Tuesday May 18, 2010 - 12:30:12 GMT
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Remember Latvia?Key News
- South Korea, Asia's fourth-largest and a leading export economy, has frequently suffered dollar funding shortages when global credit markets dried up on economic concerns. Earlier in the day, ADB said Asia's strong growth outlook and prospects for better returns would lift capital inflows into the region but that could increase appreciation pressure on currencies, which may require authorities to impose capital controls. (Reuters)
- Deflation Threat Likely to Keep Cap on Rates (Wall Street Journal)
- Inflation: U.K.â€™s Next Big Problem? Is inflation Britain's next big problem? The debate over that question is likely to heat up given Tuesday's alarming news that Britain's inflation rate hit 3.7% -- well over the Bank of England's 2% limit. (Wall Street Journal)
â€śDo not be too moral. You may cheat yourself out of much life. Aim above morality. Be not simply good; be good for something.â€ť â€”Henry David Thoreau FX Trading â€“ Remember Latvia?
Latvia: they were a big deal about a year ago, and maybe even before that, when the lending practices among Eurozone banks, EU countries and CEE countries posed a huge risk to growth across the region.
Latvia, as did the other Baltic States, watched its GDP crater. Those lenders exposed to such a dramatic decline in Latvian growth certainly felt similar pain. Hereâ€™s a snapshot of Latvian GDP, percent change year-over-year:
[Chart not available in text format.]
The red indicates the forecasted change in GDP in 2010 and 2011. Itâ€™s quite a dramatic snap back from the nearly -20% reading back in September 2009. But as you can see from the beginning of that chart, this isnâ€™t totally new to Latvia â€“ theyâ€™ve undergone severe contraction followed by equally sharp rebounds in GDP numbers. Theyâ€™ve got a stomach for this kind of stuff.
Thatâ€™s the reputation of the Baltics anyway. So maybe it shouldnâ€™t be a surprise that Baltic leaders took the approach they did when GDP was spiraling lower. As Latviaâ€™s prime minister recently said, â€śAusterity was something we had to do in all three Baltic States, if to different extents. Yes, we were able to pursie those difficult decisions, and in the case of Latvia made fiscal consolidation of more than 10% of GDP, which certainly is a huge effort. Just now we see stabilization, and I would even dare to say an improvement of the situation.â€ť
Austerity â€“ thereâ€™s a word you donâ€™t hear everyday ... errrrrrr?
So can the approach taken by Latvia teach other countries, say, uhhh, Greece, a lesson about swallowing the pill and trimming down on government spending? Maybe. It may not be the answer in all cases, but it sure canâ€™t hurt.
But as one commentator noted, the Baltic States can swallow this sort of thing better than, say, uhhh, Greece, because â€śdue to the unionization and militancy in other countries they may simply not be able to see it through.â€ť
And thereâ€™s another key point: the measures taken to alleviate the pressure in these Baltic nations involved devaluing their currencies, something that the member countries in the Eurozone cannot do independently of one another.
[Chart not available in text format.]
Certainly the price action in the euro of late has helped to push the value of the lat lower, but based on the relatively lower peak and the now lower low thatâ€™s broken the credit crunch lows, itâ€™s apparent that Latviaâ€™s been at work fixing things.
Latviaâ€™s Finance Minister recently said, â€śWe are able to keep fiscal discipline, we are able to take tough decisions, and we are moving with our internal devaluation towards more competitiveness.â€ť
John Ross Crooks III
Black Swan Capital
www.blackswantrading.com Currencies are another asset class â€¦ David Newman hereâ€¦ â€śInvesting vs. Tradingâ€ť
How many times have you seen pictures of people sitting on the beach with their laptop in hand in those â€śTrade Forex, Commission-Free!â€ť advertisements? â€śOpen an FX account, quit your real job, sit on the beach and get richâ€ť 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 hype ... 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 over time.
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
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