Wednesday, July 23, 2014 05:45pm
North Adams, MA now: 82 °   
Send news, tips, press releases and questions to info@iBerkshires.com
The Berkshires online guide to events, news and Berkshire County community information.
SIGN IN | REGISTER NOW   

Home About Archives RSS Feed
The Independent Investor: Does Cash Mean Currencies?
By: Bill Schmick On: 02:09AM / Friday September 03, 2010
Important
0
Interesting
0
Funny
0
Awesome
0
Infuriating
0
Ridiculous
0

There was a time when one of the rules of asset allocation was to always keep a little cash in your portfolio. Cash was the safest bet you could make. It became the place where we retreated when the markets were in free fall. Today, however, cash as an asset class, earns almost nothing. As a result, many individual investors are using that cash to trade currencies and in the process transform the world’s safest investment into something a lot more speculative.

The headline on the front page of Wednesday's Wall Street Journal read "Currency Trading Soars." The article explained that buying and selling currencies has become a $4 trillion a day market. How much of that volume is attributable to individual investors is hard to measure but from my own experience I can tell you that investing in currencies has never been easier or cheaper. Thanks to exchange traded funds (ETFs), the average Joe has his pick of 44 currency funds that are as easy to buy and sell as individual stocks.

Here in America, where since World War II we have been accustomed to having one of the world's strongest currencies, the desire to invest in other country's currencies has not been high on the list of investment priorities. The currency markets were something that banks used to square up their overseas borrowing or to provide you the necessary currency for your vacation to Hong Kong or Spain. It has only been in the last few years that Americans have begun paying attention to the dollar and its overseas purchasing power.

In other countries, where the fluctuations in the value of their currency can mean the difference between a secure future and poverty, trading in and out of currencies has been a way of life and a traditional avenue of investment. With the introduction of internet trading, ETFs and around-the-clock trading, retail investors in places like Japan, China and throughout the Middle East make a career of day trading currencies.

Clearly currencies markets offer the investor more depth. The currency market, at $4 trillion per day, dwarfs the trading in stocks which is only $130-$140 billion per month. The bond market is much larger and averages $456 billion/day but is still less than half the size of the currency markets.

"The stock markets are totally manipulated by a handful of big players. Bonds provide me less than the rate of inflation. Currencies, on the other hand, can make me a lot of money if I’m on the right side of a trade," argues one retired, ex-Fortune 500 executive who trades currencies by buying and selling ETFs.

During this summer he shorted the dollar (bought an inverse U.S. dollar ETF) and went long the Yen (bought a Japanese currency ETF).

"I made more money in currencies than I made in stocks since April," he crowed.

Although I congratulated him on his investment prowess, I also warned him that he was swimming with the whales in currency markets. Banks, hedge funds and mutual fund currency departments with trillions to throw around can outgun him money-wise, volume-wise and information-wise. These boys also have 24 hour trading departments. If the Japanese government were to suddenly intervene in their currency market, sending the yen dramatically lower (and the dollar higher), my friend could easily wake up tomorrow morning to a sizable loss before he could do anything about it.

This summer's collapse in the Euro was largely triggered by hedge funds. Riding the hedgies coattails works but only until it doesn't. The retail investor was the last to know when those big dogs reversed that trade. My advice to the majority of investors is to keep your cash in a money market and not try to speculate with it in the currency markets.

A better bet would be to buy a country fund or ETF if you believed the prospects of the country were better than most. That way, if you are right, you get a double win both on the country's currency and on its stock market.



