This week I want to talk about the incredible volatility that we have seen in the currency market over the past few months. The reason that we are seeing such drastic moves in the currency market is because we are presently in the midst of a global currency war. I have written about this in a past article on a more macro-economic scale. http://www.castanet.net/news/Economics-Made-Easy/76521/Currency-wars Today, I want to look at the impact of currency volatility on a more micro-economic scale.
Firstly, what is a currency war? Currency Wars inevitably take place in an environment of insufficient global growth. This is exactly the situation that the global economy is in today. Simply defined; a Currency War is the effort of one country to improve its economy by devaluing its currency in an effort to increase exports. Essentially, governments increase the supply of their domestic currency on the international currency market which puts downward pressure on the currency and makes domestic exports more attractive to international buyers. As I’ve stated before, this is a moronic process conducted by governments that fail to see the big picture. Increased exports result in increased GDP which allows governments to stand up and say, “Hey, look at our GDP increase. We are a good government, we are growing the economy.” However, decreased value of the currency is highly inflationary and devastating to the citizens of that country.
The graph represents the price to purchase US dollars with Canadian dollars over the past three months. We have seen a six cent depreciation in the Canadian dollar versus the US in that period. For those unfamiliar with the currency market this is not only extreme, but it is becoming the norm. So who cares about six cents? Well let’s quantify this with respect to a Canadian importer and exporter. Let’s say a Canadian manufacturer bought $1 million worth of US export in August of this year at 1.0800. His Canadian total would be $1,080,000. If that same importer bought that same product just three months later in November of this year at an exchange rate of 1.1400 the Canadian total would be $1,140,000. That is a $60,000 increase in three months for exactly the same product. Suddenly six cents becomes significant. The same would be true for Canadian exporters receiving US dollars. The only difference is that they would incur a $60,000 gain. Thus this volatility can be both extremely dangerous and profitable at the same time: it just depends which side of the fence you are on.
Currency professionals have tools at their disposal to both protect from this volatility as well as take advantage of it. This ain’t your father’s currency market. Unlike any other time in history it is essential for companies and individuals doing business outside of Canada to be working with a currency pro. And where would one find a currency pro in Kelowna? Nudge, nudge, hint, hint - just take a look at the right side of this column for contact information. Keep your stick on the ice and your head up. As an importer or exporter if you are not paying extreme attention to the currency market, you may find yourself leaving the game in a stretcher.
The murder of Nathan Cirillo in Ottawa on October 22nd was a heart breaking tragedy for this soldier, his family and humanity in general. It’s hard to believe, but there is an even greater tragedy that has come from the death of this innocent person: and that is the disgusting way that Stephen Harper and his gang of hooligans are using this event to further the globalist agenda of increased government surveillance and war.
I am absolutely flabbergasted at how quickly Stephen Harper single handedly connected this shooting and the runaway driver in Quebec on October 20th to some militant religious regime. The bodies are not even cold yet and Harper has, in his own mind, completed a thorough investigation, autopsy and historical background check of the criminals. He has then gone on to be judge, jury and executioner. That sounds like a dictator to me. He is obviously taking lessons from Barrack Hussein Obama. Isn’t Canada supposed to be a democratic country where we allow due process to prevail? Are we not supposed to conduct thorough investigations before drawing conclusions? Yeah, right! Those days are long gone. We now live in a military industrial complex lead by dictators who couldn’t give a rat’s backside about the people they supposedly represent.
Harper states that,"…attacks on our security personnel and on our institutions of governance are by their very nature attacks on our country, on our values, on our society, on us Canadians as a free and democratic people who embrace human dignity for all.”
What a crock of crap. This isn’t an attack on the people of Canada or anything else. For all we know the shooter could have been mentally unstable and hopped up on crack. The medical results are not in yet. As for “dignity for all”, would that include the innocent citizens of Iraq? To date, the government numbers state that, 10 civilians have been killed over the past couple of weeks as Canada and the US cowardly bomb Iraq. (Of course the true number is probably much higher than this). These casualties are innocent women, children and men. But I guess they are not included in “human dignity for all.”
Furthermore, watch what comes down the pipe from this. Members of our federal government are now arguing for increased surveillance power for CSIS, the ability to arrest so called “terrorists” without charges, and they encourage Canadians to spy on each other and report this to the government anonymously. These tactics come from the same play book used by savage historical dictators and the likes of George Bush after the inside job of 9/11. This is scary stuff, but it gets scarier as time passes and the definition of terrorist becomes broader. Before too long, anyone who contradicts government is considered a terrorist.
As Canadians we have a long history of being logical and litigious with the way we conduct ourselves. Unfortunately, our politicians no longer abide by this code of conduct.
