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Will the Iraqi dinar have real value soon?

October 3, 2011 by

From TraderPlanet.com

Some questions I receive make me really ponder the reason for the question. A true case-in-point is the one below. I have to wonder why the reader wants to know anything about the Iraqi dinar. After all, we are talking about a country that is still to a degree in a civil war. We are talking about a country that is barely holding onto a governmental structure. We are talking about a country still rebuilding infrastructure destroyed from years of bombing and war. We are talking about a country sitting in the Middle East, a hotbed of unrest and civil disorder.

Will the Iraqi dinar have real value soon?

Okay, I have thought about this question and I can come up with only one reason the reader, or anyone outside of Iraq for that matter, actually cares about the dinar. Somebody is selling something that just ain’t gonna happen, and with just a couple of minutes on the Internet, I found the scam …

Advertisements in local newspapers promise great wealth by purchasing the new Iraqi dinar. Promoters explain that as democracy comes to Iraq, the expected peace will stimulate the Iraqi economy and the value of the dinar. What investors are not told is the dinars can be redeemed only in Iraq and that the sellers already have doubled their money. Thus, the dinar would have to more than double in value and you would have to take a trip to Iraq to collect any profit.

In the future, it is possible the world’s second largest oil producer could become stable and prosperous. The future, though, is a pretty big place, and there is a lot of time between then and now. So, my answer to the reader’s question is: the Iraqi dinar will not have any real value anytime soon.

Click here to go to Trader Planet

Anthony DiChi,
Your friend in Forex Currency Trading, FX Information and Forex News at TradeCurrencyNow

Filed Under: Forex Pro Currency Trading Help Blog

When PIIGS Fall

September 17, 2011 by

Re-posted from the Daily Reckoning

Making Way for the Era of Sovereign Default

Eric Fry Reporting from Laguna Beach, California… The Daily Reckoning

American investors returned from their Labor Day holiday to face another laborious trading day on Wall Street. As your California editor pecks away at his keyboard this afternoon, the Dow Jones Industrial Average is down more than 200 points to within spitting distance of 11,000.

For the first three trading days of September 2011, the Dow has tumbled more than 600 points — or about 5% — the worst three-day start for the month of September in the history of the US stock market. (Thanks to CNBC for this utterly meaningless statistic).

As it happens, the Dow is also down about 5% for the year-to-date, and down about 5% from its record high of October 2007. “Down 5” is not exactly the new “up,” but it feels like it. Over in the Old World, the best-performing stock market in the European Union is down 20% for the year. That’s the best one.

If you jump outside the euro zone, into the countries that opted not to latch the euro albatross around their necks, you find a couple of star performers like the British and Swiss stock markets — both down only 13% for the year.

The main problem, both here and there, is credit — or rather, credit contraction. Lots and lots of people, along with lots and lots of governments, are facing debts they simply cannot pay. However, instead of allowing the inevitable defaults to occur and to run their course, governments and central banks throughout the Western World are tirelessly cobbling together ad hoc bailouts, guarantees, rescue packages, emergency lending facilities and debt “workout” schemes — all designed to reverse the force of economic gravity.

But overly indebted entities will default, just as inevitably as flying pigs will hit the pavement.

The glide path of Greece’s financial condition is obvious. This pig is heading for the pavement, as are all the other PIIGS nations, which is why the European Union is so busy stacking up pillows and mattresses on the ground below.

The EU says its bailouts will enable Greece, Portugal, Ireland, Italy and Spain to enact the “austerity measures” that will restore solvency and keep their governmental finances airborne. Unfortunately, the effort to keep these struggling nations afloat threatens to sink the entire European Union.

Why not let the PIIGS fall to the pavement? Why not let overly indebted entities fail; let capitalism do its dirty work, so that the next generation of capitalists can step in and finance the next generation of successful enterprise.

The longer — and more strenuously — the central banks and governments of the West attempt to forestall inevitable defaults, the longer — and more painfully — the stock and bond markets of the West will abuse investors.

And let the record show that merely asserting a truth does not make it true. Central bankers and politicians can assert as often as they wish they their rescue efforts are effective, but that does not make it true. In fact, increasingly, the folks with capital at risk are “calling B.S.” on that assertion.

After more than 18 months of efforts and hundreds of billions of dollars of bailout funds pouring into Athens, Greek finances are still as sick as Dionysus after a long night of drinking. To wit: Greece’s borrowing costs hit a new record high today. To borrow money for two years, the Greek government would have to pay a whopping 52.3% per year. The US Treasury, by contrast, pays a minuscule 0.20% on its two-year debt.

