World Currency Watch: FOREX Market, FOREX Trading BLOG

How Much Your Dollar Buys in the FX Market vs. the Real World

2009-11-11T15:56:03-05:00

As you guys know, I’m a trader. I eat, sleep and breathe the $5 trillion forex spot market on any given day.

But that’s just my day job.

The other half of my life is spent at home. I live in Texas. I’m married, I have four kids and I’m paid in U.S. dollars like 300 million or so other Americans.

That means my wife and I have to pay for our groceries, gas, kids’ school supplies, DVD rentals, etc. with dollars just like everyone else here in the U.S.

So like you, I have a vested interest when the U.S. dollar buys me less. In economics terms, that’s known as purchasing power.

Now as a trader, I can tell you the dollar has lost against nearly all major currencies in the Forex market over the last 10 years. (See the sidebar below for more.)

But I’d like to step outside of the FX world for just a moment and discuss just how the dollar has sunk outside of the realm of currency trading, for all of you, who like me have to pay for your items with dollars…

1998 Dollars and 2009 Dollars Are NOT the Same Thing

Just to show you how weak the dollar is these days for consumers, let’s look at how many “extra dollars” it now takes to buy things nowadays.

To illustrate this, let’s review the common goods you would have purchased roughly 10 years ago (1998 actually).

Back in 1998…

An average house cost $129,000. Now it’s $180,000 (40% increase)…and that’s after the real estate market crashed.

A gallon of gas was $1.15 and now it’s over double that (actually 143% higher) at $2.80!

A loaf of bread was $1.26 and now it’s $2.39 (90% higher).

A dozen eggs cost 88 cents, now $1.49 (69% higher).

A postage stamp was 32 cents and now its 42 cents (31% higher).

What can we thank for the higher prices over the last decade?

Well, as strange as it sounds in the current deflationary environment, inflation stole your dollar’s value over the last 10 years.

Why Most Americans Don’t See the Dollar is Dropping

Inflation – especially over the years – is so subtle that most people don’t notice.

It’s a lot like boiling a lobster in a pot.

If you drop a lobster into boiling water, your lobster will try to escape. But if you drop a lobster into warm water, and slowly turn up the heat, lobsters won’t realize it and before they know it…they are boiling.

Guess who’s the lobster now? The American consumer.

The U.S. government and its close cousin, the Federal Reserve is pretty slick. They turn up the inflation heat by eroding your dollars slowly. But it’s consistent enough to where your dollar is worth much less just 10 short years later.

Think about it. If I’d told you that tomorrow morning you will pay 143% higher for gas and 90% higher for a loaf of bread…you would freak out. There would be rioting in the streets.

Of course, the U.S. government knows that too.

So the Federal Reserve ratchets up inflation just fast enough to help their causes (like paying back their debts with cheaper dollars)…but they do it slow enough to where most Americans won’t notice.

The Dollar’s Purchasing Power Continues to Plummet

Everyone tends to look at gas to see how inflation is rising. But the reality is that the costs of EVERYTHING you touch are going up astronomically around you and the dollars in your pocket buy less and less all the time.

What’s even worse is that while the costs of goods are on the rise again…unemployment is hitting its highest levels in 26 years. So that means that companies can’t raise salaries to keep up with the ever-rising cost of living.

And unfortunately prices are only going higher from here. In fact, in the next decade, prices could be another 50-100% higher than they are now.

Three Ways to Protect You and Your Family Against the Falling Dollar

You don’t have to be an FX trader to be affected by the falling dollar. No, just make a trip to the grocery store or try to fill up your tank, and you also have a vested interest in how the dollar performs.

Now of course, none of us can stop inflation. But there is a way to hedge against it, and the falling dollar. Here are a few ideas how…

Diversify at least 15% of your portfolio into stronger foreign currencies including the euro, Aussie dollar and New Zealand dollar. You can do this easily with currency ETFs if you’re not ready to jump into FX trading.
Calculate how much you have to spend on stocks and bonds for the next year, and then drop 5-10% of that into gold or silver. Again, you can easily do this with gold or silver ETFs.
Look at your retirement plan. If your entire IRA is in dollars, consider upgrading with a long-term foreign currency CD.