I’ve addressed inflation many times before in this column, but today I want to look at a little more camouflaged form of inflation. Twenty years ago I bought my first investment property in Calgary. At that time durable goods (items that have a life expectancy in excess of three years i.e.: washers, dryers, stoves, fridges….etc.) came with a warranty of 10-20 years. Items such as mattresses even came with a lifetime warranty. I just purchased a new fridge a few days ago for one of these residences and to my complete shock I was informed that the warranty was only for one year. One year!? Of course the economist in me expected the purchase price to be 1/10th – 1/20th of what I previously paid. The truth of the matter is that fridges as well as other durable goods have steadily increased in price over the past 20 years. Manufacturers know exactly how long their products will last. So now I can expect to repair this fridge in just over a year and probably completely replace this unit within three years. Now over a 20 year period I will likely replace this fridge 5 or 6 times. So I can expect to pay 5 to 6 times more for a fridge over the next 20 years. However government inflation statistics will only calculate the purchase price of the fridge, which is marginally more expensive than the previous year. As with many government inflation statistics this misses the true cost. This revelation spurred me to do some research into other durable goods’ warranties. Across the board washers, dryers, fridges, microwaves, stoves…etc. have essentially seen their lifetime or 20 year warranties whittled away to a measly one to three year warranties. More surprising was that the mattress industry is actively lobbying its manufacturers to lower warranties to 5-10 years. Are you starting to see the picture? Products you would typically purchase once in 25 years are now going to have to be replaced every 2-3 years. This is a form of inflation that is not captured by any government inflation report.
Looking beyond the durable goods we find a smoke and mirrors game being played in the pork industry. When you go to the grocery store you will no longer find the standard 500 gram packages of bacon. The price has remained the same; however the quantity of bacon that you receive has shrunk to 375 grams. Most people assume that the price of bacon has not risen because the package looks the same, but the truth is the price per gram is up 25%. Regardless of how much bacon has increased in price, it really doesn’t matter to the government because Canada’s inflation gauge does not include food and energy. Apparently eating and keeping yourself warm in balmy Canadian winters is not something that the government considers essential. This is fundamentally the same as determining the takeoff weight for an aircraft without considering the weight of the wings. Leave it to government to screw up a calculation that a below normal intelligence hamster could figure out.
These are just a couple of things to keep in mind when Statistics Canada tells you that there is no noticeable inflation in the Canadian economy.
So it looks like we are finally coming to the end of the government’s bullying of our teachers and our children as B.C. schools are poised to open next week. Without a doubt this has been handled in the worst way possible. But as I always say, if you want something screwed up, managed incompetently or bastardized then put it in the hands of government: They won’t let you down.
The B. C. government had all summer to deal with this issue, but they played politics (as they always do) and they waited until September when public pressure could be a tool that they could use to their advantage. I firmly believe that Christy Clark thought that come September public opinion would be on her side. I think this strategy backfired on her. The majority of the public continued to support the teachers and most importantly, our children. I want to point out that I believe that the strong arm tactics of the provincial government are something that we would not have seen in an election year. I’m also certain that the government will be counting on the electorate to be too busy watching Dancing with the Stars for the next three years and will forget all about this when our provincial election comes around in 2017. Christy will buy some shiny trinket for West Kelowna and she will get back in to continue wreaking havoc.
As I’ve said in many of my past articles, this is not an issue about a lack of funds. We are taxed to death in this province and this country. The money is there it is just spent on things like providing a permanent residence for Ben Stewart in China (the guy who Christy Clark took the riding from), sending Christy Clark over to China and in a few days, a two week trip to India courtesy of you and me. Tell me something, what the hell is the premiere of B.C. and her entourage doing on an all-expenses paid trip to India? This will be her sixth trip to India to promote business. What’s the matter, couldn’t she do it right the first five times?
Question: Do you know who is best at building international business?
Answer: Companies that do international business!
Question: Do you know who is the worst at building international business relations?
Answer: Politicians and ministers of trade who are not in the business and have no stake in the game.
It amazes me that people continue to have faith in the political system. It exists to serve its own under the guise of serving the people. This has been proven time and time again throughout history all over the world. The overt duplicity of government is on display for all to see. But you have to want to see.
Read more Economics Made Easy articles
- Show me the money Jul 25
- Patriotism = Blind Faith Jun 27
- Government shuns education May 30
- A day in the life of a Cdn taxpayer May 2
- Canada should mind its own beeswax Mar 21
- Government: the most organized crime Feb 21
- The Emperor has no clothes Feb 7
- War is over Dec 27
- Canada: The 51st State Nov 29
- Practice safe banking Oct 4
- When will it end? Part 2 Sep 20
- When will it end? Sep 6
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