You don’t have to be a professional investor to see that Greece is in trouble. But apparently, you do have to be a professional politician or central banker to believe that it isn’t. And as the dismal performance of the European stock markets testifies, the Greek problem is already a Europe problem. The chart below emphasizes the point.

The squiggles on this chart track the pricing of two different types of credit default swaps (CDS). Don’t let your eyes glaze over just yet. This is fascinating stuff. And even if it isn’t fascinating, it is instructive. CDS, to refresh, are an insurance policy against default by a specific borrower. Therefore, the greater the perceived risk of default, the higher the price of the insurance, i.e., the CDS.

The blue line on the chart tracks the average price of 5-year CDS on debt issued by 125 different European corporate borrowers. The red line tracks the price of 5-year CDS on debt issued by the French government. During the depths of the credit crisis of 2008-9, the price of CDS on European corporate debt was more than double the price of CDS on French government debt. In other words, investors were much more worried about defaults by European corporations than they were about a default by the French government.

As of this week, however, the price disparity between European corporate CDS and French Government CDS has disappeared completely. In fact, it has inverted. Investors now consider a default by the French government to be more likely than a default by the average European corporation.

This price trend does not suggest that a default by the French government is probable. In fact, such an eventuality seems highly unlikely. But the price trend of French CDS relative to corporate CDS, does suggest that a new phase of the credit crisis is underway.

The Era of the Sovereign Default is underway. Greece will be the first, but it won’t be the last.

As this sovereign default cycle unfolds, government bond yields are likely to climb, economic activity is likely to slow and paper currencies are likely to depreciate relative to gold and other hard assets. That’s the bad news.

The good news is that post-default nations will emerge leaner and meaner and ready to initiate a new era of economic growth.

That’s how the world works…or at least how it should work. It is probably no accident that this year’s very, very short list of winning stock markets features countries that suffered a painful sovereign default and/or currency crisis within the last 20 years.

The stock markets of Indonesia, Thailand, Vietnam, Philippines, Iceland, Ghana, and Venezuela are atop the leader board for 2011 with positive performances.

Default is painful, but it is also a necessary component of the economic life-cycle.

Click here to go to The Daily Reckoning

Anthony DiChi,
Your friend in Forex Currency Trading, FX Information and Forex News at TradeCurrencyNow

Filed Under: World Markets and Forex Currency

Unique Factors for the Swiss Franc

September 10, 2011 by

As posted on Investopedia

Switzerland’s famous neutrality is a significant factor in its economy and currency. Though Switzerland harmonizes many of its policies with the Eurozone countries, it is not a member and it maintains its independence. What’s more, as a global destination of choice for expatriated capital, Switzerland is less sensitive to the economic performance of its neighbors.

Switzerland does have some risks with its heavy reliance on its banking sector. Under pressure from countries like the United States and Germany, some of Switzerland’s bank secrecy laws have been relaxed. That is likely a concerning development for dictators, criminals and businessmen who want to keep their wealth both safe and secret. As a result, other countries like Singapore have begun tightening their rules and promoting themselves as emerging alternatives to Switzerland for offshore accounts.

Another odd aspect to the Swiss franc is that, in many ways, it is a currency and not a country. While the U.S. dollar is certainly boosted by its heavy weighting as a reserve currency and its safe haven status, trade in the dollar is still largely dictated by the economic conditions of the United States. For the Swiss franc, it sometimes seems that only the interest rate decisions of the SNB really matter. Perhaps this is because Swiss governments have maintained largely consistent economic policies (no one expects anything wild from the Swiss), or perhaps it is because demand for the Swiss franc is dominated more by its utility as a liquid, stable and reliable alternative currency.

Click here to go to Investopedia to read more….

Anthony DiChi,
Your friend in Forex Currency Trading, FX Information and Forex News at TradeCurrencyNow

Filed Under: World Markets and Forex Currency

Who Holds The Largest Gold Reserves?

September 10, 2011 by

Even though gold is no longer used to back currencies like the dollar, it is still stockpiled by countries around the world. Since the price of gold has fluctuated dramatically, the holdings are expressed in metric tons (or tonne = 1000 kg) as documented by the World Gold Council in August 2011. One U.S. ton is approximately 0.9 tonnes. Here’s a look at who holds the largest gold reserves and the amount of holdings.

