Wednesday, May 4, 2011

Trading currencies beats securities over 30-year term

You must wager. Since you must, you should wager upon the occurrence whereby you lose the least if you are wrong. - Blaise Pascal, “Of the Necessity of the Wager”

Trying to hold on to liquidity over a long term of extreme market volatility is starting to teach many people the lessons Europeans learned over centuries of warfare – of both varieties - economic, and that of attrition.

Currency trading is as straightforward as it can be, much safer than securities or precious metals.

Many despised minorities have used it to buy their loved ones out of death camps when no work was available due to ecclesiastic laws and closed guilds. One look no further than activist financier and currency trader George Soros, a Hungarian Jew who literally traded his way and the lives of his family out of bondage to the Nazis in the 30's, then made his way to London, where he has become one of the world's wealthiest men.

The dollar is holding at 73, down a point and half at market's close last weekend while stocks rose on news of the apprehension and death of Osama bin Laden.

U.S. Securities have been re-evaluated as “negative” while still holding their AAA rating, but the nation's largest creditor, The People's Republic of China, has announced plans to get short in T-bonds.

All is doom and gloom, if you listen to the naysayers. For instance, Tyler Durden of “Zero Hedge” is cited on “Prison Planet” thusly:

“At the current rate of collapse, in a few more days the dollar will take out all time lows...the DXY appears set to test the last support from when the dollar carry trade was all the rage again back in 2008.”

He is pessimistic that any such thing will happen, since crude prices will have to go higher than $130 per barrel and stay there, something that is not good for any corporation, no matter what business it may be conducting at the time.

“But at least (Federal Reserve Chairman Ben) Bernanke's plan of inflation (sic) our way out of insolvency through a complete currency devaluation is working...the only way to rescue the failing dollar is to kill it.”

The truth is, currency trading is much less volatile and has produced a yield of 8% over the past 30 years, compared to 11% in the stock market.

How do they do it?

It's simple enough to use a strategy developed by Deutsche Bank, according to a leading trader.

1. “Buy whatever three currencies have performed the best over the last 12 months.
2. “Sell short the three currencies that have performed the worst over the last 12 months.
3. “One month later, size them up and rebalance as necessary.”

Of the world's currencies, 10 are the easiest to trade. They are the Australian dollar; Candadian dollar; Swiss franc; British pound; Japanese yen; Norwegian krone; New Zealand dollar; Swedish krona; U.S. Dollar; and the Euro.

No one currency ever dominates the trades, according to the experts.
From 1989 to 2009, the Swiss franc had the biggest extremes. None of the currencies every sit on the bench for long. Every one is in the game.

The bank has a fund that is based on the Currency Momentum Index.

DX2M.DE is listed daily at Our man says to click on Germany, then, to read it in English, click on the British flag at the top right.

It beats mattress stuffing.

Why not watch and wait to see what happens over a 12-month period? It won't cost anything the way sitting on dollars will over the same amount of time and besides, look at the history of precious metals over the past two decades. That might be a little too volatile for the average person.

- The Legendary

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