"Everything's on sale at the world's biggest candy store," The Globe's Rob Carrick writes today in his column Time to buy American
"That's the United States we're talking about here.
"The land of the free isn't exactly gratis to Canadians now, but it is a big, screaming bargain now that our dollar is on the rampage."
In his column, Mr. Carrick offers these suggestions, among others, for how to take advantage of loonie's rise against the greenback:
* Book a family trip to Disneyworld or make other U.S. travel plans.
* Buy blue-chip U.S. stocks for your investment portfolio.
* Buy from U.S. online retailers.
Are you taking advantage of the soaring loonie? Do you want more suggestions for how to do that?
Mr. Carrick was online earlier today to take your questions.
Your questions and Mr. Carrick's answers appear at the bottom of this page.
Mr. Carrick has been writing about personal finance, business and economics for more than 12 years. He joined The Globe and Mail in late 1996 as an investment reporter and has been personal finance columnist since November 1998.
After starting his career at The Canadian Press in Toronto covering general news and business, Rob moved to CP's Ottawa bureau, where he served as senior economics writer and covered the Department of Finance.
He holds a Bachelor of Arts in political science from York University, an Honours Bachelor of Journalism from Carleton and is a graduate of the Canadian Securities Course.
As personal finance columnist, Mr. Carrick writes a widely read annual rating of online brokers.
Online investing is also an area of particular interest for Mr. Carrick, who has co-written a book called E-Investing: How to Choose and Use a Discount Broker.
He is often asked to provide his perspective on investing and personal finance issues at conferences and seminars. He also appears on ROBTV and contributes to Report on Business Magazine.
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Jim Sheppard, Executive Editor, globeandmail.com: Rob, thanks for joining us today to take questions from the readers of globeandmail.com. We've got a large volume of questions and we'll get to them in a minute.
First, I want to ask you to elaborate a bit on the five tips you offered in your column in today's Globe about what Canadians should do with the rising value of the loonies in their pockets.
You suggested a couple of things involving spending today — a trip to the U.S., online shopping — and a couple of things that were more long-term — pick up some U.S. stock bargains for your portfolio or look at big-spending item in the future, such as a Harvard education.
Obviously, every Canadian and every Canadian family will have different priorities.
But is there a "tipping point" where the value of the loonie versus the U.S. dollar makes either short-term purchases or long-term investments more attractive? Does the balance shift in any way at $1.20? Or if the loonie falls back to parity or below?
Rob Carrick: Thanks for having me online, Jim. Always glad to talk things over with Globe readers.
As for a dollar tipping point, I think it probably came yesterday when the currency briefly surged above $1.10 (U.S.).
When you couple this level of strength in the loonie with the lower cost of many goods in the United States, it's hard to ignore the value.
To me, the level where you really have to start looking hard at buying American is around $1.03. That's high enough that you can still get $1 U.S. for a loonie, even after currency conversion fees.
Below parity, it's hard to get too excited about cross-border shopping, especially with retailers here in Canada finally starting to pare the price of goods imported from south of the border.
E. Metera: Is it better to wait a year for the U.S. economic cycle to bottom out or is it better to play the near-term Canadian dollar rally?
I had been planning to buy a condo in Hawaii for the last six months but have been holding off while the Canadian dollar skyrocketed, saving me about $40,000 on the prospective purchase so far.
It seems that with the Canadian dollar pegged to the price of oil, the dollar will likely continue to rise and eventually peak sometime this winter.
But, given the timing of the U.S. economic cycle (the recession is yet to be officially announced) and the upcoming presidential/congressional election (tough economic policy normally follows an election year), is it still too early to enter the U.S. real estate market?
Garry Dunne, Winnipeg: Good afternoon, Rob. You recommended purchasing U.S. blue chip stocks. Would you also recommend purchasing U.S. real estate?
I plan on retiring in the next 2-4 years and am considering purchasing a condo in Arizona. Would it make sense to purchase now as a rental unit and then convert to personal usage when I retire?
Your comments are appreciated.
Jane Sullivan, London, Ont.: I'm thinking of buying a mobile home in Florida. For a Canadian, is it best to buy the land under it or to lease the land?
Dave Y., Toronto: What do you think of buying a home for retirement in the U.S. and renting it out until I reach retirement age in 10 years? Where would be a good place to buy?
Rob Carrick: Lots of people seem intrigued by the idea of buying U.S. real estate and it's easy to see why.
