Let us know if you have found a better way to use SuiteScript to update currency exchange rates. A few years ago, emerging market investors were initially worried about the depressing effects of a strong currency on exports, but now that emerging market currencies have depreciated, fears have shifted. While anxiety has shifted from strong emerging market currencies to the issues associated with weak currencies, India is one E.M that has reaped the rewards from a declining rupee (-20% since 2013). DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in certain exchange traded funds (ETFs) including EWZ, but at the time of publishing, SCM had no direct position in any other security referenced in this article.
For any casual history observers, the current Greek financial crisis should come as no surprise, especially if you consider the Greeks have a longstanding habit of not paying their bills. The difference between now and past years can be explained by Greece now being a part of the European Union and the euro currency, which means the Greeks actually do have to pay their bills…if they want to remain a part of the common currency. Protest, riots, defaults, changing governments, and new currencies make for entertaining television viewing, but these events probably don’t hold much significance as it relates to the long-term outlook of your investments and the financial markets. Since I live out on the West Coast, the chart below caught my fancy because it also places the current Greek situation into proper proportion.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in certain exchange traded funds (ETFs) and BAC, but at the time of publishing, SCM had no direct position in Bank of Greece, Piraeus Bank, Eurobank Ergasias, Alpha Bank or any other security referenced in this article.
Another fumble suffered by the global currency markets was introduced with the unexpected announcement by the Swiss National Bank (SNB) that decided to remove its artificial currency peg to the euro. DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in certain exchange traded funds (ETFs), but at the time of publishing SCM had no direct position in any other security referenced in this article.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own a range of positions, including positions in certain exchange traded funds positions , but at the time of publishing SCM had no direct position in any other security referenced in this article. Many pundits, TV commentators, and bloggers like to paint a simplistic picture of the current situation by solely blaming the Federal Reserve’s tapering (reduction) of monetary stimulus as the main reason for the recent emerging markets sell-off. In reviewing the struggles of some emerging markets, let’s take a closer look at Argentina, which has seen its currency (peso) decline for years due to imprudent and inflationary actions taken by their government and central bank.
Each country has unique nuances regarding their specific financial currency pickles, but at the core, each of these countries share a mixture of these debt, deficit, and currency reserve problems.
Skeptics of the economy and stock market assert the Fed’s continued retrenchment from quantitative easing will only exacerbate the recent volatility experienced in emerging market currencies and ultimately lead to a crash. DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in certain exchange traded funds (ETFs), but at the time of publishing SCM had no direct position in AGG, or any other security referenced in this article. The global race to devalue currencies in many ways is like a drug addict doing whatever it can to gain a short-term high.
In the end, artificially manipulating currencies in hopes of raising economic activity may result in a short-term adrenaline boost in export orders, but lasting benefits will not be felt because printing money will not ultimately create jobs. DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds and WMT, but at the time of publishing SCM had no direct position in any other security referenced in this article. Many investors benefit from the advantages when you exchange foreign currency on the market. Reduced Commissions – Investors do not pay exorbitant fees when trading the exchange, unlike stocks, bonds and other trading instruments. No Intermediary – Because the foreign exchange market does not operate like a centralized platform, it eliminates any middle man or intermediary, allowing the investor to trade directly to the market.
Increase Flexibility – Unlike other trading platforms such as the stock market, the Forex market exchange accepts trades 24 hours a day, nearly every day of the week. High Liquidity – The foreign exchange market is enormous in size, and every transaction maintains its liquidity. Full Transparency – Manipulating the market is a nearly impossible situation because of the size and number of participants involved in multi-movement of the foreign-exchange market. When you exchange foreign currency in the market, it will provide incredible investment opportunities for any individual hoping to diversify an investment portfolio.
Participants who partake in currency trading in the foreign exchange market, commonly known as currency traders, can be central banking and commercial banking institutions, investment firms, various companies and even small time individuals, all who can be located anywhere in the world. When I say that the foreign exchange market is a decentralized financial market, I mean there is no singular location where all currencies are traded.
With respect to China’s currency devaluation, Scott Grannis at Calafia Beach Pundit puts the foreign exchange developments in proper perspective.
With an unmistakably “dovish” Federal Reserve in place, whether the 0.25% interest rate hike comes next month, or next year will have little bearing on the current shape of the yield curve. During past defaults, the Greek central bank could easily devalue their currency (the drachma) and fire up the printing presses to create as much currency as needed to pay down debts. The United States, like other expansion challenged countries, fits this bill and is doing everything in its power to stem the tide by blasting foreigners’ currency policies in hopes of stimulating exports.
The consequences of manipulating (depressing) exchange rates can lead to short-term artificial export growth, but eventually results convert to unwanted inflation.
Any successful devaluation in currency rates will eventually be offset by price changes (inflation). Finance ministers and central bankers from 187 countries all over the world are now meeting in Washington at the annual International Monetary Fund (IMF) meeting. Fortunately, the foreign exchange currency market remains a lucrative trading platform used primarily by centralized banks, institutional investors and individuals hoping to improve their investment portfolio. This is possible because foreign-exchange market accounts provide extensive leverage This mean every investor can control large amounts of funds through their account to generate profits. Well over $4 trillion in the market are exchanged every day, where an instant opportunity to purchase or sell paired currencies is available around-the-clock.
With an estimated four and half trillion dollars of value being traded everyday, the foreign exchange market is a decentralized network of financial institutions where all the world’s currencies are traded. Unfortunately, investors can’t have their cake and eat it too – you can’t have a depreciating and appreciating currency at the same time. If you consider the devaluation of the Yuan by -4%, this change only reverses a small fraction of the Chinese currency appreciation that has taken place over the last decade (see chart below).
Combined, these banks currently have an equity market value of about $14 billion and assets on the balance sheets of $400 billion – these numbers are obviously in flux. When the SNB could no longer afford to prop up the value of the franc, the currency value spiked +20% against the euro in a single day…ouch! I anticipate minimal direct and tangible economic benefits from Draghi’s $1+ trillion euro QE bazooka, however the psychological confidence building impacts and currency depreciating effects are likely to have a modest indirect value to the eurozone and global financial markets overall.
The last broad-based, major currency crisis occurred in Asia during 1997-1998, yet the S&P 500 was up +31% in 1997 and +27% in 1998. Today’s technology and a connection to the internet provide many investors foreign-exchange trading opportunities over their computer with the click of a mouse. One example of a centralized location where stocks are traded is the New York Stock Exchange. Currently, two of the four indicators are flashing green (Interest rates and Sentiment), and the other two are neutral (Profits and Valuations). In addition to making its exports more expensive for foreigners, the central bank’s move also pushed long-term Swiss Treasury bond yields negative. This explanation may sound like a bunch of economic mumbo-jumbo, but at a basic level, all this means is these deadbeat countries are having difficulty paying their lenders and trading partners back with weaker currencies and depleted foreign currency reserves. Unlike the stock market, which is open for six to seven hours per day five days a week, the foreign exchange market is open twenty-four hours per day, five days a week. What’s more, these emerging market currencies were dropping in value even before the Federal Reserve implemented their stimulative zero interest rate and quantitative easing policies.
That worked for a little while, but now that their foreign currency reserves are down -45% from their 2011 peak (Source: Scott Grannis), Argentina can no longer realistically and sustainably purchase pesos. Moreover, with foreign governments holding dramatically lower valued currency, investors are worried about the ability of these E.M.
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