Currency War
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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.
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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.
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Are You About to Lose Your Savings in the Currency War?
You may not have even noticed, but the first shots have already been fired in the next World War.
Only this time there are no tanks, fighter jets, nuclear subs, or missiles. And it's not the North against South, or even East against West.
It's war by other means and it pits fiat currency against fiat currency in a multi-trillion dollar knock-down drag out between the world's central bankers.
At stake is nothing less than the value of your life savings.
Its goal is to cheapen worldwide currencies-which could make every dollar you own worth even less.
Thanks to horrible fiscal mismanagement, virtually every nation in the world now wants its own currency to become cheaper against those of other nations.
Welcome to the currency wars.
Think of it as a race to the bottom. But where it stops nobody knows.
To continue reading, please click here... -
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.
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Three Ways to Profit as China Dumps Japanese Debt
As a veteran trader, I have a tendency to look past the day's top headlines. That's why a recent Bloomberg News story - which stated that China sold a net total of 769.2 billion yen ($9.24 billion) worth of Japanese debt in September - really caught my eye.
By itself, this story probably wouldn't be a big deal. But this development is the start of an important new trend in the global currency markets. And the following three factors tell me that we should be taking a close look at why China has decided to dump Japanese debt. For instance:
- Given that the same thing happened in August, September marked the second straight month Beijing has sold more Japanese securities than it purchased.
- This marks the reversal of a seventh-month stretch of China being a net purchaser of Japanese debt.
- The two months of sales nearly wiped out the net surplus of 2.32 trillion yen ($27.86 billion) that China had amassed as a result of seven months of buying Japanese debt.
- Finally, the 2.02 trillion yen ($24.26 billion) worth of Japanese debt that China sold in August was China's single-largest monthly sale of Japan government bonds since 1995, when these statistics first started being recorded.
Let me explain....
To understand how to profit from this currency-market development, please read on...
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United States To Face Attacks on Quantitative Easing Policy at G20 Summit as Currency War Rages On
The United States will go on the defense at this week's Group of 20 (G20) meeting, having to explain its quantitative easing (QE2) policy to foreign leaders who have criticized the move as a currency war tactic to weaken the dollar and damage other countries' export-driven recoveries.
China, Brazil, Germany and South Africa all have spoken out against the U.S. Federal Reserve's announcement last week that it will buy $600 billion in U.S. Treasuries through June. Finance policymakers from around the globe say the move will depress the dollar and drive capital flows to emerging markets, creating asset bubbles.
Brazil's central bank president Henrique Meirelles said the extra liquidity in the U.S. economy would cause "risks for everyone," and German Finance Minister Wolfgang Schaeuble called the Fed's move "clueless."
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Currency War Carries On as G-20 Meeting Fails to Secure Specific Trade Targets
Despite securing an agreement from Group of 20 (G-20) officials to avoid weakening their currencies any further, the Obama administration failed to convince member countries to implement specific guidelines to measure compliance and monitor trade imbalances.
At a meeting last weekend in Gyeongju, South Korea, finance ministers from both developed and emerging economies agreed to try to maintain trade balances at "sustainable levels," which they left to be negotiated at a future date. They were unable to reach consensus on precise targets, as the United States proposed. G-20 members will meet again in Seoul on Nov. 11 and 12.
The G-20 was able to hammer out a deal to get China and the United States - as well as the other G-20 nations - to agree to "refrain from competitive devaluation of currencies," and to let markets set foreign-exchange values. China is widely seen as keeping its currency undervalued to boost its exports, while the United States has been accused of pursuing a weak dollar policy, also to increase its overseas shipments.
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Money Morning Mailbag: China Needs to Boost Domestic Demand to Continue Economic Recovery
China released data this week showing its economy grew 9.6% in the third quarter from a year earlier, slower than years past but still significantly ahead of other countries that are struggling to stabilize their economies.
A slight dip in growth is what China wanted. Its gross domestic product (GDP) has grown on average more than 10% annually since 2006. The country's central bank lifted rates this week by 0.25 percentage points for the first time since 2007 to further cool the risk of overheating.
While working to maintain a healthy level of growth, China now has to contend with other countries devaluing their currencies to compete against a cheap yuan that is fueling an export-driven recovery. However, the whole world can't depend on exports – somewhere along the line there must be growth in demand.
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Currency War: China Stands Firm on Yuan as Global Criticism Escalates
Germany and Japan are joining the U.S. in pressuring Beijing to let the yuan appreciate to prevent an international currency war from spiraling out of control. Still, China remains firm that a gradual rate change is all it will allow.
German Economy Minister Rainer Bruederle warned yesterday (Wednesday) that a trade war could erupt if China didn't float its currency for a more fair value. As the China-U.S. currency tensions have heated up, other countries are saying China's unfair trade advantage is threatening export-driven recoveries around the globe.
"We have to take care that the currency war doesn't become a trade war," Bruederle told German business paper Handelsblatt. "China bears a lot of responsibility for ensuring that it doesn't come to an escalation."