Bottom line: The dollar is losing on all counts. As a trader, I can see the dollar’s overall decline happening on a day-to-day basis. But as a consumer, you can feel the dollar dropping where it really hurts – your wallet. Take action now to protect yourself.

Happy Trading,
Sean Hyman, aka Professor FX

A 17-year veteran in the financial markets, Sean Hyman has been a senior writer for FX University Daily since 2007, and a currency trader since 2001. Sean is also a featured speaker at our upcoming FX University. To hear more of his and our other experts’ ideas about how to escape the dollar in both the Forex market and “real world” read our latest special report here.

Why the Pound Could Rise…

2009-11-11T11:24:28-05:00

Click here for video

Four Things to Know Before You Invest Abroad

2009-11-10T15:35:48-05:00

This is my last communiqué from the ground in Los Cabos…and I want to use it to tell all you currency enthusiasts how to invest abroad.

Remember technically any foreign stock or bond play is an investment in foreign currencies too.

That’s because you can earn extra profits off the currency appreciation, should the local currency rise versus the dollar (which is pretty likely these days with the dollar sinking).

Nobody is more skilled in that area than The Sovereign Society’s Investment Director, Eric Roseman.

Eric has years of experience investing offshore… Heck, he tapped into global stocks and bonds before the word “BRIC” ever existed.

On Friday, he stopped by to fire up attendees and answer a number of popular questions:

How are global stock dividends taxed?

Most global stock markets withhold dividend distributions to investors (28% in USA)… and… unless you file proper documents, you can’t claim a tax credit offshore.

Where’s the best place to find foreign bonds, denominated in a variety of currencies?

EIB (European Investment Bank) is worth a look. It’s an AAA-rated EU financing arm that currently offers ten different foreign currency bonds.

What’s the best way to defer taxes offshore?

First, avoid offshore mutual funds…You should set your sights on offshore annuities, which are ideal for estate tax planning and also provide a strong measure of asset protection.

Which countries offer more favorable treatment of stock dividends?

There are actually ten different countries that levy ZERO withholding taxes on dividends: Hong Kong, Greece, China, Croatia, Mexico, Malaysia, Singapore, Slovak Republic, South Africa and the UK. (But remember, as long as you’re a U.S. citizen, you’ll have to report any income to the IRS.)

It’s been a fun week…a busy week…and if I stay down here any longer, my wife will get suspicious.

So until we meet again… Keep your chin up and your eyes open,
Patrick Bove, Your Conference Insider

P.S. Perhaps you didn’t make it to Los Cabos this year… I know, life gets in the way. That’s why, for the first time ever, we’re giving away the Video and full PowerPoint presentations from this event, absolutely free. We figure there’s no better way to share the wealth and make sure you get equipped for success and protected from the worst – not just this year… but for keeps. To claim your Offshore Advantage Online DVD, check in with us here. Then if you like what we have to say, respond by 11:59pm EST tonight. Simple as that!

Don’t Bother Picking Tops and Bottoms

2009-11-10T10:27:42-05:00

Click here for video

As you know, Forex is one of the most profitable ways to hedge against the dying dollar.

2009-11-09T16:06:39-05:00

Three Innovations that Make It a Snap (and Much Safer) to Enter the Currency Markets

Just a decade ago, if you wanted to venture into the largest, most liquid market in the world – the foreign currency market – your options were pretty limited.

First you had to be a savvy “online person” with one of those “really fast” DSL or cable Internet connections.

Then you had to open a special account with one of the few infant Forex firms of the day. Plus, there weren’t any decent charting packages, practice trading platforms or customer service desks we take for granted at Forex firms today.

Also, assuming you were successful in your trading, you would have spent a large part of those profits in fees. Back then, the Forex firms didn’t have the incentives they have now to offer the narrowest spreads (and therefore lowest fees) possible.

