Money makes the world go ‘round. Or so the saying goes. And that’s especially true in today’s market. While we hear about the stock and bond markets every day, it is the currency market that has been leading the way lately. Over the last few weeks, it has been the currencies, specifically the euro vs. U.S. dollar, that have dictated the wild swings we’ve seen in our stock market.
The currency market is where participants buy and sell the currencies of different countries. The participants can be governments, banks, corporations, institutional or retail investors. And, while we hear very little about this in the main stream media, currencies make up the world’s largest financial market, trading over $5 trillion every day.
So, what has been happening? Well, over the last year or so, the euro has been aggressively depreciating versus the U.S. dollar. Since early 2014, the euro’s value has dropped from $1.3782 down to $1.0932 today. This 20% drop is huge in the world of currencies. The exaggerated movement in the currencies has been largely due to the actions of the world’s central banks. The Fed ended its bond buying program late last year and is set to start raising short term rates. Meanwhile, the ECB (the Eurozone’s central bank) recently started a bond buying program of its own that is set to go through at least September 2016. Both of these actions have contributed to the strengthening of the dollar and the weakening of the euro.
Now, we all know that there is no perfect cause and effect relationship between anything and the stock market. But recently, as the U.S. dollar has gone up against the euro, the U.S. stock market has gone down, and vice versa. In the past few weeks, we’ve seen 2% moves in the euro (v. dollar) and a corresponding 200 – 300 point swings in the Dow in a single day. The theory behind this is that a strong dollar makes it harder for our companies to compete in the world market. Therefore, the biggest companies in America are facing a large obstacle to continuing long term growth. And this is true. But remember that the world economy is a complicated place.
As I mentioned a few blogs ago, a strong dollar has a somewhat convoluted effect in the world. Domestically, we should see lower consumer prices as our imports become cheaper. Also, our manufacturers that use foreign materials will see lower input costs. However, as mentioned above, our exports become more expensive to the rest of the world. This makes growth much more difficult for our multinational companies. For the stock market, a strong dollar should have a positive effect over the long term as financial assets become more valuable to foreign holders.
And what about oil?? Yes, oil. Oil (and gold) prices are denominated in U.S. dollars so when the dollar goes up, oil prices will go down. This is not to say that the huge drop in oil prices is being caused by the strong dollar, but it is a factor.
Finally, there is good news about that European trip you’ve been planning. All things being equal, travel in the Eurozone is 20% cheaper today than it was just a year ago! So, book the flight and enjoy Europe, compliments of King Dollar.
Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. Verity Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.
Check the background of this investment professional on FINRA’s BrokerCheck.
An Investment Advisor registered through CUSO Financial Services, L.P., Gavin has 22 years of experience as an advisor in the Puget Sound area.
“I believe every client is unique and deserving of a personalized financial plan that will help them reach their individual financial goals. Before I make any recommendations, I like to get to know my clients. By asking the right questions, and developing an honest, trusting relationship I can really get a sense of what’s going to work best for them.”
Gavin graduated from the University of Washington with a BA in Business Administration and started his financial career with US Bank in the Investment Department. Prior to joining Verity in 2006, he spent eight years with Piper Jaffray.
So what is Gavin’s vision for his dream retirement?
“My dream retirement would be absolutely worry free: financially, emotionally, and in every aspect of life. My finances would be in order so expenses for travel, luxuries, and gifts for the kids, grandkids, and great-grandkids would be taken care of. My kids would be financially sound, so I would be confident in their prosperity. This would give me the freedom to travel and play and do whatever it is I want to do.”
When Gavin’s not working, he enjoys spending time with friends and family, watching Husky football, and taking weekend trips around the Northwest.
Gavin is registered to transact securities business in the states of WA, OR, CA, AZ, FL, HI, ID, IL, MN, NM, NY and VA.
*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. Verity Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.
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