Forex Figures

The world seems to have grown tired of intervening in the Middle East as the slaughter of civilians in Syria (some 8,000 dead since the start of unrest about a year ago) continues, and little if anything seems to be happening to prevent it. But is the situation in Syria different or similar than the situation in Libya under Qaddafi? And what does this mean for the Forex markets, if it means anything at all? These are things that any Forex trader should consider, even if he’s only trading popular currency pairs.

Syria vs. Libya

The first thing to realize is that unlike Libya, where Qadaffi had been trying to find a way to work with the West and had been gaining a modicum of respect, Syria was already largely isolated from the world. President Bush had labeled them as an extension of the so called “Axis of Evil” (while the Axis of Evil formally included Iran, Iraq and North Korea, Syria has always been seen as something of a client of the Iranian regime) and they had minimal ties with the West to begin.

Another thing to keep in mind regarding Syria is the country lacks much of the oil wealth which Iran and Libya have enjoyed, producing just 0.5% of the world’s crude, thus making them less important on the world stage. All of this means that it’s not as crucial for the West to intervene in Syria as it was to intervene in Libya and now in Iran.

It may sound callous, but the fact is that as John Foster Dulles famously put it, ‘countries don’t have friends.’ They have interests. And when the interests of the West aren’t directly tied to Syria, there is more of the moral hand wringing and less of the direct intervention we saw when NATO forced the Qaddafi government to get out of Libya.

What This Means for Forex Markets

Now, while this all may mean that for now, there isn’t much of an impetus for NATO to get directly involved, it doesn’t mean that the aggression in Syria won’t affect the world markets. The unrest there is worrisome mostly because of the fear that it could spread to neighboring regimes where there are more Western interests. Thus, expect to see some movement on Forex markets if the fighting does begin to spill over into other Middle Eastern nations.

Saudi Arabia, though they don’t share a border with Syria is also a place which could see flare ups, especially if the Syrian people succeed in ousting their dictator. This might well move Saudis, who are also ruled by a minority, to rejoin the Arab Spring and work to overthrow their leaders. For now though, the long, drawn out and bloody battles in Libya and Syria seem to be have put the kibosh on these dreams, thus helping to lower the effects on the Forex markets.

Investment

The other area of concern is international investment and I think this is again not being affected so much by the Syrian regime as it is by the Iranians and their threats to close the Strait of Hormuz. If world oil prices have been climbing, it’s not because there is much concern about the 0.5% of world crude flowing from Syria.

Bottom Line

I don’t see Syria making much difference on the world stage as far as investing and Forex markets for the foreseeable future. On the other hand, if the regime decides to try a desperate gambit to stay in power, such as attacking Israel, this could lead to a regional flare up which could, in turn, lead to a dangerous spike in world Forex markets and put investments in the region in danger.

What do you think?

Colonel Qaddafi, branded the “mad dog of Libya” by former president Ronald Reagan, is dead. Defiant until the very end according to his aides, he kept up his delusions of returning to power and taking Libya back for his own family’s personal gain. And now that the fighting is done with, NATO is preparing to withdraw and the Libyans are busy planning their first free elections, the question that must be asked is this: how will this affect the rest of the world? Here’s what you need to know:

Why Libya Mattered to NATO

The first question to ask if we want to understand how this will affect the world’s economy is why Libya mattered to NATO to begin with. After all, Syrians are fighting a similar battle against their dictator, but to date the leaders of NATO seem to be mum on the subject except for a handful of watered down security council resolutions.

The official answer is that Libya’s revolution had gone further than the one in Syria, to the point of open civil war and that NATO forces were there on a humanitarian mission to protect civilians in the rebel areas. However, in back rooms it has also been whispered that the real reason for NATO involvement was that Libya has oil while Syria does not. This is important because of the fact that world oil prices had been trending upward in the wake of the revolt in that country and indeed in the wake of the Arab Spring.