Not only do you have the currency working in your favour if you're looking at U.S. property, but you also have a depressed real estate market.
Canadians may never again see this much purchasing power in the U.S. real estate market.
Bottom line: if you've ever mused about buying a vacation home, cottage, mobile home, condo or whatever in the U.S., now's a great time to start looking.
That said, I would not buy property south of the border simply because it's on sale.
There are lifestyle considerations, plus you need to know the local economics of whatever market you're looking at. Not all markets are suffering.
In my column in today's paper, I zeroed in on Phoenix because it's in a state, Arizona, that offers great weather during our Canadian winters and also because it's somewhat depressed right now in terms of property values.
If living in Arizona appeals to you, then check out the market. Same goes for Florida, the Carolinas and such.
In terms of timing, I don't think the decline in the U.S. real estate market is fully played out. If you wait, prices may fall further.
At the same time, it's hard to see the loonie rising much more.
The investment dealer CIBC World Markets predicted today the dollar will rise to $1.11 (U.S.) by the end of the year, then settle back down to $1.05.
Stephen Feldman, Toronto: Thanks for your article. I have a question regarding cross-border shopping. I agree that you need to price compare before going, but at what point does the difference in price make the trip worth it?
What factors do I need to take into account (aside of trip cost) when pricing a US-based product versus a Canadian one? What charges (duties, taxes, fees) should I expect bring back a product into Canada (assume a large screen TV??).
Rob Carrick: Before you cross the border for some bargain-hunting, be sure there are actually some real bargains to be had in the States.
I was surprised to note how the Canada-U.S. price gap has narrowly recently for some electronics and books.
Retailers here are protecting their turf in the most sensible way possible — by chopping prices.
Yes, U.S. prices remain cheaper for the most part. But the differential is such that buying American is far from a no-brainer in some situations.
If you do head out on a cross-border shopping trip, your base costs are the gas your car burns and your time.
Yes, time. I've heard about egregious lineups at some border crossings. Is your cut-rate pair of jeans worth sitting in giant lineups for hours?
For me personally, the answer is a big, fat NO. Other costs include GST when you — of course — report your U.S. purchases at Canadian Customs.
Lots of people are wondering about duty. Yes, it can apply. But many goods are exempt from Canadian duty when brought across the border.
For further info, try this link I found on the website for the Canadian Border Services Agency: http://cbsa.gc.ca/E/pub/cp/bsf5056/README.html
Jim Sheppard, Executive Editor, globeandmail.com: Mr. Feldman, and any others who may be interested, you can get some further help by using the Cross-Border Shopping Calculator developed by globeandmail.com that can be found at the top right corner of this article page. Obviously, there are many factors that go into any decision about how and when to buy in the U.S. But our calculator can give you some ball-park ideas.
Ken O'Brien, Williams Lake, B.C.: [I'm thinking about] purchasing a new auto in the U.S. Are there brokers who deal with all the issues associated with importing a vehicle? Is this a wise step — buying a vehicle in the U.S.? Are there warranty issues?
R.R.: Customs told me there is no duty on cars. The dealers tell me there is duty. Is there duty or not? Can you tell me where I can find information on importing a new or used car to meet Canadian standards so that I don't get a headache at the border.
Rob Carrick: Here's a topic where there is a crying lack of definitive information.
I don't know of any brokers who handle the entire process of importing a car from the U.S., but this sounds to me like quite the business opportunity.
If there's a hitch, it's that so many car dealers in the U.S. have been instructed by the car companies they represent not to sell to Canadians.
One reader has asked about duty — I've seen info saying there's no duty to be paid on North American-built vehicles coming across the border, but there is on foreign-built cars and trucks.
Jim Sheppard, Executive Editor, globeandmail.com: If Rob and our questioners don't mind, let me throw in a personal observation.
My family and I returned to Canada two years ago after living in the U.S. as green-card holders for 10 years.
We imported to Canada two vehicles which we had bought in the U.S. and which we had always believed would stay in the U.S. [because we weren't planning to return to Canada so quickly when we bought them].
One was six years old at that time. One was three years old. Both had extensive mileage.
I never found a broker who could do everything. I spent days and days trying to find answers to my questions about importing. I often got confusing and conflicting information from the U.S. and Canadian governments. I spent days and days doing the necessary paperwork.
We were repeatedly warned that our U.S. warranties would be useless in Canada. In our case, it actually didn't matter because the warranty on one car was expired and was very close to expiring on the other one. But that would have been a huge headache.