United States – 8,133.5
While the U.S. permanently abandoned the gold standard in 1971, it has the largest holdings of any country by a wide margin. While most of the gold is held at Fort Knox in Kentucky, gold is also held by the U.S. Mints in Philadelphia and Denver and several other locations.

Germany – 3,401.0
Germany’s central bank, the Deutsche Bundesbank in Frankfurt, is the manager of the country’s reserves. However, reports have surfaced that the bulk of Germany’s gold is in the physical custody of the New York Federal Reserve.

International Monetary Fund (IMF) – 2,846.7
The IMF overseas the economic activity of its 187 member countries around the globe.

Italy – 2,451.8
Italy’s reserves are held and managed by the Banca D’Italia. Italy is one of the PIIGS nations (along with Portugal, Ireland, Greece and Spain), all of which are suffering financial woes.

France – 2,435.4
The Banque de France is the central depository for France’s gold reserves.

China – 1,054.1
The world’s most populous country is the world’s largest producer of gold and can buy gold from its own mines without reporting those transactions publicly.

Switzerland – 1,040.1
Switzerland’s seventh place rank on this list is notable considering its economy is the 38th largest and its population is the 95th largest in the world.

Russia – 775.2
Russia’s gold reserves are in the custody of the Central Bank of the Russian Federation.

Japan – 765.2
Gold accounts for only 3.3% of Japan’s total foreign reserves which are managed by the Bank of Japan.

Netherlands – 615.5
The gold reserves and national finances are managed by the Netherland Bank.
Click here to go to the Financial Edge to view more of this story….

Anthony DiChi,
Your friend in Forex Currency Trading, FX Information and Forex News at TradeCurrencyNow

Filed Under: Trade Gold and Silver Blog

Is The End Of The Euro In Sight?

September 8, 2011 by

As posted on Yolohub.com

The future of the euro is hanging by a thread at the moment. The massive debt problems of nations such as Greece, Italy and Portugal are dragging down the rest of the Europe, and the political will in northern Europe to continue to bail out these debt-ridden countries is rapidly failing. Could the end of the euro actually be in sight? The euro was really a very interesting experiment. Never before had we seen a situation where monetary union was tried without political and fiscal union along with it on such a large scale. The euro worked fairly well for a while as long as everyone was paying their debts. But now Greece has collapsed financially, and several other countries in the eurozone (including Italy) are on the way. Right now the only thing holding back a complete financial disaster in Europe are the massive bailouts that the wealthier nations such as Germany have been financing. But now a wave of anti-bailout sentiment is sweeping Germany and the future of any European bailouts is in doubt. So what does that mean for the euro? It appears that there are two choices. Either we will see much deeper fiscal and political integration in Europe (which does not seem likely at this point), or we will see the end of the euro.

That status quo cannot last much longer. The citizens of wealthy nations such as Germany are becoming very resentful that gigantic piles of their money are being poured into financial black holes such as Greece. In fact, it is rapidly getting to the point where we could actually see rioting in the streets of German cities over all of this.

All of this instability is creating a tremendous amount of fear in world financial markets. Nobody is sure if Greece is going to default or not.

Without more bailout money, Greece will most certainly default. If anyone does not think that one domino cannot set off a massive chain reaction, just remember what happened back in 2008.

Bear Stearns and Lehman Brothers set off a chain reaction that was felt in every corner of the globe. All of a sudden credit markets froze up because nobody was sure who had significant exposure to bad mortgages.

Today, the entire world financial system runs on debt, so when there is a credit crunch it can have absolutely devastating economic consequences. The financial crisis of 2008 helped plunge the world into the greatest recession that the globe had seen since the 1930s.

In the old days, nations such as Greece that got into too much debt would just fire up the printing presses and cover over their problems with devalued currency.

Well, those nations that are using the euro simply cannot do that. The government of Greece cannot simply zap a whole bunch of euros into existence in order to solve their problems.

Right now, major European banks are holding massive amounts of debt from various European governments on their balance sheets. Most of these European banks are also very highly leveraged. Even a moderate drop in the value of those debt holdings could wipe out a number of these banks.

The head of the IMF, Christine Lagarde, recently told Der Spiegel the following….

“There has been a clear crisis of confidence that has seriously aggravated the situation. Measures need to be taken to ensure that this vicious circle is broken”

Unfortunately, what Lagarde said was right. You see, the financial system in Europe is a “confidence game” and a “crisis of confidence” is all that it would take to bring it down because it does not have a solid foundation.