Immediate Reaction: Prices Trend Downward

The immediate reaction to the news of Qaddafi’s demise in world oil markets was for prices to begin to fall. However, this was quickly corrected and prices came back up again within a day or two to over $100 a barrel. Forbes, in their coverage of the death of Qaddafi speculated that world oil markets had “rapidly discounted the effect of a return of 700,000 barrels of oil” to the market.

The thing is, Libya’s oil production was fairly minimal, even before the revolution, accounting for just 5% of OPEC output and 2% of overall world oil production. This means that realistically, even if Libya’s new government rapidly cranks up the pumps and gets back to pre-revolution numbers, it will have a fairly minimal affect on the world economy.

The Elephant in the Room: Saudi Arabia

To my mind however, the elephant in the room and the one that everyone has ignored in the wake of Qaddafi’s death is Saudi Arabia. The kingdom is the world’s second largest producer of crude oil (after Russia) and thus has a much greater influence on world markets than almost any other group. The reason I’m concerned about it is that on two days after Qaddafi was killed, the heir apparent to the Saudi throne died in New York.

Crown Prince Sultan bin Abdul-Aziz Al Saud was the next in line for the thrown and news reports say that his death is throwing the kingdom into a bit of a tizzy as calls for reform grow louder now that there is no clear chain of succession. In the wake of Qaddafi’s death, I imagine that such calls could grow even more stringent as revolutionaries looking for greater freedom are emboldened in the kingdom as well.

Back to Syria

All this is also to say nothing of Syria’s Bashar El Assad, who is seeing his control crumble and his people increasingly calling for him to join Qaddafi on the dead leader’s parade. However, in the case of Syria, because it shares a border with Israel, Assad, if he feels his government is imminent danger of collapse, may well decide to try to divert his people’s attention by provoking a war with that country, thus potentially sparking another Middle East conflagration, which could in turn further disrupt world oil markets.

Bottom Line

It’s still too early to make firm predictions about what Qaddafi’s death may mean for world oil markets, to say nothing of stocks and the Forex market (both of which are quite sensitive to oil price shocks). However, it is possible to say that predictions of sharp rises in the price of oil have both been given a boost and a reason to be deflated in the wake of the news. It all depends primarily on how the rest of the Middle East takes the news and whether the Arab Spring is galvanized by it, or crushed more ruthlessly than ever.

As an island, the United Kingdom stands apart from the rest of Europe physically, and there’s no question that over the course of time, its leaders have struggled to maintain this distinction economically as well, opting not to embrace the common currency, and instead to maintain the almighty Pound, once thought to be among the strongest global currencies.

Repeatedly plagued with problems (and with no resolutions on the horizon), the Euro is now garnering much international attention, as analysts wonder where the currency is headed, or whether adopting a unified currency was perhaps one of the most grievous mistakes of our generation.  Proponents of the Pound have taken the Euro’s failings as a validation of the detachment between the UK and the rest of Europe.  But with such close ties between Britain and her neighbors, one can’t help but wonder if the UK can truly be immune to the crises plaguing the Eurozone.

Like any infectious disease that can spread globally in mere days, fears of economic crisis are highly contagious, and it would be naïve to think that such contagion would be limited to the Eurozone.  In fact, one could argue (as I am about to do), that the most natural place for such fears to expand first are to the areas surrounding the troubled region, making the UK a prime candidate to receive the debt crisis.

There’s no doubt that if the Euro continues to fail, it will erode demand for British goods, which will have a direct impact on the country’s economy.  Likewise, the proposed Financial Transaction Tax which would impose fees on all financial transactions in Europe would increase costs for banking in the UK (as well as the rest of Europe), which would likely cause businesses to shift their banking to areas outside of the UK.

With global stock markets taking a significant hit in Q3, it’s no surprise that Fitch ratings agency has downgraded all of its projections for the coming quarter.    In the Eurozone specifically, forecasts now show near-zero quarterly growth expectations, a prediction will likely have a direct impact on the UK as well.