Basically, it was like jumping in the deep end of the pool blindfolded.

But again, that was 1999.

As technology has advanced over the last 10 years and the world embraced the Internet, demand for access to currency markets began to take off. And with that boom in demand, Forex firms, ETF providers and even the oldest stock exchange in the U.S. have all come forward to make currency investing and trading a much easier, cheaper and ultimately more profitable experience for your average Mom and Pop investor. Here’s just a quick glimpse at the new currency innovations of the 21st century…

The Currency Developments…and Three Easier Ways to Buy Currencies

Technically there is no physical exchange worldwide where currencies trade. There’s no trading floor where professional FX traders yell bid and ask quotes to each other across packed rooms somewhere in London or New York.

Still, financial innovation has found ways to make it easier for you to buy and sell currencies. For example…

Since 1999, Easier Forex Trading: Today Forex platforms are no longer few and far between like they were 10 years ago. Today you can sign on to the Forex platform of your choice. And because there are so many to choose from, they offer competing and very valuable services like practice accounts and tutorials that walk you through the trading process. More importantly, the increased competition has dramatically improved their bid/ask spreads making it even more profitable for you the individual.

Since 2005, Currency Exchange Traded Funds ETFs: Rydex Investments was the first to introduce a currency fund in late 2005. This allowed Forex enthusiasts to take advantage of currency moves without any special needs. You don’t need a margin account, special Forex account, or even any special training. It’s as easy and cheap as buying any other stock. Since then, WisdomTree, ProShares, PowerShares, and more ETF providers have introduced their own. Now you can buy over 25 different currency funds through various providers.

Since 2007, “Stock-like” Currency Options: The nation’s oldest exchange, the Philadelphia Stock Exchange (a.k.a. the Nasdaq OMX) introduced a new kind of currency option in mid-2007. They designed these currency options to mimic stock options as closely as possible. The theory was if you could buy regular stock puts and calls, you could buy these new currency options. Today, you can make long or short bets on 10 different currencies on the Nasdaq OMX with options. To buy them, all you need an options-approved stock account.

The Only Question Left: Are You a Currency Investor or Forex Trader?

Your in-house currency expert Ashish Advani addressed this question this past weekend, as they wrapped up the Offshore Advantage Academy in Los Cabos, Mexico.

Let’s listen in…

“If you’re looking to invest long-term, say 5-10 years, I recommend buying the currency outright. If you’re more of a short-term trader, consider currency options. And if you’re looking at an intermediate time frame of 1-3 years, ETFs are right up your alley. Typically the spot market takes more time and effort… and is best learned in the company of a professional.

Which does he prefer?

“There are better things to life than just foreign currencies – that’s why I play the options market,” he said. “I buy an option and get on with my life.”

“What’s so attractive about currency options?

“First, you have limited risk. You can’t lose more than the premium. Ashish doesn’t get into a trade without having a profit target in mind… so there’s no wishy-washy guessing about when to get-out. And perhaps best of all – options give you the ability to wait for your strategy to come true.”

“It takes about two or three minutes to put on a trade… You can get in for as little as $700 to $1,000 and can make these trades from any stock trading account… and get back to your life.”

To find out more about your own personal currency trading style, take FX University Daily’s special quiz here.

Good Currency Investing,
Kat Von Rohr, Editor
FX University Daily

P.S. Today is your last day to claim your free currency report. After midnight tonight, we will no longer offer Currencies for the Long Run or How Trading Currency Crosses Can Boost Your Forex Profits as gifts to our long-term FX University Daily readers. So please, click below to grab the free report of your choice before it’s too late.

Your Short-Cut to Stronger, More Useful Charts…

2009-11-09T13:35:04-05:00

Click here for video

Forbidden Currency Options

2009-11-06T16:02:09-05:00

(Plus, the One Sure-Bet Currency for 2010)

The race to higher interest rates continues around the world. But as of this week, the Fed is still not stepping up to compete.

