Category: Commodities

Bitcoins have been making some media headlines as of late because their chart recently went exponential:

I wrote about Bitcoins quite some time ago and my analysis today is still the same – ultimately a currency is only as good as the confidence that people have in it, and digital currency has a drawback of counterfeit-style currencies (e.g. why not take the open source of Bitcoin and then create your own new type of virtual currency?). Again, Bitcoin has the first-mover advantage, but who wants to subscribe to using Bitcoins when essentially the scheme has a pyramid scheme style element where the initial players in the market have a huge economic edge on those that start on it today?

My suggestion for those that are genuinely scared of their purchasing power of their money is to invest it in something that will continually be in demand. Whether this is in equities, gold, guns, or fine scotch is another matter – each of the four categories goes through its periods of high and low price variations.

For the first time since August, the Canadian dollar is worth less than a US dollar.

The 1:1 ratio is a psychological benchmark used by most people with respect to the dollar. This is actually arbitrary in light of the fact that the currency could be scaled 1:100 and be called the “Canadian Wazoo” which trades at 572 to 1 US dollar and then such comparisons would no longer be used. Both are equally invalid.

The following is a fairly telling chart – the Swiss National Bank is holding the line at a 1.2:1 exchange rate between the Swiss Franc to Euro (i.e. the SWB is not allowing their currency to strengthen relative to the Euro):

The question of the day for all traders is: Will the Swiss Bank relent? They have an infinite amount of Swiss Francs to sell into the market for Euros, but will they want the world to hold their currency while they hold onto (presumably more) risky Euro currency?

I have been doing some further analysis on micro-cap Canadian stocks, but I notice on the side that the weakness in commodity markets must be getting a lot of asset players concerned – leveraging on the way up made people look like geniuses, but did too many people join the bandwagon on the long trade?

Commodity markets have always been prone to huge booms and busts, and this one is not going to be too different – whether the “bust” will be the existing 15% correction we have seen, or whether it will be something more deep remains to be seen. The more people that had or have conviction that the present correction is simply an aberration on a longer trend, the more likely it is that the markets will continue to take these people into loss positions. The market might not be tasting blood quite yet, but a whiff of it is in the air.

My portfolio positioning continues to be extremely defensive and with little linkage with the performance of oil and gold. This exposure might increase if the market is tasting blood, but this is not going to happen until I start seeing different psychology than what is out there today with commodities.

The lowest risk commodity appears to be natural gas, simply by the virtue of not having had a run-up like the others.