Falling, hard

Dec 12, 2014 | Dian Chaaban


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3 things fell this week – oil prices, the Canadian dollar and yours truly.
 
I woke up yesterday morning, much like all of you, surprised to see how much snow had fallen. It seemed fluffy and harmless so I wore my nice boots (instead of my ugly serious winter trekking boots) and immediately regretted this decision moments later as I slid across a freshly shoveled pathway, falling so dramatically that I threw my purse up into the air as I landed harder than I imagined possible on my elbow.
 
Today, the throbbing pain in my elbow has travelled across my arm and into my shoulder, leaving a lasting impression of frustration and anxiety over the coming months of more snow, ice and slush. OPEC has left investors with similar feelings after the release of their 2015 crude demand forecast this week - which was cut to 28.9 million a day (the lowest in more than a decade). Energy shares sold off even further on Wednesday and continued to do so throughout the week, dipping below $60.
 
“As analyst Alastair McCaig puts it this morning, “panic is beginning to set in” across financial markets as the collapse in oil prices deepens. His comments came as equity and currency markets faced fresh turmoil, with crude slipping further below the $60-a-barrel mark on a new price forecast and more economic signals from China. Iran’s oil minister added fuel to the fire with his suggestion that there may be $20 to go still where crude is concerned”. Read more here.
 
These levels are simply unsustainable – hence, this cannot last forever. We’ve seen OPEC defend both supply and price in the past and it’s only a matter of time before they begin defending price again…but in the meantime, don’t let your attention waver from that of the Canadian dollar.
 
This week, the loonie touched a low of 86.28 cents US – the lowest it’s been in about 5.5 years – and it’s likely to keep slipping. Quoting 5 year lows in oil and the loonie makes you think that they may be correlated – and they are – but the relationship is not one for one.
 
“Since the recent highs in oil prices, June 30, WTI oil is down 45 per cent, while CAD is down 7 per cent … The lower oil prices fall the more vulnerable CAD becomes. We expect CAD to trend lower in the near-term and early 2015, and to close 2015 at lower levels than it closes 2014…the loonie is “caught in a massive oil slick,” said chief technical analyst George Davis of RBC Dominion Securities”.
 
So, there you have it - the market took a huge beating this week for a multitude of reasons – perceptions of over-supply, media exaggeration and nervous investors buying into the hype by selling their energy positions at a loss. And while concerns are looming, this is not the first time or the last, in our view, and it could get modestly worse before it gets better. So in the meantime, here are 2 ways to make the best of things:
 
1) Tax loss harvesting – for your non-registered accounts, if you realize a loss by selling, you will generate an allowable capital loss to use towards offsetting your taxable capital gains from this year, three years prior or indefinitely moving forwards. You must have owned the stock for at least 30 days and cannot purchase it again for 30 days or else it will considered a superficial loss by the CRA – read more here.

2) Converting your loonie sooner rather than later – if you plan on needing some US dollars in the new year (whether it’s for travel or investment purposes) I would suggest converting your money now before the loonie slips even further…