Although only time will tell exactly how deeply the UK economy will be affected by European debt crisis, I think it’s safe to say that there’s no way the Pound will be entirely immune from troubles, and anyone trading the GBP should keep a close eye on the trends in the weeks ahead.

Despite the show of support from France and Germany, Greece is still the center of a great deal of speculation over its potential debt default and continued membership in the eurozone. Undoubtedly, some difficult decisions lie in store for the country at the core of the sovereign debt crisis in Europe. World Bank chief Robert Zoellick has criticized the situation as a new economic danger zone. Speaking at George Washington University, he said, “Unless Europe, Japan, and the United States can also face up to responsibilities they will drag down not only themselves, but the global economy.” He also pointed out ironically that these were the same entities that had lectured China about responsibility as a global stakeholder only to find themselves in need of taking their own medicine.

The sharp message comes as a necessary reminder to developed nations to avoid complacency in the middle of a crisis. It may even seem to some that the crisis has reached its current level and been dragged on for so long mostly due to everyone in charge passing the buck. Where European countries are unable to agree on common roles and responsibilities, Japan has procrastinated with necessary economic and social reforms, and the United States remains locked in a power struggle between opposing political parties to delay cutting the deficit.

Referring specifically to these three, Zoellick noted “They have procrastinated for too long on taking the difficult decisions, narrowing what choices are now left to a painful few.” However, the future need not be a bleak one if the leaders of these nations can pull together and get the job done. Zoellick proposes adapting the concept of foreign aid to the creation of packages that provide targeted assistance in the growth and development of third world countries and the adoption of mutually beneficial trade policies rather than simply huge chunks of free handouts. Zoellick also champions the role of women in the future, acknowledging that half the world’s population could not reach their full potential if gender inequality prevails. These are just two valid ways in which deficits can be minimized and resources can be maximized. It remains to be seen whether the world’s superpowers are paying attention or will heed Zoellick’s warning that “with power comes responsibility.”

What do September 11^th have to do with Lehman Brothers and what does any of this have to do with global finance and European economy? Let’s take a quick look:

September 11^th and the American Response

I recently read an interesting op-ed in the New York Times where it was argued that President Bush missed a giant opportunity on the morning of September 12^th. It was suggested that the past decade has been a lost decade for the United States because President Bush didn’t rally the country to make the sacrifices needed to combat terror. Instead, he continued to cut taxes while borrowing heavily to pay for two wars and to create the massive Department of Homeland Security. Today, this editorial argued, we see the results of this fiscal policy, where the United States is mired in a recession.

Lehman Brothers

I mentioned Lehman Brothers in the title of this piece because the collapse of that bank is considered by many to have been the “Black Monday” of the current global financial crisis. It can be argued that had President Bush pushed for more austerity following the September 11^th attacks that the global financial crisis might have been averted since America wouldn’t have been awash in such easy money from cheap loans. However, hindsight is, as they say 20/20. Let’s take a look at the global economy today and see where things could go wrong.

A European Lehman Brothers?

Given the fragility of the Euro zone, there is a real possibility of there being another collapse on the scale of Lehman Brothers in the United States, only this time in Europe. Remember that the collapse of Lehman Brothers happened because of a panic, with people rushing to withdraw their money and selling off the stock to avoid being left holding the bag.

What the Europeans are Doing

There is a real effort afoot by the Euro Zone governments to avoid another Lehman Brothers as they all realize that such a collapse would be a disaster for Europe. To that end, bailout funds have been set up in an effort to avoid the possibility. However, ultimately what is really needed is structural reform of the European financial markets to ensure that these problems can’t crop up in the future.

What You Can Do

While I certainly don’t want to cause a panic, I’m thinking that selling short on some of the shakier European banks could be a good idea. Even if the Euro Zone governments race in to protect any failing bank (which I suspect they will do), the stock prices will still tank if a bailout is required and this could be a great way to make some decent returns on your money.

