Profits In Currency Options Better Than Stocks
The Dynamic Wealth Report
April 16, 2008
The Early Stages Of A Megatrend?
Have you looked at the S&P 500 lately? The S&P 500 is an index of the
top 500 companies in the stock market. It’s supposed to measure how well
the market is performing. Yesterday it closed at 1,334. This is a
stunning number.
You see, the S&P 500 first reached the 1,334 level in May of 1999. Nine
years ago. If you invested your retirement funds in the S&P 500 nine
years ago you’d have basically broke even (except for a few dividends).
Now, you would have had the distinct pleasure of suffering heartburn,
hair loss, and premature aging from all of the wild market gyrations. All while watching your investments go nowhere.
That’s a long time to wait for a miniscule return.
You don’t need me to tell you the markets have been difficult lately. So, I started asking my contacts what they were looking at. Keep in mind
that these are not just random people off the street. The people I was
talking to are brokers, advisors, and hedge fund managers. These are
smart people who are making money in the market - day in and day out.
The answer I got was surprising.
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These professionals weren’t looking much at stocks or bonds. Only a few
were looking at private equity. What they’re focusing on are markets
with major trends. The two best right now: commodities and currencies.
We all know about commodities and how they’ve done. But not everyone is
clued in to what’s going on in the currency markets.
Investors have traditionally avoided the currency markets. You used to
need millions of dollars in capital just to set up an account. And the
risks of futures trading were just too great for most people to stomach.
Today a number of new securities are available that make it easy to
profit from the monumental trends in place in the currency markets.
You can now buy currency ETFs and even trade currency options on the
Philadelphia Stock Exchange. This makes it easy for small hedge funds
and individuals to trade and make money in these huge markets.
So, what ‘monumental trends’ am I talking about?
The one in the US Dollar. You see, the US dollar has been sliding for
several years now. It continues to hit new lows against many of the
world’s major currencies. Take a look at this chart.
The popular press is starting to pick up on all this. But what they
report on can be quite confusing. Some market analysts are calling a
bottom, while others believe we’re heading much lower. Both groups fail
to recognize some of the important changes happening around the world as
we speak.
What exactly am I talking about?
News from South Korea and Venezuela. Most mainstream news sources passed
over these important news items which could prove vital to future
currency fluctuations.
Just last week South Korea's National Pension Service announced they’d
no longer be buying US treasuries. Why is this important? In absolute
dollars South Korea’s not that important. Their fund invests $220
billion in assets with about $14 billion in US Treasuries. A drop in the
bucket when compared to the overall $4.5 trillion US Treasury market.
But what it may start could be a real concern.
International investors are now shunning US assets with low yields for
other investments. Think of it this way, when investors in South Korea
buy US Treasuries they first convert their home currency (the Korean
Won) into US Dollars. This creates demand for US Dollars. If they stop
buying treasuries then they stop buying the US Dollar. Demand disappears
. . . not good news for the US Dollar.
The serious damage could be done when other international investors take
the same path.
In Venezuela we are seeing similar events, but with different
participants.
Just last month, Venezuela’s state oil company started signing contracts
for oil denominated in Euros. This is a huge departure from tradition.
Around the globe oil has always been priced in US Dollars, creating a
constant demand for our currency.
Because the US Dollar has been sliding, oil producers have started
grumbling about the falling value. Venezuela is still a minor producer
on the world stage when it comes to oil. Their actions won’t have a
direct impact on the US Dollar. What they have done however is open the
door for other oil producers to take the same path.
Taken independently none of this is significant. When you start to piece
it all together, along with global economic performance, you realize
quickly the direction the US Dollar will head.
Profiting from this trend doesn’t need to be complicated. If you’re
going to trade these markets I encourage you to have a fundamental
understanding of the global economy. Remember small news events can lead
to big profits.
As an aside, we’ve got a big trade setting up next week in our new
currency trading service. This trade is designed to take advantage of
this very situation.
Click here
for details…
• Corn (Over $6 per bushel)
Corn prices continued to trade at new highs on weather reports out of
the Midwest. Rain and inclement weather has slowed corn plantings and
estimates of this season’s production might be lowered.
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