Chase’s Chief Economist Anthony Chan says about the three reasons why he thinks Europe is struggling. 1.This environment is and has been the result of the flawed currency union that is acting a lot like a gold standard handcuffing Europe’s economies.2.The Euro remains an inherently flawed currency system that has no efficient rebalancing mechanism.3.Only measure that can efficiently resolve this is a form of fiscal transfers that turns Europe into a single currency system with a national treasury.
Dollar Will Plunge 35%, Lose Status As World Reserve Currency
The US dollar is on the verge of a 35% collapse. It could also lose its status as the world’s reserve currency. This is according to Stephen Roach, a senior fellow at Yale University and the former chairman of Morgan Stanley Asia.
The reason, according to Roach, is the slow decoupling of the US from its trade partners. Along with this, another reason is the rise of China. He says China’s structural reform goes away from a manufacturing economy. Instead, it comes into a more service-oriented economy with a stronger consumer base. This could mean the days of the US dollar being the world’s reserve currency are numbered.
Merely suggesting that the US losing its reserve currency status is enough to bring out the critics. In an opinion piece he wrote for Bloomberg, Roach addresses those critics.
“Scorn has long been heaped on those daring to question the supremacy of the U.S. dollar,” he starts. “As the world’s dominant reserve currency…the counter-arguments were strong and highly political, basically boiling down to the so-called TINA defense – that when it comes to the dollar, ‘there is no alternative.'”
The Role of The Dollar
Roach says that even those that believe there is no alternative to the US dollar when it comes to international trade. The same goes for when the financial markets are being shortsighted.
“Alas, the TINA argument doesn’t stop there. The counter to my case for dollar weakness also rests on the reserve status of the U.S. currency as the linchpin of world financial markets. All trading nations, goes the argument, have to hold the dollar as the price for doing business in an increasingly integrated dollar-based world economy.
“Even so, the dollar’s share of official foreign-exchange reserves has declined from a little over 70% in 2000 to a little less than 60% today, according to the Bank for International Settlements. That downtrend could gather momentum in the years ahead, especially with the U.S. currently leading the charge in de-globalization and decoupling. With America’s share of reserves well in excess of its share in world GDP and trade, such a correction might well be inevitable in an increasingly fragmented, multi-polar world.”
The natural instinct for a weak dollar is to buy hard assets like gold. However, Roach says those markets are simply too small. They will not be able to absorb the tsunami of dollars looking for a new home.
“And although cryptocurrencies and gold should benefit from dollar weakness, these markets are too small to absorb major adjustments in world foreign-exchange markets where daily turnover runs around $6.6 trillion.”
Gold and cryptocurrencies are too small to benefit. Although, Roach says he does expect two currencies to strengthen as the dollar weakens: the Chinese renminbi and the euro.
Can It Be Replaced?
“On this basis, a forecast of a weaker dollar requires some combination of a strengthening in China’s renminbi and the euro…
“The China call is very contentious. From the trade war to the coronavirus war to the distinct possibility of a new Cold War, the negative case for China has never been stronger in the U.S. than it is today.”
“The call on the euro is also counterintuitive, especially for a broad consensus of congenital euro-skeptics like me… I now have to concede that reports of the euro’s imminent death have been greatly exaggerated. Time and again, especially over the past 10 years, Europe has risen to the occasion and avoided a catastrophic collapse of its seemingly dysfunctional currency union. From Mario Draghi’s 2012 promise to do “whatever it takes” to save the euro from a sovereign debt crisis to the recent Angela Merkel-Emmanuel Macron commitment to a Next Generation European Union Fund of 750 billion euros ($855 billion) to address the coronavirus crisis, the great European experiment has endured extraordinary adversity… there is unmistakable upside for the most unloved currency in the world.”
Roach ends his article by pointing out that no country has ever devalued its currency and enjoyed prolonged prosperity.
“If TINA is the dollar’s only hope, look out below… Yes, a weaker dollar would boost U.S. competitiveness, but only for a while. Notwithstanding the hubris of American exceptionalism, no leading nation has ever devalued its way to sustained prosperity.”
How to Invest in Currencies: Full Guide Part 1
• United States: National Futures Association (NFA) and Commodity Futures Trading Commission (CFTC)
• United Kingdom: Financial Services Authority (FSA)
• Australia: Australian Securities and Investment Commission (ASIC)
• Switzerland: Swiss Federal Banking Commission (SFBC)
• Germany: Bundesanstalt für Finanzdienstleistungsaufsicht (BaFIN)
• France: Autorité des Marchés Financiers (AMF)
Individual investors can decide to go it alone or seek the professional guidance of a broker as there are a lot of actively managed funds and indexed offerings in this sector. If you (or your broker) are willing to search hard enough there’s a good chance you’ll find an index which mimics what you may have wanted to do in an individual trade. Many investors like this aspect of risk management available due to the sheer size of the foreign exchange markets.
