A Futile Conversation in Currency Conversion
Whether you're discussing Pounds for Euros, Euros for Pounds, or most other combinations of currency conversions, it just may be a simple exercise in wasting time. The conversion rate of currency almost doesn't matter any more as we enter the back-end of the tremendous financial hurricane that began around 2007. It seems that when most financial analysts discuss the current destiny for the US Dollar, it always seems to be "the dollar will crumble" story. What most fail to realize is that each time serious financial concern surface, the only safe heaven seems to be…The US Dollar. As the [current] world reserve currency, most every other currency is pegged against the US Dollar, and therefore will fall against a rising dollar. Even in resource rich, stable Australia, the Australia dollar to USD rate will fall as a result of instability of the US and global economic situation.
Each and every day there seems to be another European country in need of a loan or bail out, pick your poison.
Within our boarders here in the United States, it seems apparent that the municipalities are one of the next shoes to drop. As municipal debt continues to be issued, most investors are oblivious to the fact that the only real purpose for the new debt, is to service the old debt. Think about it for a minute, if the economy is really not growing, employment not getting better, construction at a standstill, and so on, why do the municipalities need more money? For what projects do they need financing? None. Soon they will implode when the music stops and there is not more money to put in the jukebox.
Back to currencies and the US Dollar. It's not that the dollar is the best investment to put your money in, it just could be the only short term parking spot that provides you the ability to watch the game from the sideline, waiting to jump in when the field clears with all the weak hands. After all, when stocks sink, corporate bonds begin to get downgraded and default (not necessarily in that order) and municipalities can no longer pay their obligations, where is an investor to turn? After a portfolio has been hit for about 40% of its value (again), human emotion will take over and the "get me out" phone calls will begin. The financial media will once again call for Armageddon and come up with all the reasons why the world is coming to an end, and that my friends will be a sign of a good short term opportunity to make a quick buck.
Remember, most investors usually do the exact wrong thing at the exact wrong time. NOW is the time to be raising cash, not after the bad news is everywhere. The markets are beginning to sniff out the real story as seen in the recent municipal bond decline. Most investors haven't a clue and don't even know it started. They think they will always get their coupon payments no matter what. Maybe, maybe not.
While all this is happening, where does the money go? Into short term treasuries, the US Dollar. It wasn't that long ago where investors were accepting of a negative yield just to be assured to get a return of their principal which is more important than a return ON your principal.
It's coming again and we can't stop it, be prepared.
Regina Parker is an analyst for Strategic Forecasting. We provide market forecasts for clients throughout the world. For more great tips on currencies or other related financial topics please visit Http://www.MyStrategicForecast.com/
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