29 October, 2007

Markets Advance ahead of Fed Meeting, Oil hits New Record

Overall trading tones were positive on Monday and stocks advanced on both sides of the North American border. Canada's TSX advanced almost 1% while Major American indices were up about half a percent. Oil prices continued to climb near $94 a barrel.

Markets are almost already fully pricing in a 25 basis point rate cut by the Federal Reserve as American currency slided lower again. The US Dollar is facing tremendous pressures as global economies become stronger and the anticipation of a rate cut further drives the benchmark currency lower. The strong Euro is worth almost $1.45 US and the strong Canadian economy is pushing the Canadian Dollar further past parity and is now worth about $1.05 US. Multi-national US firms are reaping the benefits every quarterly earnings report that the US Dollar slides while International Investors in US companies are feeling the pinch as their holdings absorb the conversion rate loses.

While a rate cut is what the market expects, there has to be a balance here and the Fed knows it. Economy stability and Inflation/Currency issues have to be at the forefront of the Fed policy discussions, as I'm sure they will be. The last time the Fed met and cut rates the market on the whole rallied and this party, with few hiccups, has continued into late October. The market expects more now and a stand by the Fed will likely be met by selling so a cautious stance will be taken by traders in the days leading up to an announcement.

Major financials are holding seemingly steady now awaiting the Fed but the solid Investment Banks are seeing Money flow back in. Goldman Sachs (GS) hit a new high today over $244/share, and Lehman Brothers (LEH) advanced also, both stocks showing gains of over 3%.

Oil continued its upward trek hitting near $94 a barrel. An incredible run so far that has seemingly been pushed by fear of conflicts or worldwide production slowdowns every other week. Even with a milder Fall, than historically seen, in most regions, Oil prices continue to remain high pushing the likes of Exxon Mobil (XOM) closer to new highs.


hoyasaxa said...

Has the decline of the USD helped you r portfolio at all. I seem to think you hold us and Canadian stocks

Chris Krasowski said...

The USD decline has hurt the Canadian valuation of the portfolio. I do hold both Canadian and US stocks in their respective currencies.

To put things in perspective. Exchanging money to buy US stocks happens only a few times during the year. So I would set aside an amount for US equites and an amount for Canadian equities.

Now, hypothetically, if a large chunk of money was exchanged when the US dollar was worth $1.10 Canadian, and that same amount was now withdrawn with the US dollar being worth $0.95 Canadian than in effect whatever gains the portfolio had on those trades are slashed by the 15% decline in the US currency. However this effect only registeres if you were to take money back out and exchange it into Canadian dollars. I wont go into the yearly Tax implications because that's a whole different ball game.

The way it helps the portfolio is now on the Canadian dollar strength one can essentially invest 15% more in US stocks than you could have 2-4 months ago.