If you do indeed decide to invest in currencies on their own, you must be comfortable making informed decisions about the fundamentals of a particular national economy, currency strengths and weaknesses. If this sounds appetizing, then foreign-currency certificates of deposits or a forex trading account are both good options. Generally speaking, currencies rise in value when countries raise their interest rates and weaken when rates fall, but you’re going to need a lot more than that to be successful. Remember, with trades in the foreign exchange markets placed so frequently and at such high speeds, prices can fluctuate wildly. Here are some of the things you will either need to know or at least have a good idea of before placing a trade:
• You will need to be able to make reasonably accurate predictions about either, a given economy or the interplay between two or more economies. If you think the Eurozone will continue to weaken economically, then you’ll want to sell euros in exchange for a currency from a country with a robust economy. With that said, the Eurozone has preferred trading partners. If the European economy suffers, who else might suffer? Who might prosper? These are the sorts of questions you’ll constantly need to be asking yourself (and answering) in order to gain an edge.
• You will need to consider a country’s trading position. Do they have an abundance of goods in demand? What are their export numbers? Can they export enough of these goods to make enough money to support a trade advantage that strengthens the economy? And finally will these factors contribute to a rise in the value of the currency? Infrastructure and supply chains are a huge factor in answering some of these questions. Many less developed countries have far less stable currencies for this exact reason, there simply isn’t enough information available and no way for investors to make educated guesses without rampantly speculating.
• Politics. Even though politics, in general, have become more of an investment factor, nowhere is this more evident than in currency markets. Who wins an election, what their regulatory policies are, how those will affect economic growth, create or dissolve conflicts, change relationships with other countries and trade unions. These are just some of the political factors involved and the less transparent the economy, the more important the political factors.
• Get familiar with economic reports. Can you read and interpret reports on a country’s GDP, unemployment numbers, rates of inflation? All these and more have a direct impact on the value of a currency. You will also want to know about a country’s private sector. Sometimes a thriving private sector from an investor’s perspective may not signal great news for the currency. Mexican equities, for instance, saw huge gains in recent years while the national economy floundered.
• You’ll need to be able to calculate profits. Even if you decide on professional help, you should know what pip means. A pip measures the change in value between two currencies. One pip is equivalent to approximately 0.0001 of a change in value. If a GBP/USD trade moves from 1.685 to 1.687, your value has gone up by 10 pips. You can then multiply the number of pips across your account by the exchange rate to determine how much you have lost or gained.
One of the first things many individual investors do before entering the forex market is choose a broker. If you are opening an online forex brokerage account you can choose a personal or managed account with which you can either execute your own trades, or rely on your broker. If you decide to go this route there are a number of things for you to consider:
• Experience. It should go without saying but if a brokerage hasn’t been around for a decade or more you will most likely sacrifice a level of client care that other brokerages with more experience offer. On the flip side, more established firms will pay more attention to more established clients. If your account has $1,000 in it, you cannot expect it to get the same treatment that an account with $1,000,000 in it will receive. Try to find a balance.
• Low spreads. Spreads are measured by pips. Most forex brokers do not charge commission, instead they make their money with pips. Bottom line for brokers: lower spreads save you money.
• Credibility and legitimacy. Your broker should be a registered Futures Commission Merchant and brokerage should be regulated by a major oversight body. This means that your brokerage is open to government oversight and your broker will be more honest and transparent. With any market that has an OTC element, you definitely want to see as much licensing and documentation as possible from your broker. Some of the major financial oversight bodies include:
How To Invest In Bitcoin
It has been just six years since Bitcoin appeared, bringing a digital disruption to the concept of currency as we know it. Bitcoin’s disruptive powers have extended far beyond the currency markets, reaching deep into the financial industries, due to the technologies utilized by Satoshi Nakamoto in the creation of what is generally recognized as the world’s first digital currency. Most notable of those technologies is the block chain.
A remarkable technological achievement, the block chain is a distributed public ledger, permanently recording all transactions within minutes, updating and storing information via networked nodes in continuous communication. Bitcoin ownership is recorded in an unbroken chain from the current owner all the way back to the very first one.
Bitcoin’s block chain technology has been shown to be adaptable to many financial industry applications, including peer-to-peer lending and real estate transactions. The technology used to create the block chain has helped to facilitate the world’s first digital securities, a step toward the decentralization of financial instruments.
Yes, indeed, Bitcoin and its associated technologies have brought serious disruption to the financial world. It is, however, a good disruption, helping to open up investment opportunities to a much wider range of people, much to the consternation of financial industry gatekeepers. It’s no wonder, then, that so many people are interested in investing in Bitcoin.
However, it should be noted that there is a certain degree of Bitcoin price volatility, as there is with anything new and so potentially far-reaching, something that should be taken into consideration by potential investors. This type of investment does have a role in a well balanced investment portfolio, but isn’t an investment for those with a low risk tolerance.