In the end, we succeeded — although I ended up paying duty at the Canadian border on the newer car despite being repeatedly assured in advance that I would not be charged.
It was a huge hassle.
I'm not sure whether that experience is still applicable today and/or whether it relates to new cars.
But everyone I know who has tried to import a car can tell you that there's a lot more paperwork and legwork involved than you may think at first.
Melinda Norris, Ottawa: Mr. Carrick, could you please shed a little more light on why you advocate buying U.S. stocks right now?
Since these stocks are denominated in U.S. dollars, aren't they likely to lose real value if the U.S. dollar continues to depreciate? (And, with the likelihood of oil prices continuing to rise, is that not reasonable to expect?)
As someone who currently holds some U.S. securities, I'm concerned that my U.S. investments are losing value very rapidly and I can't imagine buying even more U.S. stocks right now.
As a side note, I'm also curious why you recommend blue-chip stocks rather than something like a fund (mutual or exchange-traded).
Doug Newton, Canmore, Alta.: You suggest buying U.S. stocks with our soaring loonies. Can you tell us how U.S. dividends are treated when purchased by Canadians? I believe there is a withholding tax that needs to be taken into consideration. Thank you.
Terry McBride, Saskatoon: If I purchase $50,000 worth of stocks in U.S. companies, such as Wal-Mart, Google or Microsoft, for my RRSP, would my estate become liable for U.S. estate tax when I die?
I have heard that, even if no U.S. estate tax is due, my executor may still be required to file a U.S. estate tax return because transfer agents may not allow any transfers until the estate can provide proof of Internal Revenue Service (IRS) clearance.
How big a deal is this concern?
Rob Carrick: The reason why U.S. stocks look attractive today is related to the buying power that Canadian investors how have.
Simply put, $100 Canadian now buys you $107 or so worth of U.S. stocks. Five years ago, that same $100 bought you about $68 in U.S. assets.
It's important to note that currency considerations don't on their own dictate that you go out and buy American stocks, exchange traded funds or U.S. equity funds. You have to first make sure they fit properly into your portfolio.
But if you do have space for U.S. content — and all properly diversified portfolios should — then there are powerful reasons for buying now.
Another angle on this issue is that the loonie is going to decline at some point. When it does, all those U.S. assets you bought today are going to rise in value when translated back into Canadian dollars.
Think about it. The stock market could be flat for a year, but a declining loonie could give you a gain on the value of your holdings.
Some readers have asked about taxes on U.S. stocks and the dividends they pay.
In RRSPs, you do not need to worry about this because of a Canada-U.S. tax treaty.
Outside an RRSP, U.S. dividends are subject to a 15-per-cent withholding tax. You may be able to recover this when filing your Canadian income taxes, however.
As for U.S. estate taxes applying to Canadians holding U.S. stocks, I believe this is a concern only to people with very large portfolios.
Scott H., U.S.A.: I am a Canadian living in the United States and paid in $US. Do you have any suggestions on how to weather this rise in the Canadian dollar — besides totally avoiding changing currencies?
I have to send money home every month, and the cost of this has increased substantially in a very short amount of time.
Rob Carrick: Scott, I think you've answered your own question when you use the term "weather this."
If I had to guess, I'd say the dollar is getting pretty close to its peak and then will settle down.
What you really need is a big drop in the Canadian dollar. I don't see that coming, but I do think the crazy increases will come to an end sooner rather than later.
John Jaglowitz: Would it be worthwhile to convert Canadian dollars to the Chinese currency instead of to U.S. dollars? If so, what would be the best way to hold that currency for some time?
Rob Carrick: John, I think currency speculation like this is a pure guessing game. Frankly, calling currencies correctly is the toughest game there is in the financial world.
All your plans could be in place and then there's a terrorist attack or a flare-up in the Middle East. All of a sudden, the U.S. dollar is the world's safe haven again and all bets against it are dead.
Lon Kimsa, Huntsville, Ont.: Is the time right to review the North American currency amalgamation question again? Am I in the minority when it comes to the desire to have one currency for North America?
For those of us who have been to Europe in the last five years, we all know how nice the Euro is to deal with and use.
Wouldn't it be great to have our entire continent using the same currency here as well?
Keeping patriotic thoughts aside, is this just a pipedream?
Rob Carrick: Lon, I agree about the Euro. Darned convenient for European travel.
