Wednesday April 21, 2010 - 13:20:44 GMT
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When Brazil joins the discussion, then it must be ...Key News
- Greece started talks with EU and International Monetary Fund officials on Wednesday to hammer out details of an economic plan that could offer the euro zone member 40-45 billion euros to exit a debt crisis. (Reuters)
- The number of Britons claiming unemployment benefit fell three times faster than expected in March, official data showed on Wednesday, but a broader measure of unemployment painted a less rosy picture. The pound rose by a fifth of a cent against the dollar after the figures, which reinforced hopes that first quarter GDP data on Friday will show Britain's recovery is gaining traction. (Reuters)
â€śThere are some distortions in world markets, one of them is a lack of growth and another is China.â€ť â€”Henrique MeirellesFX Trading â€“ When Brazil joins the discussion, then it must be ...
Gradually put in place a managed floating exchange rate system.
Apparently thatâ€™s what Chinese President Hu Jintao said in a speech at a BRIC summit last week. Smooth, huh?
It almost sounds as if maybe China wants to loosen the reins on the yuan; but itâ€™s more likely China wants to loosen the pressure of the international collection of hands wringing its neck to let the yuan appreciate.
Sure, we know the US has its hand on Chinaâ€™s neck, more or less. (President Barack Obama has set the goal of doubling US exports in the next five years. And that isnâ€™t going to happen without a stronger yuan and â€śfreerâ€ť trade.) And there have been plenty of other key countries who also believe the yuan needs to be revalued higher. But where does Brazil stand?
Brazil may have talked about the yuan before, and probably has, but today is the first time I noted such. Both Brazilâ€™s Finance Minister and central bank chief think a stronger yuan is critical in maintaining a balanced global economy.
Why is Brazilâ€™s view on the yuan worth discussing? Brazil is a country seemingly more neutral on the geopolitical landscape. If anything, they have been leaning toward China because of the trade dynamic between the two players.
So why is Brazil concerned? Havenâ€™t things been going smoothly for them? I mean, Brazilâ€™s not trying to â€ślet the yuanâ€™s exchange rate issue become the scapegoatâ€ť of their domestic economic problems, right?
Nope. Brazilâ€™s seems pretty content and mostly stable when it comes to the make-up of their economy.
So then what is it?
Maybe the answer lies in Brazilâ€™s exports to the United States. [Chart not available in text format.]
The total value of Brazilâ€™s exports to the US currently stands at HALF the value it did before things came crashing down in 2008. Needless to say, the recovery in this figure has been small.
And maybe Brazil figures they canâ€™t bet on much resurgence in this number, considering the state of finances in the fine States, private and public.
Sure, last year China overtook the US to become Brazilâ€™s largest trading partner. And while that helped to keep Brazilâ€™s economy stable during the world recession, itâ€™s not currently enough to replace the drop in exports to the US.
Brazil Exports Index â€“ Foreign Trade/Exports Total [Chart not available in text format.]
A stronger yuan would make Brazilian exports appear cheaper, more attractive. Even though Brazilâ€™s exports only account for roughly 10.5% of GDP, Brazil understands the potential of future Chinese demand.
From a long-term perspective, Brazil seems to want two things: a go-to customer for its exports and a stable business partner. A stronger yuan goes to solidifying that long-term goal.
John Ross Crooks III
Black Swan Capital LLC
www.blackswantrading.com Currencies are another asset class â€¦
David Newman here ... on Investing versus Trading
How many times have you seen pictures of people sitting on the beach with their laptop in hand in those â€śTrade Forex Commission Freeâ€ť advertisements? Open a FX account, quit your real job, sit on the beach and get rich is the implicit message. Itâ€™s ridiculous! But unfortunately that is what sells.
It doesnâ€™t have to be that way. You donâ€™t have to buy into the hypeâ€¦and you donâ€™t have to take that much risk in order to get involved in currencies. Trading can be profitable; but it requires extreme focus and discipline. There is another way if you want to â€śinvestâ€ť in currencies.
Investing in currencies for the long haul means using currencies as another asset class in your portfolio. An asset class that will stand along stocks and bonds and hopefully provide some much needed diversification.
There are plenty of low leveraged long-term investment choices available to you so you can make real money in currencies. They are called Currency Exchange Traded Funds (ETFs).
An ETF is a simple straightforward currency product that you can buy and sell in your standard equity brokerage account. Itâ€™s the same as buying any other fund traded on the exchange. We offer recommendations on Currency ETFs in our month Currency Investor newsletter. We donâ€™t recommend trading them; we do recommend investing in them using a long-term buy and hold strategy.
To sum it up: Our monthly Currency Investor newsletter is geared toward newcomers and experienced investors who are looking for a conservative approach to the foreign exchange market, and learning more about how the global economy works.
In plain language we deliver global macroeconomic analysis and actionable ideas geared toward exchange rate fluctuations.
Our analysis is comprehensible and our recommendations consist of ETFs, as I said, so donâ€™t get turned off by buzz words like â€śexchange ratesâ€ť or â€śforeign exchangeâ€ť â€“ this investing strategy is as easy to implement as buying and selling stocks.
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All the best,
Director of Sales and Marketing
Black Swan Capital [email protected]
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