Forex remains to be the largest market in the world and the least understood. Central banks have more influence on global markets than any other force. In other words, monetary policy is the ONLY economic indicator(s) investors should be watching, because let’s face it, if the Fed raised rates to 10% like they should do and called in all that QE money, stocks would collapse.
But yet Forex remains a mystery, something that someone may have mentioned or you heard about.. wait FX is a TV channel? or graphics? a movie?
One has to wonder who is more stupid, is it the clowns that worked for the big FX banks getting fined, jailed, or fired for misbehavior – or PBOC who seems intent to destroy not only any hope of becoming a ‘real’ currency (let alone a world reserve currency) but killing their trade markets as well:
In September last year, Chinese regulators stepped on the throat of a ‘fair’ market in equity futures trading and for all intent and purpose killed the Chinese equity market. Tonight – after 2 days of Yuan weakness – having warned everyon from Soros to Kyle Bass that “betting against the Yuan can’t possibly work,” The PBOC just unleashed plans for so-called “Tobin Tax” on FX transactions (which implicitly taxes each transaction, reducing liquidity, raising margins and reducing leverage).
CME Group (NASDAQ:CME), one of world’s leading derivatives marketplaces, announced that on March 10 it reached record trading volumes for forex futures and options. The record 2 517 334 contracts were traded on the Chicago Mercantile Exchange (CME). The number is 6% higher than the previous record of March 6, 2010. Also on March 10, were traded the record 2 350 478 forex futures contracts, exceeding by 142 061 the previous record of 2 208 417 contracts from May 6, 2010.
The record volumes were driven by the Euro FX Futures (EUR/USD) trade: $127.13 billion in notional value in futures and $18.5 billion in options.
As central banks become more and more like big hedge funds, and Forex markets become more volatile, there will be a growing need for Forex for any investment portfolio.
More and more public companies report ‘currency headwinds’ – the most notable recent report comes from Toys R Us:
Toys “R” Us Inc. said revenue slipped 2.6% in the latest quarter as the retailer faced currency headwinds over the holiday period.
The foreign exchange volatility was partially offset by the rise of same store sales of 2.3% in the fourth quarter. Currency woes, however, had a negative $169 million impact.
For the year, the toy store’s same store sales increased a modest 0.9%.
“Throughout the year, and especially during the holiday season, we focused on improving our execution to deliver a positive and memorable shopping experience to our customers,” said Dave Brandon, chief executive officer. “We significantly improved our performance, but we can and will make further progress on our quest to achieve flawless execution in every aspect of our operations.”
It must take a multi-million dollar salary to make such a bombastic statement… losing millions because of a lack of internal financial controls (i.e. no Forex hedging) and at the same time, state that we are on a ‘quest to achieve flawless execution in every aspect of our operations.’ Or maybe ‘flawless’ is executive-speak for misplacing a few million in the Forex market. This guy should run for political office!
But it shouldn’t be alarming, in the meetings leading to the “Nixon Shock” and the modern free floating Forex system, genius statesman Henry Kissinger admitted honestly “Economics is not my Forte.”
Secretary Kissinger: But if they ask what they’re doing—let me just say economics is not my forte. But my understanding of this proposal would be that they—by opening it up to other countries, they’re in effect putting gold back into the system at a higher price.
Mr. Enders: Correct.
Secretary Kissinger: Now, that’s what we have consistently opposed.
Mr. Enders: Yes, we have. You have convertibility if they—
Secretary Kissinger: Yes.
Mr. Enders: Both parties have to agree to this. But it slides towards and would result, within two or three years, in putting gold back into the centerpiece of the system—one. Two—at a much higher price. Three—at a price that could be determined by a few central bankers in deals among themselves.
So, in effect, I think what you’ve got here is you’ve got a small group of bankers getting together to obtain a money printing machine for themselves. They would determine the value of their reserves in a very small group.
There are two things wrong with this.
Secretary Kissinger: And we would be on the outside.
We want money printing machine! We want money printing machine! (childish dancing and yelling)
If The Fed had any sense, they would immediately raise rates to 10%, the US Dollar would soar. Prices of imports would plummet. Money would flow to USA like a river. Exports, would need to be managed – but anyway the USA is a net-importer and it costs us nothing to print money and buy from foreigners.
It’s amazing, the lack of understanding out there for the most important market in the world – the global money markets; FOREX. On the one hand, our money is worth less and less every year (most economic actors are Forex losers). On the other hand, Forex hedging is simple to use; and it’s possible to even make money by trading Forex.
Elite E Services, Inc. published a book for those who want to know more about Forex “Splitting Pennies” on sale on kindle and in print from Lulu.
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