Last week the Swiss central bank surprised the markets with removing the peg of the Swiss Franc to the Euro. Maintaining the peg was costing the Swiss central bank billions in losses. Gold prices shot up and many hedge funds lost a bundle. ( I wonder if Super Mario gave them a heads up to his Q.E plans).
Canada’s Central Banker cut interest rates in Canada by .25%, the currency immediately fell!! He called the cut an insurance policy against the effect of lower oil prices to the Canadian economy. His team believes that the price of oil could stay in the $60 Range for the Next 2 YEARS. A lower dollar will hopefully help manufacturers to export more and offset the lost of oil revenue. He didn’t rule out another rate cut if oil prices don’t rebound later in the year.
The European Central Banker surprised the markets with the size and duration of their new Q.E. program. They are going to buy 60 billion euro bonds per month until Sept. 2016 and longer if necessary. Only investment grade bonds will be purchased which excludes Greek bonds.
Why should you care? Most investors do not take currency risks when allocating their investment dollars. My fellow Canadians have gained investment returns if they have investments in the U.S. My U.S. readers who own investments outside the U.S. lost money this morning. Think again if you think that you are safe by owning U.S. stocks. J & J reported an 8% drop in earnings because of currency conversion from foreign profits. American multi-national corporations get as much as 40% of their total revenue outside the U.S.
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