A California hedge fund manager who notoriously went all-in against the Canadian economy last year expects the loonie to fall to 70 cents.
Vijai Mohan, head of Hyphen Partners LP, told the Globe and Mail a Canadian dollar worth 70 cents U.S., “if not worse,” is possible within five years. That’s especially the case if the divergence between the U.S. and Canadian economies continues to grow, he said.
Though others have called for the loonie to keep falling, Mohan’s forecast may be the most pessimistic. Goldman Sachs is calling for an 88-cent loonie this year.
The loonie rose 0.1 cents U.S. on Wednesday, after closing at 89.74 cents on Tuesday, its lowest close in 4 1/2 years. It has fallen more than three per cent against the U.S. dollar so far this year.
Mohan last year controversially put 95 per cent of his clients’ assets into bets against the loonie and Canadian banks. He saw a double-pronged threat to Canada from the housing market and from banks.
Mohan’s bets against the Canadian dollar proved profitable; the loonie dropped seven per cent against the U.S. dollar last year. But his bets against Canada’s banks are a fail, at least so far; their stocks rose 18 per cent last year and many analysts predict another blockbuster year.
But Mohan is sticking to his bets against the banks, and he’s not the only one to do so. Investor Steve Eisman, known for predicting the U.S. subprime mortgage crisis, has suggested it’s just a matter of time before Canadian banks take a hit.
“Once you start to see [Canadian] banks showing credit deterioration they’ll all pile in,” Eisman told The Financial Times.
Mohan sees a new threat to Canada’s economy: a bust-out in emerging markets. The currencies of many developing countries have been falling, over concerns their economies could suffer as the U.S. withdraws its economic stimulus.
That in turn could put downward pressure on oil prices, dragging down the loonie and Canadian energy exports.
Combined with Canada’s high house prices and record-high consumer debt levels, that makes a day of reckoning inevitable for the economy, he argues.
“Either the Canadian economy will prove to be some kind of miracle, or it’s going to be like every other bust situation we’ve seen unfold in the past,” he said.
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