A Contrarian's Dream

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Canada is pretty much a contrarian's dream. Dollar, gold, lumber, oil (and just about every other commodity) in the tank,

General Motors

(GM) - Get Report

looking like Job None and Asia more like a place for cheap holidays than a buyer of Canadian exports. Mergers that seem fraught with controversy, whether it's the big banks or

Nortel's

(NT)

controversial swallowing of

Bay Networks

(BAY)

. And an apparently slowing U.S. economy that doesn't look as if it's likely to soak up all or even part of the 52% of Canada's exports that once went to Asia.

The Canadian dollar, trading near it's low (US$.68, C$1.474), is the most interesting item on the Canadian economic laundry list. If it drops much lower, foreign confidence in Canadian growth could wane. Higher? Exporters begin to build up inventories. With exports to Asia down, the positive growth effect of currency translation to Canadian dollars is offset. According to investment dealer Nesbitt Burns, Canada's April trade surplus is projected to decline to C$1.4 billion from C$1.6 billion in March.

The

Conference Board of Canada

, harbinger of both good and bad economic news for Canada, seems resigned to the Asian effect. The Board sees a two-year time frame for recovery. Growth in Canadian exports to the U.S. will be 7.3% this year compared with last year's 9.7% performance. Canada's growth rate will cap at just under 3% for 1998 and 1999, down from the 4%-plus rate trumpeted earlier in the year.

Given the

Bank of Canada's

intransigence in dealing with the sliding currency, time may be running out. The bureaucrats continue to harp on how well the Canadian currency is doing against the rest of the world, excluding the U.S. dollar. However, since 85% of Canada's trade is with the U.S., the point is hollow at best, and at worst, dangerous. Keeping Canada/U.S. trade growing and vibrant is the only real hope to getting through this Asian diversion. It's reminiscent of a poodle kicking a rottweiler.

The

TSE 300

has moved back up to 7314.72, stemming, for now, the decline that began in early June. The index got down to 7141, a 6% decline for the month. The

TCI

(TCOMA)

-

AT&T

(T) - Get Report

merger sparked the techs and cables, but recent bounces have had a "dead cat" feel to them and analysts here warned of more down than up.

It's interesting to note that dip buyers who were fairly indiscriminate in their buying after previous declines, were more selective this time. With oil at a 10-year low, wood stocks staying on waivers for what has seemed like an eternity, and stocks like

Ballard

(BLD.TO:Toronto) softening on profit-taking, money is leaving many market sectors for the relative calm of the bond market, currently yielding north of 5.5%.

As this quarter's correction hovers near that allegedly magic 10% number, investors and fund managers alike are wondering if markets will bounce prior to hitting the 15% lower limit that will be either the floor of a midterm correction or the ceiling if the bear takes hold.

No one knows what will happen in Asia. As far as Canada is concerned, the news has already reached our shores. Investors in Canadian stocks will want to stick to those stocks that have limited or nil exposure to Asia. Stocks like

Bombardier

(BBD.B:Toronto) and

Magna

(MGA) - Get Report

(GM strike notwithstanding) and of course big golds

Barrick

(ABX)

and

Placer Dome

(PDG)

-- both trading near 52-week lows -- are good bets to weather the storm. Those with a little more fortitude should look at oils such as

Imperial

(IMO) - Get Report

and

PetroCan

(PCZ)

. In the wood stocks,

MacMillan Bloedel

(MB:Toronto) has knuckled under to environmentalists, which may not translate into quick profits but will enhance its image, which in the battered lumber sector is almost as good.

During the bank merger spins earlier this year, the CEOs' tried to sell the deals under the banner "Size Matters." Until Asia plays or flames out, that advice should be heeded for the Canadian market as a whole.

Bob Beaty writes about Canadian issues from the quiet confines of Bowen Island, British Columbia. He welcomes your feedback at

bbeaty@netcom.ca.