The fear over financial institutions is ramping up quite rapidly with Credit Suisse (NYSE: CS) next on the media radar for insolvency.
Pretty much every sector of the financial market is having a huge amount of supply pressure added to it, with the exception of gold commodity and long duration AAA debt.
Commodities, specifically oil and gas, are getting absolutely slaughtered over the past week, presumptively due to a forecasting of demand going off a cliff with the rest of the world economy.
Cash is an essential element in the portfolio – it just sits there and is generally disrespected until moments like these where it provides a layer of comfort.
Some surprises in this is that the CAD/USD is not lower than I would have thought given what is happening to fossil fuel pricing and the increase in VIX.
When central banks raise interest rates like they have, it was bound to cause some sort of financial earthquakes, but predicting where they hit is usually done only with the benefit of retrospect. The first casualty is improperly leveraged financial institutions. The spillover effects of this remain to be seen. Cash, however, is a good short-term defense.
Re: CADUSD – I think this would have surprised me too, except the CAD also never appreciated meaningfully when oil took off last year. The CAD only just reached 0.80 when WTI was holding over $100.
My own speculative academic-and-not-bay-street view is that currency movements have become increasingly dominated by interest rates and financial trade and not real trade. Post-2008, the amount of money/liquidity in the system grew dramatically, without corresponding growth in volumes of real commodity trade, in addition to the general ongoing financialization of society, so the trade in money and financial assets is what increasingly sets exchange rate prices, unlike that glorious pre-2008 period when the CAD traded up to par on the back of oil prices.