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Well, the old adage "Sell in May and Go Away" certainly seems appropriate for the month just ending. The U.S. markets, which are closed on Monday, have just completed the worst May in nearly 60 years!! Not since 1962 have things been worse.

The Dow lost 7.92% of it's value this month, the Nasdaq is down 8.29%, and the S&P 500 gave up 8.20%!!!

Thus, those invested in the U.S. indexes, would have lost almost 10 percent of their investments, on paper, in just ONE MONTH!!

How low can it go?

Summer is a great time for rollercoaster rides and so hang on for the fun!!!

Gotta love the markets!! Much more exciting than simply holding GIC's!!!
 

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The USD also gained 4.35% against CAD since April 30th. Luckily, I bought with native USD. I find the inverse correlation relationship interesting. Does anyone know why the USDCAD exchange rate is "inverted" compare to US Equity?

http://www.google.ca/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=Logarithmic&chdeh=1&chfdeh=0&chdet=1275094634703&chddm=64&chls=IntervalBasedLine&cmpto=CURRENCY:USDCAD&cmptdms=1&q=NYSE:VTI&ntsp=0
I think I can give you a quick answer. As the global economy booms, commodities are in higher demand. Just think about how there will be more trucks on the road, more people taking vacations or flying for business, more ships moving goods. This requires oil and oil is somethingf that we have. The CDN dollar goes up because it is regarded as a commodity currency. Basically, the raw materials including oil are being purchased from Canada. This is great for Canada, and its economy which results in more demand for the CDN dollar and higher chance of the interest rates rising which in turn also creates more demand for the CDN dollar.

However, when the global economy goes down, people flood to buy US dollars and US treasuries. This results in a demand for US dollars and therefore the value of the US dollar goes up. The US economy may be bad, but it has the ability to bounce back especially when compared to the "PIGS" countries in Europe which are mostly stagnant or very slow growing and flooded with debt. In addition, there is less demand for raw materials so the CDN dollar is also impacted directly.
 

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The USD also gained 4.35% against CAD since April 30th. Luckily, I bought with native USD. I find the inverse correlation relationship interesting. Does anyone know why the USDCAD exchange rate is "inverted" compare to US Equity?
Short answer would be flight to safety. Canadian dollar is pegged to commodities which tank with the economic perception. USD (and the Yen) are the preferred flight to safety hiding spots, so of course when the markets are falling the USD is rising. My US equity investments were down little more than 1% in May while commodity and European sectors were in the -6% to -10% range. Now lets see how Spain fares.
 

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So overall, purchasing an unhedged US ETF like VTI will provide less volitility than a hedged one like XSP?
I'm not sure, but you have to take into account other factors that effect the exchange rate other than "flight to safety", such as an increase in price levels. Also, there isn't a guarantee that investors will seek safety in the US dollar in the future.
 

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I'm not sure, but you have to take into account other factors that effect the exchange rate other than "flight to safety", such as an increase in price levels. Also, there isn't a guarantee that investors will seek safety in the US dollar in the future.
Nothing except death and taxes are guaranteed.

What do you mean "an increase in price levels"?
 

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I meant inflation. The US could have a greater inflation rate than Canada resulting in a possible decline of the US dollar.
Inflation could be a factor eventually, however with inflation you get interest rate increases and a stronger not weaker dollar. Of course this is all relative.
 

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Inflation could be a factor eventually, however with inflation you get interest rate increases and a stronger not weaker dollar. Of course this is all relative.
Well, they might not have much room to raise interest rates if they have too much debt :)

I think that VTI will be less volatile than XSP for the foreseeable future, but that might not continue forever.
 

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Well, they might not have much room to raise interest rates if they have too much debt :)

I think that VTI will be less volatile than XSP for the foreseeable future, but that might not continue forever.
Exactly. The risk of high inflation in the US at this time is minimal. Japan for one is still struggling with deflation, which is much harder to fix than inflation.
 

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Mr. DIY said, "I'm not sure, but you have to take into account other factors that effect the exchange rate other than "flight to safety", such as an increase in price levels. Also, there isn't a guarantee that investors will seek safety in the US dollar in the future."



Investors will seek safety in the most liquid and widely held currency. Gold or other options are not big enough and do not provide enough liquidity and the money has to go somewhere. The only things that can change this is for a new world currency to be formed to replace the US dollar or if the troubles of the world were in North America like a civil war or something.
 
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