Make A Direct Investment
The simplest way to invest in Bitcoin is to buy the digital currency and sell it at a profit. However, before you do that, you’ll need to get yourself a wallet – a place or an account to store your Bitcoins. You can store them on your computer, on a computer that doesn’t have Internet access or use cloud storage to ensure that something that harms your computer, like a virus, doesn’t harm your Bitcoins. You can find free or low cost wallets, but security is vital and there is no FDIC protection for this digital currency, so make sure whatever wallet you choose has the capacity to keep your Bitcoins safe.
Once you have your Bitcoin wallet, you can make your Bitcoin investments. When deciding how much money to invest, it’s important to remember that Bitcoin has experienced some wild price volatility. Early in the spring of 2011, the Bitcoin was worth $1 US. By April 2013, the value of a Bitcoin had risen to $266. Later that year, at the end of November, the Bitcoin price climbed to $1250. During the following month, the price dropped precipitously, falling to $600, then bounced back up to $1,000.
That cycle, falling and bouncing without quite making it back up to the price point it fell from, continued through 2014, hitting a low of $178 in January of 2015. Since then, the price has been rising and falling, but seems to be gradually creeping back up. As September faded into October, the price of a Bitcoin hit $239. These price fluctuations can be a great opportunity for the well-informed, careful investor. Bitcoins can be bought from individuals or from Bitcoin exchanges.
In the most fundamental sense, Bitcoin exchanges are simply a place, virtual or otherwise, through which people can buy and sell Bitcoins. It is a convenient way to engage in Bitcoin trading without having to seek out individuals in the real world or the cyber world. Transaction fees tend to be low. For example, Coinbase, established in January 2015 as the first licensed Bitcoin exchange in the United States, charges a fee of just 0.25 percent of a transaction. Interestingly, Wall Street invested $106 million in the exchange, in spite of or perhaps even because of the potential threat to the Wall Street system this digital currency and its associated technologies poses.
Other Ways To Invest
As with any other investing sector, there are always financial experts and skilled investors looking for ways to reduce Bitcoin investment risk. While periods of volatile prices can yield remarkable gains, they can, for those on the wrong side of those changes, result in significant losses. So, naturally, investors have been motivated to find other ways to invest in Bitcoin, ways that didn’t leave them quite as exposed to potential losses as some have felt when simply buying and selling Bitcoins.
One very recent alternative method of Bitcoin investing has just hit the Nordic NASDAQ, the Bitcoin based Exchange Traded Note (ETN), denominated in the Euro. A few months prior to this Euro Bitcoin ETN, the very first Bitcoin ETN, in US dollars appeared on the Nordic NASDAQ. These financial instruments are crafted from unsecured debt. Investors buy the debt and gain a return as it is paid. Since these are Bitcoin ETNs, investors can benefit in terms of return on their investment when the value of the Bitcoin increases without actually having to directly buy Bitcoins.
These investment vehicles, however, are based on debt, so there is risk involved and careful assessment of this type of investment instrument is required. For those investors who don’t feel comfortable counting on debt repayment for their ROI, there are other options, such as Exchange Traded Funds (ETFs) based on Bitcoin. With this type of investment opportunity, a fund purchases, mines or, in the case of the Bitcoin Investment Trust, wins them at an auction and investors buy shares, earning returns as the value rises.
Debate, Of Course, Rages On
Experts debate the risk involved in investing in Bitcoin. Some investment professionals point to the wide price fluctuations the Bitcoin has experienced and say it is far too risky of an investment. Others point to the solid production limit of 21 million Bitcoins, saying that even though there are price fluctuations right now, in the end, because of the limited supply, prices will rise and stay high enough that a worthwhile return can be expected. Some even point to the American dollar and fiat currency in general and say that it is riskier than Bitcoin because governments print more and more of it, steadily degrading its value.
There are financial experts debating whether or not investing in Bitcoin is really even investing at all. Those that say it is merely speculation, not investing say that it has no real, intrinsic value, nor can it produce additional value, citing the example of a company that one would buy stocks in. They warn that investment vehicles based on the Bitcoin are little more than derivatives based basically nothing but a shared decision to ascribe value to something that doesn’t even exist in any physical form. Others insist that Bitcoin is as legitimate an investment as commodities and futures are.
There is more at play for some investors. For these investors, it’s not just about profit and loss. It is also about ideals, about truth and the leveling of the playing field. It’s about the financial industry gatekeepers not being able to keep the riff-raff – the average person – away from the investment opportunities that have helped keep the rich getting richer while for the average person real wages have gone down over the past few decades. Decentralized digital currencies along with banking and investment opportunities that fall outside of the regulatory control of industry gatekeepers will chip away at the revenue and, more importantly, the power of the traditional financial industries. For these investors, that is something worth investing in.
The Bottom Line
This is an investment decision you’ve got to make for yourself, whether you are the purely practical, dollars and sense sort of investor or an idealist investing in business and concepts you truly believe in. Financial experts and investment professionals are great sources of information and guidance, but the final determination of whether or not to invest in Bitcoin or how much to invest for how long, those are questions you’ll have to answer according to your risk tolerance, how close to retirement you are and your own overall life view, your own sense of priorities. Invest your time in learning all you can before making any investment, large or small, short-term or long.
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