I’m really not sure when we all of us became so freaking obsessed with the way currencies interact and affect the economy and various financial markets. But judging by the seemingly incessant “TRADE FOREX NOWWWWW!!!” commercials on CNBC and other financial porn channels, I have to think that there’s some sort of demand for the product.
My favourite is the woman at the coffee cart talking about how “size does matter”. Somehow, I just can’t picture her shorting the yen on her iPhone during the soccer game or the dance recital. I guess my main questions are does Jane and Joe Investor need this access and do they have any business playing with this particular hand grenade?
My guess is “No”. When they hear the pretty (and not so pretty) people on the T.V. yammering about how “…investors are selling their dollars” what does that mean? Sure, they could be shorting the greenback via futures contracts (something huge institutions do all the time to hedge their investments against currency risk). Or they could be lightening up their positions in dollar denominated assets like treasuries, or dollar denominated corporate bonds, or even U.S. equities.
The message they’re sending is pretty simple, they have less confidence in America’s ability to grow the business versus other places around the world. Now the inverse can happen as well. A weaker currency makes your country’s exports cheaper. People can buy the snot out of your products. Your citizens work like crazy and earn more of your weak currency and things hum along hunky dory in the vicious cycle of a debauched currency. But the nuances of trading those kinds of scenarios are highly, highly, black box, super maths complex and I’m just not sure that small investors, hell or even advisors at the individual investor level need to worry about it. Sure, they need to be aware of it and have a basic understanding about how it affects an investment program.
However, the incessant ad blitz that bombards the herd with the notion that they can successfully execute a spread between the rupee and the loonie is awful hard for the herd to resist (see: “Stuart Ameritrade tells you how to make zillions of dollars day trading tech stocks on line” 1999). So if you absolutely have to drink that Kool Aid, how do you do it? For starters, own multinationals.
They always deal with multiple currency risks. It can and does affect their earnings thereby affecting the price of the stock. Coke (KO), Yum Brand (YUM), Caterpillar (CAT) are a few names to start with. Still hate the dollar? Own a decent global bond fund or maybe a good closed end (not an ETF) fund that’s a foreign currency pure play like the Aberdeen Australia Equity Fund (IAF). You’re paying those guys to manage the currency risk and take advantage of opportunities. It’s not as sexy as trading it on the bus from your iPad, but oh well.
“TRADING FOREX NOWWWW!!!” is just a bad idea. To get a little uppity and morally indignant, the financial media are should be a bit more responsible and the online forex trading firms are on par with the boiler rooms and bucket shops. Intelligent individual investors should know as much. I’ve often envisioned a bank kind of place where a guy walks in wearing overalls with a laundry basket full of one dollar bills, dumps them on the counter and says “How much kin I git fer these?” Always good for a laugh but it really doesn’t work that way. Unless you’re some kind of megamind, currency trading genius that has the knowin’ power to go up against the likes of George Soros, don’t run in that field. You’re gonna step in something and, most likely, you will leave your money behind in it.
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