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On Sale! (if we depreciate our currency)

 -- Published: Tuesday, 15 July 2014 | Print  | Disqus 

By Victor Adair

Another shot fired in the Global Currency Wars: Airbus CEO says the ECB must tackle the “crazy” strength of the Euro…the ECB should intervene in the currency markets to push the Euro down… "Europe cannot be the only economic zone that doesn’t consider its currency as a weapon…as a key asset to promote its economy."

Well, you can’t get any more clear than that! If you can’t compete then depreciate your currency or put up tariffs or take other protectionist measures…beggar thy neighbor on the race to the bottom.

Last week on the Moneytalks Radio show while commenting on the Ontario debt/deficit situation I said that the Ontario government would love to see CAD at 80 cents…to kick start their export industry…so the government can continue their tax and spend ways.

I have shifted ~30% of my net worth from CAD to USD over the past few years at around par. I don’t think it makes any sense for an individual to have 100% of their net worth in any one currency…you diversify the rest of your holdings, why not diversify your currency exposure?

Short term trading:

Currencies: We’re short CAD. We think the rally off the March lows has been short covering and that the 94 cent level is a roof. We continue to hold long USD Index positions…essentially betting on a weaker Euro…we see the troubles in Portugal as symptomatic of European bank weakness and expect to see the Euro lower over the next 12 months as the Fed begins to tighten while the ECB goes the other way.


Stocks: We think it’s a great time to be defensive. I told a friend the other day that I’m positioning my money for 100%+ returns…I mean, I’m looking to at least get my money back…I want to defend against taking any big losses.


Credit markets: On the Moneytalks Radio show I also said that governments everywhere need more money…and they’re coming for yours…it seems people have forgotten that as trillions of dollars-worth of global stimulus has driven stock and real estate markets higher…while ultra-low interest rates force “everybody” to over-reach for yield. (Investors are lending billions to countries you couldn’t find on a map.) What’s the biggest investing mistake people are making right now? Over-reaching for yield…buying crap for a few extra points.

But…it’s a Risk-On market with ultra-low volatility, lots of leverage and new highs day after day. Markets are unprepared for a reversal…which we think would cause:

A break in the stock market
A sharp widening in credit spreads, and
A higher USD.

Crude: WTI broke above its apparent $105 roof on June 12 as the insurgency in Iraq shocked the markets…running all the way to $107.50. But WTI has dropped >$7 since June 25 as the insurgence has not threatened oil production. We had been short WTI on a bearish supply/demand story but were stopped out on the break above 105. The massive build-up of speculative long positions in June created a great opportunity to re-short the market but we didn’t get the trade done. Pity.


Gold: Jumped over $40 on June 19 as the market feared contagion from the Iraq insurgency…a weak USD throughout June also helped gold rally ~$100 on the month. We see resistance around $1350 with the big increase in spec longs over the past month leaving the market vulnerable to a break (WTI is now trading below where it was prior to the Iraq scare…a similar move in gold would see it drop below $1240.) We still see gold as “out-of-favor” relative to stocks and expect that a break of $1240 would set up a test of the lows made last year around $1180.


Victor  is a regular analyst and frequent host on Canada's most popular financial radio talk show, Michael Campbell’s Money Talks, broadcast live every Saturday morning from 8:30 to 10:00 am Vancouver time on CKNW AM 980 in Vancouver, across Canada on the Corus radio network and worldwide on

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 -- Published: Tuesday, 15 July 2014 | E-Mail  | Print  | Source:

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