Money Show 2014 - Jim Jubak

Jim Jubak was also speaking in the Opening Remarks section of this show. He first mentioned that he has a website that is free. He asked the question of whether a strong US dollar is a threat or a menace.

So far in October the S&P500 has corrected 10%. What we do not know is if it will go further. There are worries. China is faking numbers more than usual. Ebola is a global worry. People are losing faith in global central banks and this is a big problem.

The US$ Index is going up and has increased by 10% recently. The index compares the US$ to 6 other currencies. In the future the EU and Yen will weaken. For this index see Market Watch. The comparative currencies are EUR (European), JPY (Japanese), GBP (British), CAD (Canadian), CHF (Swiss) and SEK (Swedish).

Another big thing is that the US$ is rising against Developing Economies currencies such as Brazil, Indonesia and Turkey. The Brazilian currency is down by 17%, the Indonesian currency is down by 14% and the Turkish currency is down by 22% against the US$.

The reason for the strong US$ is that the Fed will raise rates. However the ECB and the Bank of Japan are cutting rates. They are hoping that a lower currency will lead to strong growth. The US is tolerating this for now. However, there are real doubts this will work because the US economy is not big enough to absorb everyone's exports without slowing itself.

There is a problem in corporation debt. Corporations have tapped international borrowing markets for the bulk of their debt which is in US$. Now they need to pay loans and interest back in US$. Their costs will soar as the US$ climbs. This process is still unfolding, but companies are getting worried about their debts in US$.

Imagine a country (like Brazil) getting caught in a low growth patch. What can the government do? It can raise interest rates to support the currency or cut the value of their currency to raise growth. They can intervene in the currency market by spending their reserves. There is a threat of big corporations defaulting and roiling the financial markets and hitting the banks.

He can see the US interest rates going up but this will be done very slowly. And, to say something about Canada, he said that are banks are not problem as they are strong.

On my other blog I am today writing about Gluskin Sheff + Associates Inc. (TSX-GS, OTC-GLUSF) ... continue ...

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