Looming Markets and Currency Contrasts: Long-term or Short-term?

This will be short, mainly since this came to me while I was reading the papers and subsequently was preparing for class. Anyhow, recent declarations for a stronger federal grip on the US market has led to an increase in confidence of investors and a rise in value of Canadian commodities.


Now I'll keep this short because it hits me more as an update than actual news. In summary, the promise of government intervention in the market to maintain the sluggish US economy has led to investors to having more confidence in the US market, leading to rise in investor confidence. What this means is that people with money are more willing to invest rather than save it, and thereby with more money to invest, companies have more money to loan out, use and develop. More jobs may be created, but that's only insofar as the government keeps an eye on how they spend their money.


The Stimulus package, thereby, was an artificial investment. This is the real thing, and as I stated in my earlier posts, the recession is officially over as of May 2009, but we're still feeling the effects of a long-term hard-hit economy. 


These facts are prescient to the issue because this is a good example of investor confidence by market externalities - when investor confidence shoots up in a newly regulated market, confidence shoots up in the Canadian border because ours is already regulated. Because ours was already managed, the value that it carries is affected by the rise in value from the US market. That's how we get a rise in the value of Canadian commodities and dollar.


While the dollar is playing square-dancing with the US currency, it's not all rainbows and sunshine. A weak dollar makes foreign exports to the US most costly, and Canada is no exception. All North American Free Trade Agreement aside, the issue is that Canadian resource companies will benefit, buy information companies will not.


This is because resource is quantifiable, perceivable, wholly measurable and limited. Things such as gold and oil (which shot up with the growing mining industry) go up because those are resources that cannot be made. They're non-renewable. Comparatively, information, while sometimes more pricey and important in a tertiary economy (one that relies on service industries to perform a vast majority of legwork in the country), can move borders easily. Gold deposits cannot.


So weaker US dollar and parity of Canadian means that a larger tech base in the US will be cheaper than their comparative Canadian tech base, so we may seem some short-term damage. But all in all, its seems good.


That said, there are some interesting things to note - firstly, not even businesses subscribe to Misian free business practices in a wholly free market., and secondly, mining seems to be growing even though moves such as the Whitehorse Mining Initiative was made years ago (and is not a recent development). Why? Any thoughts on that?


Leave your posts and comments, and any feedback is appreciated.