But I just don't see it here.
The Canadian economy is much different than the U.S. economy (much more resource-based) and that's a big reason why foreign investors love our currency right now.
Something else to consider: if we Canadians used the U.S. dollar, we'd be watching our currency declining against most other international currencies right now.
Arnold Clifton, Ridgetown, Ont.: Are exchange rates (and other costs) offered by the banks (or brokerages) roughly the same for using a Canadian credit card for US dollar purchases? Buying U.S. currency? Buying U.S. stock through a brokerage?
Rob Carrick: Arnold, I don't think the banks are the best place to buy U.S. dollars, unless you're doing a very large transaction and have some leverage with your institution.
I did some informal comparisons when the loonie reached parity with the U.S. dollar and found that the differential between independent currency dealers and the banks was half a cent or more.
A lot of these dealers post their rates on their websites nowadays. It makes for an easy comparison with whatever your bank is offering.
As for credit cards, they're the worst way to convert money. That's because they apply a currency conversion fee on each foreign currency transaction. Expect it to be in the area of three per cent.
Sara Walsh: What advice do you have for me about my U.S. dollar bank account here in Canada?
I opened it about two years ago with an inheritance and now I am thinking of converting it to Canadian funds because of the rapidly rising loonie.
I should have — in retrospect — converted it two years ago but I didn't) So leave it or cash out?
The plan was to securely grow the principal but now I have lost a lot and am sacred of losing more. The funds are for retirement investing and fun. I am losing sleep over it.
John Ash: What is your recommendation for someone holding a large amount of U.S. cash?
Rob Carrick: Sara and John, let me answer your questions by saying that the loonie's biggest gains are quite likely in the past.
It may rise a bit more in the short term. But a couple of years from now I'd seriously expect it to be lower than it is now.
If you cash out now, you lock in the losses on your U.S. dollars and prevent yourself from benefiting from a future rebound.
Sara, it's worth noting that lots of experts say that ups and downs in our currency cancel each other out over periods of 10 to 15 years.
Ian Burton, Halifax: Hello, Rob. Are all online vendors based in the U.S. willing to ship to Canada?
Rob Carrick: Ian, any U.S. online vendor that won't ship to Canada is probably brain dead and not worth dealing with, anyway.
I mean, we have 35 million people up here with money that goes further than it ever has before when spent on U.S. goods. If I were a U.S. online retailer, I'd be jumping all over this.
Mark Armstrong: The service fees that credit card companies charge can reduce much of your savings from shopping in the U.S. But I also don't care to carry thousands of dollars in cash when I go shopping.
Are there any Canadian banks that provide U.S. accounts which have little or no fees when paying via a debit card?
Rob Carrick: Mark, one option is to use the debit card attached to your regular Canadian-dollar bank account.
Increasingly, these are accepted by U.S. retailers.
You'll have to pay a conversion rate, but so far as I know there's no currency conversion service fee like credit cards charge.
All banks offer U.S.-dollar accounts, but I'm just not sure how much they charge in fees on these accounts for debit transactions. If the fees aren't too bad, you could come out ahead by not having to pay for currency exchange.
Alexander Lefter, Toronto: What mutual funds investment do you recommend, with this rising loonie? "U.S. blue chip" means which fund? Thank you.
Rob Carrick: Alex, any good U.S. equity fund can help you benefit from the strong loonie.
If you need help finding one, globefund.com is a good place to start. Blue-chip is an investing term that means high quality. Most funds will hold some of these stocks, mixed with more speculative names.
Andrew McQuarrie, Mississauga, Ont.: Hi, Rob. In terms of blue-chip U.S. stocks, do you think Citigroup is a good buy right now or is the company destined for a long trip on the pain-train? Or is Citigroup not even considered a blue-chip stock anymore? Thanks, Rob.
Rob Carrick: Andrew, Citigroup has been mauled, and its share price is probably headed lower.
That said, I remember when this bank was pounded during the last bear market. Over the next four years or so, its share price more than doubled.
Jim Sheppard, Executive Editor, globeandmail.com: Thanks very much, Rob. I'm sure our readers appreciated your insight and advice. Any last thoughts?
Rob Carrick: Any time, Jim. In closing, I'd just like to encourage Canadian consumers to keep the pressure on retailers to reflect the strong dollar in their pricing of goods brought in from the United States. Books and electronics are getting cheaper, now let's bring the car companies to heel.
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