It’s also a good time to get into the Forex markets as there is potential for prices to jump as stock prices go down. We’ve already seen the US dollar steadily rising against several world currencies, including the Euro, with the dollar currently trading at 71 cents to the Euro, up from 67 cents back in May.  If trouble persists in Europe and the debt crisis isn’t quickly controlled, we’ll likely see the dollar – and other currencies – continue to gain momentum.

A Final Note about 9/11

My heartfelt sympathy to all those who lose loved ones on September 11^th. I was in New York City that day and remember it well. May we never again face such evil in our lifetimes.

Courtesy Reuters

Hurricane Irene pounded the American Eastern Seaboard this past week, though it’s hardly the only such unusual weather event to hit the country or indeed the whole planet recently. In fact, over the past couple of years, we’ve seen a vast increase in droughts in some areas along with floods in other areas.

Global Weirding

Some people call this phenomenon global warming, but I prefer a term I first saw mentioned by Thomas Friedman in the New York Times: Global Weirding. This is a much more accurate term because, as anyone from New York City can tell you, this past winter saw a number of record snow storms – not exactly what you expect from “global warming.”

I’m no scientist so I’ll just go over the most basic bits of knowledge I have of this phenomenon and then get to the good stuff – how to profit from it.

There are two basic theories regarding the global weirding phenomenon:

The Scientific Community Theory

The scientific community is convinced that it’s a result of the buildup of “greenhouse” gases, especially carbon monoxide in the atmosphere, which traps more heat on the planet and causes global temperatures to rise. That’s where the term global warming comes from.

However, just because the globe’s overall temperature is rising doesn’t mean that we’ll see sunny skies all over the planet. Weather is weird to begin with and this supposed rise in temperature is just making it weirder, thus the more accurate if whimsical term, global weirding.

The Conspiracy Community Theory

The second theory is from those who insist that global warming is a myth. This theory claims that the earth’s temperatures are cyclical and that they rise and fall every few hundred years. Under this theory, there is nothing to be concerned about regarding greenhouse gases since the earth will self correct after a while.

It Doesn’t Matter for Profit Making

The thing is, whether you believe the scientific community or you believe the conspiracy theorists is irrelevant when you’re trying to turn a profit in the short to medium term.  In both cases, global weirding can be a bonanza as far as making money from investments.

The fact is that even if you don’t believe a word of the scientific community’s theory regarding global weirding, it is still accepted by most governments around the world as fact. This means that buying into companies which feed the desire to combat global weirding could be a smart move in the short to near term.

Electric Car Batteries and Infrastructure

I’m especially excited about companies manufacturing batteries for electric cars since these companies are poised to make a killing over the next few years. Remember that even if global weirding is actually nothing more than a myth, it’s no myth that world oil prices are rising and continuing to rise. This means that there will be more and more demand for electric vehicles over the next few years, both from the environmentally conscious and from the cost conscious.

Another great investment in the face of global weirding is infrastructure companies such as Better Place, which is based in Israel. Better Place partnered with Renault of France to create an interchangeable battery powered car. The idea is to set up a series of changing stations where people could drive in with a nearly empty batter and drive out a few minutes later with a fully charged battery. This way, they avoid the problem of charging an electric vehicle for 8 hours or more. Better Place has already locked up exclusive rights for the technology in Israel and is negotiating for deals in other countries, including Australia.

Alternative Energy and Alternative Currencies

I’m a little less excited about alternative energy companies as an investment, mostly because wind and solar power are somewhat tricky to turn a profit from. On the other hand, governments seem to be continuing to invest in these technologies, in spite of the ongoing global financial crisis and as such, I’d cautiously recommend some alternative energy stocks as a way to make money in the face of global weirding as well.

