IN PRINT ARCHIVE CIR Fall 1999
|Guest Editorial - Wow 36,000|
|by Kevin Press|
There is a hotly-debated book making the rounds these days entitled Dow 36,000. It comes from co-authors James K. Glassman and Kevin A. Hassett, a fellow and a resident scholar respectively at the American Enterprise Institute. The two are predicting U.S. stocks are "in the midst of a one-time-only rise to much higher ground--to the neighbourhood of 36,000 for the Dow Jones Industrial Average."
Glassman and Hassett aren't the only ones espousing this new paradigm theory of course. Just the same, it is noteworthy for those with an eye on Canadian stock markets that their book has achieved such a high profile. Even the general interest magazine The Atlantic Monthly jumped on the bandwagon, running an excerpt front and centre in its September issue.
The Dow has become a cover model for the well-heeled.
Can the same be said about the Toronto Stock Exchange 300 composite index? How about the Vancouver or Montreal exchanges? Not hardly.
Sure, there has been some interesting articles published lately about the relative undervaluation of Canadian equities, and the potential for a real upturn if the world's commodity prices can regain some of their lost ground. But that is not exactly the stuff of magazine covers.
What will be front-page news however, if it does indeed come to pass, is a prediction from Keith Ambachtsheer, leading pension consultant and founder of Canadian Investment Review, that the federal government is finally going to make a move on the Foreign Property Rule.
The rule, as you know, is that part of Canada's Income Tax Act which dictates that no more than 20% of the book value of an individual or institution's investment portfolio be invested in non-Canadian holdings.
"My reading of the tea leaves is such that I'm reasonably confident that something will happen," says Ambachtsheer.
His only concern is that Ottawa will ratchet it up gradually (as it did when the limit was raised from 10% to 20% earlier this decade). He called that possibility "only half a victory."
The primary argument against change to the 20% ceiling has been that the move will trigger a mass exodus of capital, effectively pulling the rug out from under the Canadian equities market.
This is rubbish of course. The international investment community will be all over those stocks at the first sign of their being undervalued. Given the current state of equities here, that may already be their analysis of the Canadian market.
What's more, an outright elimination of the Foreign Property Rule would send precisely the right signal to the international finance community. Those who hadn't considered Canada a good investment will at least take a fresh look.
And that would make a great cover story.