0 Comments
Tags: currency, dollar      
News Headlines
Lanesborough's Putnam Road Culvert Being Reconstructed
Classical Beat: Concerts at Tanglewood, Manchester This Week
Classical Beat: Interview with BSO Guest Conductor Honeck
The Family Place to Host 'Back-Packed for Success'
Mount Greylock School Committee to Feature One November Race
Adams Town Administrator Search Committee Organizes
Lanesborough Moving Forward With PCTV Running Station
Adams Business Owners Air Concerns on Park Street Project
Hearing on Bianchi Complaint Adjourns After Disruption
'Rats Sink 'Cats
Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



Categories:
@theMarket (140)
Independent Investor (190)
Archives:
July 2014 (2)
July 2013 (2)
June 2014 (6)
May 2014 (9)
April 2014 (8)
March 2014 (6)
February 2014 (6)
January 2014 (7)
December 2013 (8)
November 2013 (7)
October 2013 (6)
September 2013 (6)
August 2013 (8)
Tags:
Selloff Commodities Energy Fed Rally Economy Currency Congress Greece Election Banks Debt Ceiling Japan Stocks Recession Taxes Housing Markets Euro Interest Rates Federal Reserve Pullback Metals Stimulus Fiscal Cliff Debt Jobs Retirement Oil Deficit Stock Market Crisis Europe Europe Bailout
Popular Entries:
The Independent Investor: Understanding the Foreclosure Scandal
The Independent Investor: Don't Fight the Fed
The Independent Investor: Does Cash Mean Currencies?
@theMarket: QE II Supports the Markets
@theMarket: Markets Are Going Higher
The Independent Investor: General Motors — Back to the Future
The Independent Investor: How Will Wall Street II Play on Main Street?
The Independent Investor: Will the Municipal Bond Massacre Continue?
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: Why Are Interest Rates Rising?
Recent Entries:
The Independent Investor: How Much Is Too Much to Spend in Retirement?
The Independent Investor: The Fed Turns Off the Spigot
The Independent Investor: Should You Pay Off Mortgage Before Retiring?
The Independent Investor: Retirement should be a part-time job
The Independent Investor: Unhappily Ever After
@theMarket: June Swoon
@theMarket: Europe Is a Good Bet
The Independent Investor: A Road to the Future
The Independent Investor: Holy Cow
@theMarket: Flirting With Record Highs Again


View All
Pittsfield Polish Picnic
Crowds lined up for golabki and kapusta at the annual...
Second Grader Emergency Drill
The North Adams 21st Century Community Learning Center...
Gather-in Festival 2014
The 42nd annual Gather-In festival was held at Pitt Park in...
BFAIR Mini-Golf Fundraiser
Berkshire Family and Individual Resources held its annual...
Lanesborough Seeds of Harmony...
Bradly Farm in...
Hinsdale Block Party
The Hinsdale Fire Department hosted its annual block party...
Arrowhead Country Craft Fair
Arrowhead, Herman Melville's home in Pittsfield, is hosting...
Pittsfield 3rd Thursday July...
Shakespeare was the theme for this month's 3rd Thursday...
State Little League:...
Pittsfield South defeats Holden, 3-2, in the state...
Live On The Lake Concert
Greylock Band played at Burbank Park on Onota Lake in...
Summer Softball: Force vs....
Berkshire Force beat the Adams Thunder 27-7 at Russell...
Little League: Pittsfield N...
Saturday semi-final between Pittsfield North and Pittsfield...
The Pittsfield Suns
The Pittsfield Suns defeated the Seascoast Mavericks...
Babe Ruth Tourney: Pittsfield...
Pittsield scored nine runs in the first inning and beat...
BYP Networking at Ramblewild
The Berkshire Young Professionals were up in the air on...
Pittsfield South vs North...
Andrew Watkins hit a three-run home run and a double and...
Pittsfield Polish Picnic
Crowds lined up for golabki and kapusta at the annual...
Second Grader Emergency Drill
The North Adams 21st Century Community Learning Center...
Gather-in Festival 2014
The 42nd annual Gather-In festival was held at Pitt Park in...
BFAIR Mini-Golf Fundraiser
Berkshire Family and Individual Resources held its annual...
Lanesborough Seeds of Harmony...
Bradly Farm in...
| Home | A & E | Business | Community News | Dining | Real Estate | Schools | Sports & Outdoors | Berkshires Weather | Weddings
Advertise | Recommend This Page | Help Contact Us | Privacy Policy| User Agreement
iBerkshires.com is owned and operated by: Boxcar Media 102 Main Street, North Adams, MA 01247 -- T. 413-663-3384 F.413-664-4251
© 2000 Boxcar Media LLC - All rights reserved