By Martin Tillier
Occasionally, I read a piece of news and think “Wow! This is big time...” and then am amazed that nobody else seems to think so.Sometimes it is just that I have a trading room background, so I am inclined to infer too much significance from every nugget of information. Traders, as I have said many times, are like sports radio hosts -- professional over reactors.
At other times, however, there really is something significant that is receiving less attention than it deserves here in the US. I believe that is the case with news coming out of Europe over the last week or so.
Some of you may remember the summer of last year, when the lingering sovereign debt problems in Europe, continued unemployment and worries about the banking system saw the Euro against the US Dollar (EUR/USD) threatening to break through the 1.20 level.
At that time the European Union showed that it, like the US in the famous words of Winston Churchill, could be counted on to do the right thing once every other possibility had been tried.
All was well, we were told. The EU member countries had come to an agreement and funds were established to facilitate not just bail outs of the countries themselves, but also of their banks should that be necessary.
As you can see, markets heaved a sigh of relief and EUR/USD rallied strongly towards the end of the year. The US stock market also followed suit, rallying from early June 2012 lows and beginning the march up to current highs.
Of course, this wasn’t the only factor at play. The Fed continuing to hand money to Wall Street to invest in the stock market played a huge part, as did a continuing recovery in US corporate profits, but the perception that the crisis in Europe was over certainly cleared the way for the rally.
When I read this Reuters report over the weekend, I was, therefore, somewhat perturbed. It seems that full agreement hasn’t been reached and that the new German Finance Minister, Wolfgang Schaeuble, is opposed to a central fund to bail out banks in trouble. In fact, he stated that "The German legal position rules it out now. That's well known. I don't know if everyone has registered that."
There may well be some element of political posturing involved here. As I pointed out in these pages at the end of September, the election victory of Angela Merkel’s CDU/CSU party left them looking for a coalition partner. Continued popularity is important to them during the ongoing delicate negotiations to secure this, and bailing out fellow EU sovereign states is unpopular enough in Germany, let alone rescuing their banks with primarily German money.
Posturing or not, however, the fact remains that finalizing the tentative agreement reached last year to ensure Euro zone stability is not going to be a walk in the park. The parties involved are politicians after all, so some degree of brinkmanship in the negotiations seems inevitable.
I bring this potential for further problems to your attention, not as a key to a specific trade idea, but rather as something to be borne in mind over the coming months. The leveraged nature of forex makes maintaining a long term short in EUR/USD a potentially expensive proposition for most people and it could be a while before the impact of this impending problem is felt.
Often though, even if we trade for the short term, what we do should be colored by an awareness of the big picture and potential long term influences on markets. The chances are that many readers who are based in the US would have missed last week’s developments as they received scant coverage here, even in the financial media outlets.
History tells us that, like politicians the world over, the elected leaders of Europe will eventually reach agreement, but not before strong indications emerge that agreement of any kind is unlikely. That likelihood makes me biased towards short Euro and European stocks over the next few months.
Even if you don’t trade based on an expectation of disruption, it will undoubtedly pay dividends to be aware that the possibility is there and to follow the story.
 |
Martin Tillier has a wealth of experience in Foreign Exchange. He started working for a major interbank Forex broker in London in the 1980s, rapidly acquiring more responsibility and the authority to run larger positions. After several years, he was asked to go to Tokyo to develop the cable (USD/GBP) desk there. He returned to London at a time of turmoil in European currency markets and helped build the company's Sterling Mark (GBP/DEM) desk into the world's most profitable, in the years leading up to the Euro. Highlights included a 36 hour unbroken stint at the desk during black Wednesday, when the Pound was forced out of the European Monetary System. Because of his success in London and his ability to teach new recruits the complex world of Forex trading, Martin was asked to establish Spot FX desks in new markets for the company, first in Moscow, Russia, then in Warsaw, Poland. He left the market in 2002 and moved to the US, following the loss of a family member in the tragic events of September 11th 2001. He spent some time out of the markets, starting and running a successful wine store, but the lure of the financial world was still strong, leading to him selling that business and accepting a position as a financial advisor with a major firm. The frustration he felt while there is what led him to his current position as a writer and educator on markets, particularly Foreign Exchange. The markets were more accessible than ever, but it seemed Wall Street was still doing fine. It was obvious that the retail trader and investor were at a disadvantage, and education could close that gap. Martin now writes regularly for Nasdaq.com and other financial sites, trades Forex and other markets successfully and, in his spare time, plays golf badly. |
OUR PRINCIPLES |
1. Our Customers
I think it was Frank Sinatra who once said, 'If you think customers are not important try doing business without them for a while.'
Although he was referring to another singer who didn't like to sign autographs, he could have been talking about any customer in any business.
In our offices here in Delray Beach we keep that quote posted on the wall just to remind us how fortunate to have you as part of our family.
2. No Hidden Agendas
Please forgive the populist tone here, but the sheer audacity of what some brokerages pawned off as "research" in the 90's was stunning. As a result, the New York State Attorney General forced many of them to fund separate independent stock research firms.
We here at the Institute for Individual Investors have no interest in the "conflict of interest" business (we've seen what it does to people.) We do what we do because we enjoy it and we're good at it. Therefore know that we will never accept any payment, in any form, to recommend the shares of any company. Period.
Our goal is to not only provide you with our unbiased opinions, but to also bring you behind the scenes and show you exactly how we form those opinions. Knowledge is your best defense in the investing battlefield.
3. Information You Can Understand
In addition to the research and educational courses we offer, we try to present our facts in a way that will help you understand the rationale behind our thinking.
It is our hope that during the course of our relationship you will gain a more sophisticated framework for making investment decisions both as an investor and as a businessperson. We believe that the more educated you become, the more likely it is that you will appreciate and recommend our work.
4. We Will Always Admit Our Mistakes
Only fools never admit and learn from their mistakes. Good investors are not born they're forged. It's that simple.
5. Real Wall Street Experience
Everybody we hire to teach and inform you will actually have real investment experience.
Need I say more? Well, I will. Why?
Because many of our "competitors" aren't real investors - they're marketers and journalists pretending to have the real world experience that separates the men from the boys.
© 2013 Institute for Individual Investors, LLC.
110 E. Atlantic Ave., Suite 200, Delray Beach, FL 33444, USA
North America: 877-489-2666
International: 561-272-2919
Fax: 561-272-6040
Customer Service Email: support@ifii.com
www.ifii.com
Privacy Policy | Disclaimer | Update your Profile, Unsubscribe, & Update Preferences
Whitelist Us
No comments:
Post a Comment
Keep a civil tongue.