Currencies
-
How to Profit From the Currency War
If you want to know how to profit from the currency war, just look to Japan.
That's because Japan's aggressive move to cheapen the yen in order to stimulate its own economy is working.
Of course, Money Morning's Chief Investment Strategist Keith Fitz-Gerald predicted this would happen months ago, and he was dead on.
But even if you missed the first moves in this currency war, it's not too late to profit.
To hear Keith explain how investors can still take advantage of the "race to the bottom" and profit from the global currency war, click here.
-
Why Your Financial Future Will Be Built Upon the Chinese Yuan
If you have any illusions, put them aside now. It's the Yuan's world - the West is just living in it, or borrowing from it as the case may be.
Demand for the Yuan is growing at such a staggering rate that your financial future will be built upon it.
Admittedly, this is a very tough concept for most people to wrap their minds around. It's tough to lose "your" spot at the top and it's even tougher to know you're losing it and not be able to do anything about it because the leaders who are responsible for maintaining that position don't understand the end game.
It's made worse by Washington's insistence that the dollar is still a weapon when large swathes of the world now believe it's a liability. It's exacerbated by Europeans who forget that a sound currency actually requires underlying economic stability. It's threatened by the latest crop of Japanese bankers who seem determined to print money into oblivion.
Sadly, this is not new. The old guard always fights for the status quo when something different or not well understood like the Yuan comes onto the scene.
-
Is Japan About to Fire the First Shots in a 1930s Style Currency War?
Chances are you've heard about the so-called "race to the bottom" in which various industrialized nations are gradually allowing their currencies to depreciate in an attempt to maintain competitive parity.
Forget about it...the real risk right now is an all-out 1930s-style currency war. I know it's not front-page news yet, but I have a sneaking suspicion it will be shortly.
It's going to blindside Washington and most of Europe, where central bankers, politicians, and more than a few economists fail to recognize that events from nearly 100 years ago are now primed to repeat themselves.
Worse, it will devastate an entire class of investors who have put their faith in the current economic dogma of endless bailouts and money printing.
Ironically, this currency war won't start because of international problems. Instead, it will be touched off in earnest because of domestic concerns-- only they aren't ours. My guess is Japan fires the first shots.
Here's why:
- Japan's newly elected Prime Minister, Shinzo Abe, is calling for unlimited stimulus and more aggressive financial intervention in an effort to boost Japan's flagging economic situation and eviscerated domestic economy.
- The Bank of Japan has doubled its inflation target to 2% while also promising to buy unlimited assets using a page from Bernanke's playbook. Bear in mind that Japan's combined private, corporate and public debt is already nearly 500% of GDP, which is much larger than the 250% that's commonly bandied about in the media.
- Japan has one of the strongest fiat currencies on the planet, which means it has the most to gain and everything to lose if somebody beats them to the punch. An expensive yen holds back Japan's exports by making them more expensive in global markets, while the debt I just mentioned hobbles future economic development by robbing the private sector of capital it needs for an actual recovery.
-
Here's the Surprising Winner of the Currency Wars
It's war by other means. With the Bank of Japan now buying government bonds and targeting an inflation rate of 2%, a global race to the bottom is on again.
Along with the Fed's commitment to "quantitative easing" and the ECB's promise to buy dodgy Mediterranean economies' bonds, Japan's latest move has sparked new fears of a currency war.
Like any other war, this one won't end well, either.
In fact, this same scenario played out in the 1930s, and the chances of another nasty outcome are quite high.
However, the mathematical reality is that the world's major currencies can't all be catastrophically weak against each other. It's impossible.
But the winner may surprise you. Because as this skirmish unfolds, it is the U.S. Dollar that will likely maintain its value against desperate contenders like the yen, the euro and the pound.
At the moment, those are the currencies that look distinctly unlikely to hold their own against the greater realities.
Here's why, starting with the yen.
-
Can the U.S Economy "de-couple" from the Eurozone Debt Crisis?
As the Eurozone teeters on the edge of a breakup, it begs the question: Can the U.S economy "de-couple" from the Eurozone debt crisis?
Ultimately, the answer comes down to fate of the euro. It's the linchpin to everything.
From the point of view of one who has travelled fairly frequently in the Eurozone I can tell you I find the euro very convenient indeed.
In my London merchant banking days, when I used to go on marketing trips around continental Europe, I found that while the excellent European train service was a pleasure to use, the proliferation of local currencies made travelling a pain.
There was nothing more annoying than to be on a long-distance train that had just crossed the border from Belgium to Germany at Aachen, only to discover that I could not enjoy the excellent Deutsche Bundesbahn bockwrst and fine local beer because I had only sterling and Belgian francs in my wallet, but no deutschemarks!
