The deadly combo of low oil prices and a high U.S. dollar – FINANCIAL
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The deadly combo of low oil prices and a high U.S. dollar

Martin Pelletier: Investors have finally caught on that collapsing oil prices and a high U.S. dollar are destabilizing not only emerging markets but those closer to home as well.

I was recently a guest panellist at Mount Royal University’s employment forum and faced a barrage of interesting questions. Particularly, one student asked our thoughts on whether the government is doing enough to support the markets, especially taking into consideration the collapse in oil prices.

This question isn’t surprising given the average 20 to 30 years old has never experienced the pain sensation of the sizable market correction, either financially or perhaps in the job market. Today’s teenagers also have only known ultra-low rates of interest, with stories from the double-digit rates of the 1980s sounding nearly the same as stories our parents or grandparents told of walking miles upon miles through the snow just to get to school.

Markets have also become accustomed to such stability, because of continual intervention by governments set on protecting asset valuations at any cost. It’s now reached the stage where central banks have invoked negative rates of interest and some, like the Bank of Japan, have resorted to really buying stocks directly through ETFs to support their equity markets.

The problem is the larger the dimensions and amount of such interventions the higher the chance that things can go terribly wrong when the programs come to an end. Simply take a look at the summer of 2014 when pundits started positioning ahead of a U.S. Fed rate hike.


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