but flat in Canada, this conservatism looks very wise today. What's the point of goosing as asset-class with a tax break, when it contributes to the devastation we've had in America in housing for the last three years?

4. More conservative lending and fewer mortgage brokers. Canadians often like to say they don't/didn't have subprime mortgages in Canada. That's not correct. Subprime mortgages exist, but are far less common than in the U.S.

Part of the reason is that the five Canadian banks are the major way most Canadians originate their mortgages. Only 35% of Canadian mortgages are originated by mortgage brokers, whereas the equivalent number in the U.S. is 70%. Therefore, there were far fewer subprime mortgages made available in Canada over the last decade - another conservative point for the housing economy.

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[** This post is an excerpt of the full article, which is available on TheStreet.com by clicking here. Free Site.**]

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Protecting Potash From Itself

By Eric Jackson
RealMoney Contributor
11/15/2010 5:00 PM EST
Click here for more stories by Eric Jackson

BHP Billiton (BHP - commentary - Trade Now) pulled its offer for Potash (POT - commentary - Trade Now) yesterday afternoon and said it would spend $4 billion on stock buybacks. Investors, however, still believe a deal is possible. Shares of Potash dipped less than 2% to $137 on yesterday's news. The stock was trading at $111 prior to the buyout offer in August.

BHP certainly still has a lot of dry powder -- even after its commitment to spend $4 billion on buybacks at some unspecified. That's just 10% of the amount that the company was prepared to spend on its acquisition of Potash.

There are many merger arbitrage hedge funds still betting that a deal will go through. However, based on the Canadian government's rejection of the proposed deal a few weeks ago, I'm not so sure it will happen.

Many were surprised by this decision. Countless articles have pointed out that this was only the second time since the 1980s that the Canadian government has ruled out a proposed deal. However, there's been little analysis into why the deal was ruled out and what it might mean for future deals.

Industry Canada -- the Canadian equivalent of the Federal Trade Commission (FTC) -- has to sign off on any foreign buyout of a Canadian company. The organization actually green-lighted the BHP deal. It was the Minister of Industry, Tony Clement, who blocked the deal -- and it came down to politics.

The federal Conservatives have led the country -- fairly well when you consider Canada's position today relative to the rest of the world -- as a minority government for the last four years. They are widely expected to call another election in the next six months.

It became clear weeks ago that many Western Canadian business leaders weren't behind the BHP takeover. They basically didn't like the future it presented to many of them -- most of whom lead energy or agricultural companies that potentially could be attractive buyout candidates in the future. They have seen dozens of acquisitions of mid- to large-sized Canadian companies out over the last 15 years, and they have seen those companies basically become branch plants or branch resource locations (where key executives remain abroad and local Canadian jobs are lost). What's more, the key resources fall under the control of some foreign company.

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[*** This post is an excerpt of the full article, available by clicking here to go to RealMoney.com. Note: subscription required. ***]

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Oh, Dear, Canada!

By Eric Jackson
RealMoney Contributor
7/19/2010 1:45 PM EDT
Click here for more stories by Eric Jackson

Canada's economy has been the subject of many glowing reviews by American analysts over the last 18 months. In comparison with the U.S., the Canadians seem to have a great thing going. Unemployment is 7.9% versus 9.5% in the U.S. There has been no major failure of a Canadian bank. The country's debt-to-GDP ratio is only 70% versus more than 90% in the U.S.

The Canadian housing market has also shown remarkable resilience and even strength. Home prices, although they declined in the wake of the Lehman Brothers bankruptcy, have now recouped all their losses and are higher than they were prior to September 2008.

When the U.S. economy drove into the ditch in the fall of 2008, the Canadian government got rightly scared, as Canada's economy has often been the tail on the U.S. dog, manufacturing lots of American cars, as well as shipping oil, gas and lumber across the border. (Most Americans don't know that Canada is the largest exporter of oil to the US, far ahead of any Middle Eastern country.) The Canadian dollar -- used by traders as a proxy for a bullish bet on commodities -- went from a pre-crisis high of near parity with the U.S. dollar to 78 cents by October 2008.

The Canadian government responded to the financial crisis in much the same manner as the U.S. -- a similar level of stimulus dollars on a GDP basis (remember that Canada is 10% the size of the US economy) and a similar level of government purchases of mortgages off the balance sheets of banks on a GDP basis. Interest rates plummeted and mortgages became a lot cheaper.

In contrast to the US, Canada's housing market had not been as overheated for as long. While most U.S. house prices ramped up starting in 2002, when rates dropped after 9/11, in Canada, most housing prices didn't really start to appreciate to U.S.-type levels until 2006. Therefore, even though the Canadian housing market did freeze up after Lehman, by May 2009, with low rates and a comparatively better local economy, most Canadians started to jump back into the housing market with both feet -- especially in the two hottest markets of Vancouver and Toronto. Property bidding wars in Canada became common between May 2009 and as late as April 2010.

