Canada's PetroDollar
Reviewing the recent performance of our holdings QQQQ and XFN, it would appear that the Techs have outperformed the Financials. But in reality, since the XFN is based in Cdn $, and the Loonie has moved 10% against the US $ in the past month, it turns out the XFN has been the better performer.
So this got me thinking about the shrinking US$, as it has been falling against the Euro and the commodities again. Gold is well above $920, and oil is above $62. Perhaps the market is pricing in the huge expansion of the US balance sheet. The US bond yields on the long end (10yr, 30yr) have certainly moved up. This would suggest deflation is off the table, and US bond holders are looking to protect against inflation.
Does this mean we should repatriate our Cdn funds?
posted by Junk Bonds @ 5/27/2009 11:29:00 PM
2 Comments:
As i've said before, finding a good investment is hard enough without having to follow the currency trends!
The recent inflation/deflation worries do have a historical analogy that maybe helpful. Back in the 80's after the tumultuous inflation of the 70's, all people were worried about was inflation although we now know in hindsight that the 80's and 90's were primarily a dis-inflationary environment (with periodic spikes in inflation).
Now, with job losses and continued mortgage resets, the worry is of deflation even though the underlying trend will be towards much more inflation. There will be other 'bombshells' a la AIG or Lehman's that will incite fear of deflation, but I firmly believe in the power of the authorities to reinflate. Obama's trillion dollar deficits guarantee it.
Only if the US gov't defaults will there be deflation(and depression) and what are the chances of that? The bond markets are already exerting their displeasure with the forecast budget deficits and this will have been the best thing to happen to free markets since the credit crisis began.
In terms of investing, if QQQQ is still showing good strength, i suggest staying with it. Currency fluctuations are too hard to time in the short run. For the long run though, I'm holding my gold! :)
I don't think currency trends are that hard to predict, given that Canada's is a petro-dollar. In hindsight, the low dollar in the late 90's and early 2000's was caused by the low energy prices.
Our US multi-national idea took into account currency fluctuations and MCD and NOK have been rising over the past month on the weakness in the US$.
In this regard I've become somewhat bearish on Techs since they are domiciled in the US and the revenues are dervied in the US.
I think it's time for BRIC!
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