Like all currency traders, I was listening closely to the Fed’s statement to see if they would remove the easy money policy or show signs of hiking U.S. interest rates any time soon.

And of course they’re not planning on it.

No one can blame them for this, especially considering unemployment is still at 10.2% (as of this morning), banks are still reluctant to lend and the economy is still only floating along on government assistance.

However, on the other side of the world, certain countries are not only winning the interest rate race, they’re preparing to trounce the dollar in the months to come.

As you’ve been reading here in FX University Daily, that includes Australia, New Zealand and Norway. All countries are looking to step up to raise rates (and Australia and Norway have already started the race before the gun went off).

Out of those three currency gems, I’m betting on Australia and the Aussie dollar to rise first as we head into the new year…

My Favorite Currency for 2010…

Now it’s not a secret that I’ve liked the Australian dollar for months. In fact, I wrote you back in July that the Aussie dollar was my favorite major by far.

Also, in the October issue of Currency Capitalist, I wrote to my subscribers…“If I had to pick just one currency to buy for 2010, it would be the Australian dollar.”

So why the Aussie dollar?

Well for starters, Australia offers the highest interest rates of any currency worldwide, so traders will be buying it up in the months to come to gain higher yields. Australia also has a prudent central bank that’s keeping its inflation under firmly under control.

On top of that Australia is the proverbial grocery store for all its surrounding countries. With its rich commodities, Australia feeds China, India, South Korea and Japan and their host of commodity needs. So as China and her neighbors grow, so will Australia.

Then there’s the gold issue. Australia is a HUGE gold exporter, so higher gold prices do tend to affect the Aussie dollar’s value. As of this morning, gold just hit a new never-before-seen record of $1,100. Nothing but good news for the Aussie.

How to Buy When You Don’t Know
When a Currency Will Rise

As you can tell, I’m pretty excited about the Australian dollar going forward.

But that doesn’t mean there won’t be pullbacks and corrections in the Aussie dollar’s price over the next few months. While it’s easy to see the Australian dollar’s long-term trajectory up, it’s a bit more difficult to time the pullbacks.

That’s why I recommended my Currency Capitalist members play the Aussie dollar with currency options back in October.

Currency options allow you to take advantage of a long-term currency trend, but you can use a bit of leverage to earn even higher gains should the trade go your way.

As of this morning, this currency option is already up a nice 24%. Not bad.

It’s a little late to get in on this option if you’re a Currency Capitalist member, but there are plenty of other opportunities down the line with currency options.

If you’ve never heard of currency options, the Philly Stock Exchange first introduced these gems back in 2007. I call them “stock-like currency options” because the PHLX designed them to mimic stock options as closely as possible.

If you’re familiar with stock options, currency options should be a breeze. Currency options have the same trading times, the same expiration dates, and they’re settled in dollar terms just like regular stock options. Like stock options, you only risk the amount you pay for the option (called the premium). Not a penny more.

The only difference is rather than track an underlying stock, currency options let you place long-term bets on 10 different currencies.

If you’re interested in selling a particular currency, you buy put options. If you’re interested in buying a currency (like say the Aussie or New Zealand dollar), you buy call options.

Best of all, currency options are available through any options-approved stock account. This means you don’t have to open a new account. You just need to call your broker and make sure you’re clear to trade regular options.

As I said in the beginning, the race to higher interest rates has already begun. If you’re looking for a way to play those high-yielders, I would look to options first for long-term currency bets for 2010.

Yours in FX Profits,
Ashish Advani

EDITOR’S NOTE: There’s a good reason why traders call the currency options market the “$71,000 hobby.” It’s because conservative traders are bagging tens of thousands every year with long-term bets on these handful of currency options. In fact, we know a remarkable 77-year-old man from Iowa who’s doing just that. Click here for his full story.