Just like the U.S. financial system, the financial system in Europe is a mountain of debt, leverage and risk. If the winds start blowing the wrong direction, the entire thing could very easily come tumbling down.

Over the past couple of weeks, the outlook in Europe has become decidedly negative. For example, one senior IMF economist is now actually projecting that Greece will experience a “hard default” at some point in the coming months….

I expect a hard default definitely before March, maybe this year

If Greece defaults, that would mean that the bailouts have failed. That would also mean that several other nations in Europe would be in danger of defaulting soon as well.

The consequences of a wave of defaults in Europe would be absolutely staggering. As mentioned above, major banks in Europe are deeply exposed to sovereign debt.

Regarding this issue, Deutsche Bank Chief Executive Josef Ackermann recently made the following stunning admission….

“It’s stating the obvious that many European banks would not survive having to revalue sovereign debt held on the banking book at market levels.”

Yes, you read that correctly.

There are quite a few major European banks that are in imminent danger of collapse.

Even though there hasn’t been any sovereign defaults yet, we are already starting to see massive financial devastation in Europe. Just check out some of the financial carnage from Monday….

*The stock market in Germany was down more than 5%.

*The stock markets in France and Italy were down more than 4%.

*Royal Bank of Scotland was down more than 12%.

*Deutsche Bank was down more than 6%.

*Societe Generale was down more than 8%.

*Italy’s UniCredit was down more than 7%.

*Barclays was down more than 6%

*Credit Suisse was down more than 4%.

*The yield on 2 year Greek bonds was up to 50.38%.

*The yield on 1 year Greek bonds was up to 82.14%. A year ago it was under 10%.

Just like in 2008, banking stocks are leading the decline. We have another major financial crisis on our hands and there is no solution in sight.

As the financial world becomes increasingly unstable, investors are flocking to gold. In case you have not noticed, gold is up over $1900 an ounce again.

So what comes next?
Click here to go to Yolo to view more of this story….

Anthony DiChi,
Your friend in Forex Currency Trading, FX Information and Forex News at TradeCurrencyNow

Filed Under: Forex Pro Currency Trading Help Blog

Currency Futures

September 6, 2011 by

Currency futures are futures contracts where the underlying commodity is a currency exchange rate. These contracts offer investors the ability to enter the foreign exchange market in an environment that is similar to other futures contracts. Currency futures, also called forex futures or foreign exchange futures, are exchange-traded futures contracts to buy or sell a specified amount of a particular currency at a set price and date in the future. Like other futures products, currency futures are traded in terms of contract months with maturity dates falling in March (H), June (M), September (U) and December (Z).

Popular currency futures contracts include:
– AUD/USD Futures (Australian dollar/US dollar)
– CAD/USD Futures (Canadian dollar/US dollar)
– EUR/USD Futures (Euro/US dollar)
– GBP/USD Futures (British pound/US dollar)
– CHF/USD Futures (Swiss franc/US dollar)
– EUR/GBP Futures (Euro/British pound)
– EUR/CHF Futures (Euro/Swiss franc)
– EUR/JPY Futures (Euro/Japanese yen)
– JPY/USD Futures (Japanese yen/US dollar)
– NZD/USD Futures (New Zealand dollar/US dollar)

An advantage in trading the currency futures markets is that they are regulated the same way as other futures markets. They have a great deal more oversight than the spot forex market which is largely unregulated. Currency futures brokers must follow regulations enforced by the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA).

The above article is written in part by author Jean Folger who writes at http://financialedge.investopedia.com .

Anthony DiChi,
Your friend in Forex Currency Trading, FX Information and Forex News at TradeCurrencyNow

Filed Under: Forex Pro Currency Trading Help Blog

Currency Exchange Traded Funds

September 6, 2011 by

Exchange traded funds, commonly referred to as ETFs, are investment funds that are traded on a stock exchange. Investors have a wide variety of ETFs from which to choose including those that track a major market Index, target gold or track a basket of foreign currencies. Currency ETFs provide investors with exposure to a particular currency or a basket of currencies, allowing access to multiple foreign currencies.

In 2005, Rydex SGI launched CurrencyShares Euro Trust (NYSE:FXE), the first currency exchange-traded fund. Since then, there has been significant growth in the entire currency ETF market, with assets of all funds now totaling more than $6 billion. Approximately 40 funds are now available that offer investors currency exposure.

