The Forex market is dead and dying, in parallel with the US economy; which is fitting, considering the US is still the world reserve currency.
Significant harbingers that have changed the Forex market forever:
- Dodd Frank has killed/consolidated retail Forex in the US (significant because the US is the world reserve currency), leaving less than 10 retail Forex brokers in the US, compared to several hundred in jurisdictions such as the UK, Cyprus, Australia, and a growing retail Forex presence in China. New Forex products, such as Binary Options, are being offered exclusively to a non-US customer base.
- Still, only one major US bank, Ever Bank, offers multi-currency deposits.
- Forex banks are under investigation for ‘manipulating’ the Forex market (which is impossible). Still, Forex traders are getting fired or put ‘on leave’ pending investigation. Meanwhile, Forex volatility is extremely low.
- China stepping up it’s Forex operations internationally, but more important, even Robert Gates is concerned about the growing Chinese Military (even though they can’t manufacture jet engines). And as people who understand the realities of global power, the US Dollar is backed by bombs, not by the world’s endless love of the United States, and our freedoms.
- Dwindling support of the Fiat currency system, exemplified by Bitcoin and Bitcoin clones, to attemps by China to hoard Gold, and even Germany making (at least publicly) a typically German attempt to repatriate their Gold.
- Douche Bank exits Gold price fixing cartel, not directly connected to Forex, however DB is the largest volume bank in Forex trading, and Gold one of the only ‘metal currencies’ as an alternative to Fiat Forex, or at least the most popular.
For those readers who believe this is all part of a ‘conspiracy’ to issue in a one world currency, read the following Kissinger transcript post Nixon shock (in part):
Secretary Kissinger: But if they ask what they’re doing—let me just say economics is not my forte. But my understanding of this proposal would be that they—by opening it up to other countries, they’re in effect putting gold back into the system at a higher price.
Mr. Enders: Correct.
Secretary Kissinger: Now, that’s what we have consistently opposed.
Mr. Enders: Yes, we have. You have convertibility if they—
Secretary Kissinger: Yes.
Mr. Enders: Both parties have to agree to this. But it slides towards and would result, within two or three years, in putting gold back into the centerpiece of the system—one. Two—at a much higher price. Three—at a price that could be determined by a few central bankers in deals among themselves.
So, in effect, I think what you’ve got here is you’ve got a small group of bankers getting together to obtain a money printing machine for themselves. They would determine the value of their reserves in a very small group.
There are two things wrong with this.
Secretary Kissinger: And we would be on the outside.
Mr. Enders: We could join this too, but there are only very few countries in the world that hold large amounts of gold—United States and Continentals being most of them. The LDC’s and most of the other countries—to include Japan—have relatively small amounts of gold. So it would be highly inflationary, on the one hand—and, on the other hand, a very inequitable means of increasing reserves.
Secretary Kissinger: Why did the Germans agree to it?
Mr. Enders: The Germans agreed to it, we’ve been told, on the basis that it would be discussed with the United States—conditional on United States approval.
Secretary Kissinger: They would be penalized for having held dollars.
These are not very sophistocated guys, according to the transcript (Conspiracy Theorists are encouraged to read the FULL transcript), but it does give credibility to the rumor that Arthur Laffer explained economic policy to Dick Cheney and Donald Rumsfeld in a bar by drawing a half circle on a napkin.
So, how does the Death of Forex have an impact on my portoflio? How is this information valuable to me, and not just for Fortune Cookies?
1. If you are considering participating in Forex, or are already doing so, and you are a US Citizen or live in the US, consider setting up something outside of US, legally.
2. If you are a portfolio manager, hedge yourself from a potential collapse of your domestic currency. There are plenty of high quality articles on Zero Hedge that outline this, just remember that if the US Dollar collapses it may be orchestrated with the ECB, now being run by an American trained MIT alumni, so if the USD goes down it doesn’t mean exactly that the EUR will go up.
3. If you are investing internationally, be sure to hedge your Forex position with forwards, options, and avoid huge bank spreads that can be as high as 14% of your total transaction (up to 700 pips per side).
4. Unless you are forced by circumstance, or are extremely intelligent, experienced, and sophistocated, DO NOT INVEST IN FOREX, especially with 3rd party ‘managers’ that boast consistent usually unrealistic returns.
5. Stay out of cash as much as possible, a big Forex market event can create hyperinflation, or even black market rates as we’ve seen in Argentina and India, or make the use of currencies in certain venues difficult or prohibited.
A final thought, about the biggest players in the world’s largest market by volume. Germany is the economic backbone of the Eurozone and thus the Euro. Euro is currently the only alternative to the US Dollar, and US Bond market. Here’s a passage about the banking culture in Germany, with their most important FX banks:
The Commerzbank Tower is 53 stories high and unusually shaped: it looks like a giant throne. The top of the building, the arms of the throne, looks more decorative than useful. The interesting thing, said a friend, who visited often, was a room at the top, peering down over Frankfurt. It was a men’s bathroom. Commerzbank executives had taken him up to the top to show him how, in full view of the world below, he could urinate on Deutsche Bank. And if he sat in the stall with the door open …
Just a thought, considering the current cases against the FX trading banks, maybe it would have been better, in hindsight, to instead invest in some dynamic model for FX. But every organization reaches it’s ultimate level of optimization, in the case of this Forex environment, it involves the excretion of one of the few products we can all agree that Germany does well (beer), and is combined with the alleged manipulation (cheating) of FX dealers. It paints a sad and surreal death the the modern Forex market.