The USD/CAD Forecast: Risk Aversion Sparks US Dollar Revival, by Kyle Bass and David Stockman, is a book on currency speculation in the commodity market. In this theory of the commodity boom, investors eagerly are attracted to commodities because they are liquid. With oil prices soaring in price, the paper price of oil has increased dramatically, but that doesn’t mean that all the barrels are already gone, so they are still sold.
As more barrels become too expensive, therefore the perceived value goes down, then the price volatility is going to increase. The price volatility in this book is nothing compared to the fear that a large number of people have about currency going down.
It’s actually been there for some time now. I am not blaming anyone for being greedy, even if they get greedy in their thinking; there are plenty of reasons why people can get greedy. In fact, one of the reasons why people are fearful about a falling dollar is because of the equity markets not performing as well as they thought.
It has also had something to do with the global depression. It was a case of the economy going through a deep recession and since most of the world was hit by the recession, most people were not able to have any income from their investments or their savings accounts.
So instead of them investing the money, it all was spent on buying goods and services in order to tide over their shortage of money, which actually resulted in their currency being devalued. So to prevent the dollar from falling further, the Federal Reserve went ahead and started printing more money to do so.
This led to the US dollar going up. Although the dollar was strong, people’s financial stock rose on the backs of the Fed and the currency index. Atfirst, most people did not understand why the currency index was rising and why the dollar was falling.
Some economic experts felt that a stronger dollar would bring down inflation, which would boost the American economy, so more people would get employed. In fact, a weak dollar did cost jobs.
This is why I don’t buy into the idea that the dollar is going to rise because it is a commodity always increases in value. If you didn’t already know that, this book will help you get the basic notion of how this works.
But it was not just a job loss, which caused the dollar to fall. When the oil prices started rising again, the dollar was devalued even more and the investment numbers were bad for some time.
The reason why the dollar went down is because it looked like the interest rates were going to shoot up once again. So people started taking their money out of banks and putting it into commodities.
Once again, as with the speculative commodity boom, there are plenty of people who are only interested in making money. And they’re not going to let things get out of control.
So when you read the book, you’ll see how risk aversion sparks the US dollar to go up. And you’ll be very glad you took the risk!