The largest of the currency ETFs is the PowerShares DB U.S. Dollar Index Bullish (NYSE:UUP) with $1.05 billion in net assets. Incidentally, an advantage in trading ETFs is that they can be shorted, so investors could actually short the bullish fund if they felt the dollar was headed down. The fund invests by going long USDX futures contracts (to replicate the performance of being long the U.S. dollar against the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc).

The above article is written in part by author Jean Folger who writes at http://financialedge.investopedia.com .

Anthony DiChi,
Your friend in Forex Currency Trading, FX Information and Forex News at TradeCurrencyNow

Filed Under: Forex Pro Currency Trading Help Blog

Foreign Currency Certificates of Deposit

September 6, 2011 by

The interest rates in the U.S. are so low right now that it is difficult to make any money off certificates of deposit (CD). That said, they do offer a safe place for money; investors may not earn much, but they will not lose any money either. Another option for certificates of deposit that may provide the opportunity to earn higher interest rates is the foreign currency CD.

EverBank offers a WorldCurrency CD that earns interest rates based on the local rates of a specific country or a basket CD that offers exposure to a variety of currencies. These foreign currency CDs are subject to fluctuations in exchange rates, but generally offer higher interest rates than dollar-denominated CDs. Investors can lose money if the dollar strengthens against the foreign currency as the CD matures.

Only U.S.-based FDIC-insured banks should be used; in fact, many websites that offer foreign currency CDs at fantastic rates are scams. The FDIC insurance protects against bank insolvency, but not against the currency price fluctuations so money can be lost in this type of CD.

The above article is written in part by author Jean Folger who writes at http://financialedge.investopedia.com .

Anthony DiChi,
Your friend in Forex Currency Trading, FX Information and Forex News at TradeCurrencyNow

Filed Under: Forex Pro Currency Trading Help Blog

Why it will be exceedingly difficult to ever return to a gold standard

September 4, 2011 by

The pressure that 20th century governments experienced to sacrifice currency stability for other objectives, such as full employment, did not exist in the 19th century.

Back then, workers susceptible to unemployment when the central bank raised the discount rate had little opportunity to voice their objections, much less kick out those responsible.

Wages and prices were relatively flexible. Therefore, a shock to the balance of payments that required a reduction in domestic spending could be accommodated by a fall in prices rather than a rise in unemployment. This further diminished the pressure on the authorities to respond to employment conditions. Consequently, the central bank’s priority to maintain currency convertibility was rarely challenged.

Now we live in a world where the voters can vote themselves the goodies, and politicians maintain power by promising to dole out those goodies. Indeed, a far cry from the world during the gold standard era.

The above article is written in part by author, Jack Crooks who writes for Money and Markets.com.

Anthony DiChi,
Your friend in Forex Currency Trading, FX Information and Forex News at TradeCurrencyNow

Filed Under: Trade Gold and Silver Blog

Gold Standard and the US Dollar

September 4, 2011 by

The gold standard was a commitment by participating countries to fix the prices of their domestic currencies in terms of a specified amount of gold. The countries maintained these fixed prices by being willing to buy or sell gold to anyone at that price.

It is exactly this price stability that makes the gold standard superior to fiat currency. In fact, this period proved that deflation does not always lead to depression. There was a huge expansion of trade and production during the gold standard era and yet deflation in the price level ruled the day.

One of the reasons was the supply problem with gold. Since the gold price was fixed by central banks, the increased demand led to a corresponding decline in the price, which was exacerbated by quickly rising gains in global production and trade. Thus, we saw a period of deflation and real income growth.

The classic gold standard period was far from perfect, financial panics still appeared. For example, the U.S. experienced The Panic of 1907, whereby stocks got hammered and banks went belly up. It was one of the primary motivating forces behind the establishment of the Federal Reserve Act of 1913.

But the gold standard era ushered in a degree of global monetary cooperation and a period of rapid growth the world had never witnessed before.

The cornerstone of this system was built on faith … faith that governments and their central banks would make the necessary adjustments to maintain currency parities.

The above article is written in part by author, Jack Crooks who writes for Money and Markets.com.

Anthony DiChi,
Your friend in Forex Currency Trading, FX Information and Forex News at TradeCurrencyNow

Filed Under: Trade Gold and Silver Blog, U . S . Dollar Report and Opinions
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