Hi Everyone,

I don’t have to tell you, but this has been one ugly October for the stock markets all around the world, with many stock markets actually doing worse than ours.

Today, I don’t want to talk about the stock market, but how some of the other markets reacted to the events of the past six weeks.

Everybody would think that gold is a safe haven in disturbed times like this. That was not the case, as gold lost over 20% of its value and even more since its peak.

Commodity prices, and not just oil, have collapsed. This could be explained at least to some extend by the slowing economy.

The US dollar has appreciated considerably against all major currencies except for the yen. The yen is often perceived as a safe haven in times like this, which is not good for the Japanese economy. The US dollar appreciated big time against the Aussie dollar and the Canadian dollar as well as the Euro and the British pound.  It did not gain quite that much against the Swiss Franc, which has a similar function as the yen. The Swiss economy is starting to hurt as well from its currency appreciation against the Euro as a lot of the exports go to the Euro zone.

So why is the dollar appreciating while we are having such an economic crisis? One reason is the deflation of the commodity bubble. But an equally important reason is that as bad as it is here in the United States, it is worse in other countries. The bail out figures are staggering, but when you look at what is spend as a percentage of GDP, the UK and Germany are spending many times over what we are. Time will tell what the future will hold for the US dollar, but I do think that we will see some continued appreciation over the coming months, although not as steep.

One final thought.  If you were living outside the United States and not calculate in US dollar you were potentially hit by a double whammy if you bought gold two months ago because you thought a big crisis was looming. First of all, gold lost 20% of its value, and since gold is valued in US dollars, depending on your home currency, you potentially had additional losses. Buying gold is often something to do during uncertain times, but not this time.

I think the markets will continue to be wild, and we will see if we have the traditional November through January rally.

Please feel free to comment any time.

Cheers,

Patrick