The Most Profitable Corner of Forex…

2009-11-06T14:20:32-05:00

Click here for video

Prepare for the Coming Stock Sell-Off with Currencies

2009-11-05T15:57:12-05:00

Click here for video

The $10 Trillion Dollar Bill

2009-11-05T14:56:02-05:00

promised you currency notes from the Offshore Advantage Seminar in Los Cabos, Mexico this week. Today, I’m turning you over to our conference insider, Patrick Bove…

-Kat Von Rohr, Editor
FX University Daily

Patrick: After 24 hours in Los Cabos I’m already feeling richer. Bill Gates, eat your heart out, I’m a TRILLIONAIRE!

And so is everyone else…

We’re all holding $10 trillion-dollar bills from Zimbabwe, courtesy of Asset Strategies International – one of the must-see exhibitors at the Offshore Advantage Academy.

Quite the conversation piece! But if we were to convert this note to Pesos and hand it to a porter at the Westin resort, he’d probably give us the stink-eye. (At best it could buy a stale loaf of bread.)

No wonder Zimbabweans have rejected their currency and turned to gold.

Could this ever happen in America?

The short answer is, yes. It’s happening right now, at a slow, but steady pace. A world reserve currency like the dollar can’t “disappear” overnight. But make no mistake – it is on a slow boat to China.

29 years ago, The Sovereign Society’s Chairman, John Pugsley, summed up the dollar’s demise in his New York Times Best-Seller, The Alpha Strategy:

“You are the target of the greatest sting in the history of mankind… To give you an idea of the magnitude of your loss, you are being steadily fleeced of about half of everything you earn and, in the long run, of the majority of everything you save.”

According to our Chairman, “there’s no such thing as a tax cut.” Sounds strange, I know. Who wouldn’t want to pay less tax?

But the fact remains, the Feds could cut your tax bill in half and you still wouldn’t come out ahead. They could slash every tax in the IRS bible…and it wouldn’t matter! And I’ve got proof.

Take a deep breath then look at this chart…

U.S. Spending Continues to Climb…No Matter Who’s in Office

Source: Heritage.org

John showed us how government spending has been on a near-constant uptrend. ALL this money has to come from somewhere. And if they’re not taking it from you today, they’re surely swiping it from you “tomorrow.”

There are only two ways someone can rob you: by force or by fraud. And in this case, the fraud of inflation is robbing Americans blind.

Of course, not if we can help it. That’s what the rest of this week is all about. I’ll be back with more currency notes from here on the ground in Los Cabos. Till then…

Patrick Bove
Your Offshore Advantage Insider

EDITOR’S NOTE: Tomorrow 14 different speakers will take the stage in Los Cabos, and Patrick will once again be reporting from the scene. Now of course, he won’t catch everything. The good news? You can now secure the audio for not just this seminar but every event that The Sovereign Society hosts from now on. This way, you’ll never miss a single global investment, asset strategy or currency play. Click here for details.

World Currency Watch: FOREX Market, FOREX Trading BLOG

How Much Your Dollar Buys in the FX Market vs. the Real World

1998 Dollars and 2009 Dollars Are NOT the Same Thing

Why Most Americans Don’t See the Dollar is Dropping

Three Ways to Protect You and Your Family Against the Falling Dollar

Why the Pound Could Rise…

Click here for video

Four Things to Know Before You Invest Abroad

Don’t Bother Picking Tops and Bottoms

Click here for video

As you know, Forex is one of the most profitable ways to hedge against the dying dollar.

Three Innovations that Make It a Snap (and Much Safer) to Enter the Currency Markets

The Currency Developments…and Three Easier Ways to Buy Currencies

The Only Question Left: Are You a Currency Investor or Forex Trader?

Your Short-Cut to Stronger, More Useful Charts…

Click here for video

Forbidden Currency Options

(Plus, the One Sure-Bet Currency for 2010)

My Favorite Currency for 2010…

How to Buy When You Don’t Know When a Currency Will Rise

The Most Profitable Corner of Forex…

Click here for video

Prepare for the Coming Stock Sell-Off with Currencies

Click here for video

The $10 Trillion Dollar Bill

How to Buy When You Don’t Know
When a Currency Will Rise