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Currency Wars, Volatility, & Oil PDF Print E-mail
Written by Dan Petrey   
January 20, 2015

We learned last week, (I am writing this Monday afternoon 1/19/2015) that Switzerland decided to remove the cap the Swiss Franc had with the Euro and this Central Bank action completely surprised financial markets.  Meanwhile, since my last writing, Oil has continued its southbound direction as volatility continues to rock the stock market.

The Central Bank of Switzerland decided to stop the pain of being tied to the Euro and watching it lose value week after week and release its currency.  I am assuming they perceive Euro weakness to continue.  The decision caught markets by surprise and two currency brokers were caught on the wrong side as they quickly became insolvent after the news.  This news confirms my suspicions that easy money policies have caused excessively high leveraged bets that can quickly cause immense pain.  How many more one sided bets are out there that some event (often referenced as a “black swan”) could quickly turn a simple margin call into a business ending event.

Oil was the latest excuse for poor market performance and while Oil has attempted to temporarily bottom somewhere in the mid to high 40’s I am reading many analysts who expect further weakness.  Is the oil price issue reflective of a significant global economic slowdown or just isolated to excess supply of the black gold?  I think it is a combination of those and also a political element.  Global growth is slowing and fracking has led to excess supply which provided a nice environment for a volatile commodity to decline.  Add those arguable reasons to what I believe to be a political desire to punish Russia and Iran and you have a nasty investing environment that can push prices much lower than they should be.  This will present a very good opportunity, if it hasn’t already, for those who believe in the long term bull market in oil.

Stocks are trading in a volatile manner and are either putting in a messy topping process or are just going to violently base here before one more push higher.  I suspect the former but will not be surprised by the latter. Recent U.S. stock market volatility and global economic and currency volatility is providing a nice tailwind to precious metals.  Will this lead to a resumption of the Gold bull market or are we just having a convincing bounce from oversold levels before retesting the lows.  Again I expect the former but would not be too surprised by the latter. 

Patience is important here as emotions can go haywire when it relates to investing.  One does not want to be the proverbial deer staring at high beams either as that can be deadly.  One always wants to buy value and sell excess, or buy fear and sell greed. This can be easier said than done and one needs to develop a plan and stick with it only if things are still somewhat working out according to one’s macro analysis.  The problem is determining if that analysis is still correct or should one reevaluate if fundamentals have changed?   

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