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[*** This post is an excerpt of the full article, available by clicking here to go to RealMoney.com. Note: subscription required. ***]

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Gold: The Only Asset Worth Owning - Part II of Eric Sprott Interview

By Eric Jackson, Senior Contributor

06/10/10 - 06:00 AM EDT

Stock quotes in this article: FNM , FRE

Eric Sprott founded Sprott Asset Management in 2001 and has over $5 billion in assets under management. He has been an outspoken gold bull since 2000 and warned that the bursting of the Nasdaq bubble was the start of a long-term deflationary trend that is playing out. I met him last week in Toronto for an interview.

Second of two parts

EJ: You've loved gold for a long time but, when the crisis hit in 2008, gold and junior miners got killed like everyone else. How do you explain that?

ES: I treat what happened to gold stocks in 2008 as anomalous. Now, two years later, gold's at a record price and gold stocks have come back from an absolute pasting.

I'm not convinced the market is always right. The market can be very wrong for a certain time period. I remember in 2006 when homebuilder stocks rallied 60% because people thought housing was turning.

We love gold and silver stocks. I'm still bullish on my prior stock picks of junior miners. [At the May ValueInvesting Congress, Sprott recommended OceanaGold Corp., which is listed in Toronto under OGC, Avion Gold (AVGC.PK), and East Asia Minerals (EAIAF.PK).] Why? Because there could be times in the life of investing when people only buy one thing. That's what happened in the mid-1930s. They only bought gold stocks. So much so, there were 80,000 gold mines in the States then because they could get financing.

I just get the feeling that that could easily happen again. When you look at a system that's in trouble, you think: what's the one thing I could do to get through it? You're thinking survival, because it's not going to befun. By owning gold, you can survive it because it will have its purchasing power vs. anything out there. If we're still eating food and trading things, you will be able to use gold to buy those things.

EJ: So you see us staying in a deflationary environment?

ES: I do, certainly for paper assets. I think you might end up getting necessary inflation in food, energy, precious metals, where there could end up being real shortages.

EJ: Is that why you like energy?

ES: Yes. Unfortunately, one of the things that could happen if the whole financial system has a problem is that your whole ability to produce things goes down. If you can't borrow money in the energy business and you can't drill, your production is going down this year... immediately.

The same thing happens in agriculture. When they had the credit crisis, the farmers couldn't buy fertilizer -- just as little as a year ago. The shortages could develop quickly because of financial problems. So prices will initially drop due to a lack of demand, but then supply plummets.

........

[This post is an excerpt of the full article, which is available on TheStreet.com by clicking here. Free Site.]

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Canada's Real Estate Market Bubbly

By Eric Jackson

05/19/10 - 06:00 AM EDT

Stock quotes in this article: RY , TD , CM , BMO

NEW YORK (TheStreet) -- It has been painful to watch the housing turmoil in the last few years play out in the U.S. I know friends who have been terribly affected by it. After seeing the devastating impacts on the entire economy from this housing downturn, many market observers have pointed to China as a frothy real estate bubble that will likely pop soon. However, you might be surprised to learn that -- up until very recently -- there were bidding wars going on for homes in Canada.

Canada might be America's neighbor to the north, but it has a bubbly real estate market, even as the U.S. market continues to limp along. Consider these eye-raising facts:

Canada's real estate prices have increased on average 40% in the last year while incomes have dropped.

Canadian residential real estate is now worth more today than it was pre-Lehman.

There are now more dwellings built in Canada (assuming, as the Canadian government does, that an average of 2.3 people live in each dwelling) than the population of Canada.

Canadian consumers have racked up enormous debts while interest rates have been low over the past 20 months.

Personal bankruptcies are at record levels now in Canada when interest rates are still at historical lows.

In Vancouver, people now spend 68% of their disposable income on housing. In Toronto, people spend 44% of their disposable income on housing. (Keep in mind that the China bears were complaining that it was unsustainable that some Chinese in Beijing and Shanghai were spending more than 30% of their disposable income on housing.)

Canadians have been proud that their banks have done well post-Lehman, unlike so many of their global peers. The banks have actively originated mortgages demanded by Canadians over the last year, but -- unlike U.S. banks during the housing boom -- for the most part, they've elected not to hold on to these mortgages. As quickly as they can, they pass along the mortgages to the Canada Housing and Mortgage Corporation. This is a crown corporation, meaning it's 100% owned by the federal Canadian government (i.e., the Canadian taxpayers).

Over the last five years, the CHMC's liabilities -- meaning the mortgages they hold on their books -- have gone up five times from C$80 billion to C$400 billion. Any time you see a business increase its liabilities by that amount, it's intriguing. When you consider the last two years has been the worst economic downturn since the Great Depression, it's even more head-scratching.

However, Canada's economy was going along okay pre-Lehman. Whenthe stock market dropped, Canadian housing and real estate activity stopped and prices did drop. But, with most consumers and the Canadian banks in okay shape, and with Canadian job losses not as bad (relatively) as in the U.S., Canadian consumers had quicker confidence to spend thanks to the lower interest rates.

When famous bear David Rosenberg left Merrill Lynch to move back to Canada in 2008 and join Gluskin Sheff, he spoke in glowing terms about Canada's position in the global economy. Yet, even he has begun to acknowledge the housing bubble that exists in Canada.

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[This post is an excerpt of the full article, which is available on TheStreet.com by clicking here. Free Site.]

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