The other problem was that after a long trip I ended up with my wallet stuffed with small amounts of ten different currencies, none of which could be changed back into anything useful because the bank charges ate up their value.
In southern Europe, local exchange controls were a pain too.
Walking through Madrid airport with $25,000 of legitimately earned pesetas in bills which could not be transferred to Britain through the banking system was far too exciting for my liking.
From a British merchant banker's point of view, it was thus very convenient when all the local foreigners converted to the same currency, rather than lots of different ones.
After that, you needed only two compartments in your wallet: one for British money and the other for foreign money. Then you could travel all over Europe without worrying about changing currencies.
It was a very 19th century feeling, almost as good as being back on the gold standard!
To continue reading, please click here... -
Why the Eurozone Debt Crisis Never Really Went Away
How many times have we been told the Eurozone debt crisis is resolved, only to have it turn up again like a bad penny?
Last year's string of good news/ bad news on the Eurozone debt crisis had the markets going up and down like a yo-yo until the routine grew so tiresome that most people stopped paying attention.
But while the crisis faded into the background, it never really went way.
Remedies that were sold as solutions haven't solved a thing.
The celebrated bailouts of countries like Portugal, Ireland, and especially Greece have served mainly to postpone real solutions that would be far more painful.
"The Eurozone politicians in their infinite wisdom have concluded that it is easier to prolong the agony than to take their medicine," said Money Morning Chief Investment strategist Keith Fitz-Gerald.
In fact, the Eurozone debt crisis is getting worse.
Collective debt among the 17 member nations is on the rise, having increased from 85.3% of GDP (gross domestic product) in 2010 to 87.2% last year. That's the highest level in the history of the Eurozone.
Unemployment in the Eurozone rose in March to 10.9%, up from 10.8% in February and 9.9% a year ago. Manufacturing also declined last month, as new orders fell for the 11th month in a row.
And the austerity imposed on the troubled PIIGS (Portugal, Ireland, Italy, Greece and Spain) to bring their budget deficits and debts under control have actually made the situation worse.
"It's done no good at all," Fitz-Gerald said of the Eurozone's efforts to deal with the debt crisis. "It's an absolute travesty."
The steep and sudden cuts in spending are pushing most of Europe back into a recession, which will eventually be felt here at home.
To continue reading, please click here...
-
International M&A Boom Fueled by Global Currency War
A binge of mergers and acquisitions (M&A) is being fueled by the global currency war, which has increased the value of emerging market currencies.
The value of worldwide M&A totaled $1.75 trillion during the first nine months of 2010, a 21% increase from comparable 2009 levels and the strongest nine month period for M&A since 2008, according to Thomson Reuters.But mergers and acquisitions involving companies located in the emerging markets skyrocketed by 62.9% during the same period over 2009, totaling $480.7 billion. During the first three quarters of 2010, emerging markets accounted for 27.4% of worldwide M&A volume compared to 21% during the comparable period in 2009.
And companies are showing more willingness to venture across borders to find the resources they're after.
M&A activity in deals across international borders has surged during the first nine months of 2010, totaling $723 billion accounting for 41.2% of overall M&A volume, compared to 26.1% last year at this time.
-
Money Morning Mailbag: Japan's Rising Yen Struggle Signals Need for Industrial Shift
The yen strengthened as much as 82.75 per dollar Wednesday, fueled by speculation that the U.S. Federal Reserve would buy more government bonds after a drop in U.S. payrolls.
The yen's rise came after the Bank of Japan tried yet again this week to devalue its currency. On Tuesday the Bank of Japan lowered the benchmark interest rate to "virtually zero," and announced a $60 billion (5 trillion yen) plan to buy government bonds - similar to the 'quantitative easing' policy employed by the U.S. Federal Reserve.
"With today's decision, the Bank of Japan paved the path for the next step," Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo told Bloomberg News on Tuesday. "What will be critical will be how foreign-exchange rates move as a result," along with the impact of any additional easing by the Federal Reserve, she said.
-
What's In a Name: Can the U.S. Afford to Call China a Currency Manipulator?
It seems like every six months the debate over China's currency, the yuan, reaches a fevered pitch: The Washington bureaucrats threaten to label China a "currency manipulator" and Beijing threatens to dump its U.S. debt holdings.
Then, with the imminent approach of a major inflection point - be it a key international summit or major financial report - both sides grudgingly agree that a modest appreciation of the yuan would be mutually beneficial.
However, things could be slightly different this time around. China has routinely ducked calls to revalue its currency, and in doing so greatly agitated the West.
-
Is it Time to Bet Against the U.S. Dollar?
The U.S. dollar has been one of the world's strongest currencies in the first part of 2010. But, is the greenback really the bet choice for safety, quality and security? Read this report to find out why it's time to bet against the dollar...
