Tuesday, September 6, 2011

How To Make 10% Overnight.....

Currency markets are complex and should be viewed as a giant chess board where each move opens up several new moves. At its core the market is a simple venue designed to facilitate an easy exchange of currency. Trading 1.40USD for 1.00EUR is a simple transaction. Realizing that 10 years ago 0.80USD was traded for 1.00EUR adds the next layer of complexity. Next, try to understand that massive, heavily-leveraged quantities of currency are chasing each other all around the globe, 24 hours a day, reacting instantly to every governmental action. The leverage in this market is so great that even the smallest move in the right direction offers profits for the cognizant trader. Understanding the inner workings of currency markets is important even if nothing more than the concept is retained; readers must see that while the effort put forth at their job rarely fluctuates, the paper currency in their wallets changes in value every second.

We have entered a period of competitive currency devaluation. The entire world has become complacent and seems satisfied with its system of fiat currency. When the US has trouble achieving growth the real reason is that government has become too large of a force in the economy. This can be attributed to a crippling debt burden, over-regulation and the long-term effects of entitlement-backed vote buying. Slowly weakening the currency is one tool employed in an effort to grow GDP. This can work but readers must understand that at best nominal GDP growth will be achieved. On a real basis this behavior arguably damages an economy. The following chart shows the price action of the US dollar over the past year. Consider that if you had $100,000 in a savings account paying 1% you lost roughly $12,000 in purchasing power over this period:

Weakening the currency of a nation has some perceived immediate benefits. This policy helps businesses when exporting goods. When customers are paying for transactions in foreign currency that has retained par value the goods become more affordable. It is also much easier to pay off the debts of yesterday using the more plentiful dollars of today. Consequently, governments do not like a strong currency and will do nearly anything to prevent it. Consider that statement understanding that they are doing everything possible to devalue the cash that is used to pay your wages each week. Also, this same currency that must be devalued is used by you to purchase energy, food and services at an increasingly higher price based on these actions.

Sensible readers are now considering what actions must be taken to maintain their current level of wealth in the face of this outright theft. One option is to become a savvy currency traders watching each tick of the market in order to shovel your fortune from one currency to another in the hopes of evading this destructive force. A second option is to find a true safe haven currency. Some would argue that the Swiss franc offers refuge from the destructive forces controlling the Japanese, European, British and American central banks. The Swiss don't want anything to do with the effects of a strong franc either and they made that clear last night:

We have suggested for years that readers consider a currency that is not under the control of power-hungry humans. This refuge must have certain properties in order to be an acceptable home for wealth:

  • Safe store of value
  • Universal medium of exchange
  • Impossible to counterfeit
  • Natural control of supply

Well, gold and silver seem to be the only forms of money that meet our definition. So let's examine how much an ounce of gold costs when purchased in Swiss francs. It is important to realize that the above mentioned announcement by the Swiss National Bank was released at 09:00 GMT:

Just to be clear, if you are a Swiss factory worker earning 20 francs per hour nothing has changed. But if you take those earned francs and try to purchase an ounce of gold it will now cost you an extra 10%. Maybe you should approach your boss and ask for a corresponding raise to compensate for central bank theft that is out of your control.

To the contrary, if you owned 100,000 francs worth of gold yesterday congratulations are in order as that same amount of gold is now worth 110,000 francs.

Consider the financial condition of the nation which you have entrusted with your wealth. Avoid fixed rate financial transactions in which you are the party agreeing to that fixed rate, as you will likely be paid back in paper that is worth less and less each day. Finally, consider moving some of your wealth into a currency that is not subject to politically motivated devaluation.

1 comment:

Romocop said...

The international pirates, I mean international financiers, just keep getting bolder and bolder in their schemes to increase their already vast wealth. We need the insider information that gets out to all the Bilderbergers etc to take advantage of these types of schemes. Unfortunately, like the Swiss factory worker, we have no hope of being privy to their schemes or even holding them accountable for their acts.