Lastly, it might be worth watching the currencies of regions that are prone to natural disasters or extreme weather patterns, either to capitalize on the devastation or to be prepared with alternative currencies to trade in case the countries whose currencies you trade are hit with disaster.  Though we can’t usually predict hurricanes or tsunamis in the long forecast, there’s no question that certain regions are inclined to suffer the wrath of nature, and that these events can trigger volatility in the currency markets.  If you familiarize yourself with the patterns resulting from natural disasters, you may be able to trade successfully when the next one strikes…wherever that might be.

The Arab Spring has turned into a blazing hot summer where, as I write this, Libyan rebels are finishing up taking control of their capital city and Egypt is in the throes of convulsions following the start of Mubarak’s trial and the recent terror attacks emanating from the Egyptian Sinai.

Meanwhile, in Great Britain, gangs of mostly disaffected youths have recently rioted in the streets, demanding exactly nothing. In the United States, the world’s largest economy was nearly brought to its knees by political gridlock between a Democratic President and a Republican controlled House of Representatives. In short, it seems as if the world is convulsing and the economy along with it.

This Isn’t Doomsday

The first thing to realize is that even with all the unrest we see in the world, things are very likely to turn around. The chances that this down economy will last for decades (or centuries) are extremely slight, so much so in fact that it’s really not worth discussing doomsday possibilities (in spite of what some far left and far right nuts like to spout off about the end being nigh). Therefore, even though things may look bleak right now, it’s important to keep a positive long term outlook.

Buy Value

If you want to make money in this economy, at least in the long term, I suggest looking for value. In other words, rather than chasing trends (for example, gold, just tanked after rising steadily for weeks), I suggest that you take advantage of the unrest to look for things with real value which are currently selling at bargain basement prices.

As an example, consider staple or brand name companies in struggling economies. For example, the Greek Coca Cola distributor may well be a good deal right now since all Greek stocks are down. However, the odds that Coca Cola in Greece will simply disappear completely are slim to none.

Another good example would be to carefully track the worth of Apple (AAPL), in light of the resignation of CEO Steve Jobs, the recognized powerhouse behind this powerhouse company. While the company’s stocks may still be trading at over $300 per share, this may be the right time to look at AAPL as a binary option, offered by companies like 24option and StockPair.

Bottom Line

Yes, the world is a scary place right now with a handful of doomsday theorists saying that the recent riots and the advent of the Arab Spring signify that a permanent global shock is underway. However, I see no reason to think that these problems are any different than those we have seen in the past or will see in the future. So save money and buy value. That’s the way to make money even in the face of global unrest.

Photo credits: Getty Images

The concept that war stimulates the economy has long been disproven, but a look at international headlines indicates that many people still haven’t gotten that memo.  In recent days, rioters worldwide have taken to the streets to protest the economic crises that have send stock markets plummeting, job markets reeling and Forex markets into a tailspin of volatility.  Although it has yet to be seen whether these riots will have any palpable effect on the economies which they seek to improve, it stands to reason that such discord will serve only to aggravate an already unstable situation instead of ameliorating it.

Israel regularly makes the news for its discord with its neighboring countries, but seldom does it grace the news because of internal friction and economically-driven protests.  And yet, demonstrations on the streets of Tel Aviv and other Israeli cities have united over 50,000 people with a singular goal – to protest the rising housing costs in the region.  Protesters are also asking for higher minimum wages and free education from the age of three months.  In May, thousands of rioters took to the streets in the Philippines to complain about their wages in comparison to higher gas and oil prices and rising inflation in the region.

And, while higher wages are always critical, job creation is on the minds of other protesters, including those in the PIIGS countries.  In Spain, for example, unemployment has reached a shocking 21%, and government cutbacks and austerity measures show give little hope about increased job creation in the near future.  Analysts have also begun speculating that recent riots in London and other English towns have also been fueled by regional financial disruptions.

Although it’s too early to tell whether recent riots will have any impact on national economies, historical evidence points to the fact that riots may, in fact, cause more harm than good.  A study published by the National Bureau of Economic Research found that as a result of the 1960s rioting in Los Angeles to improve the salaries of African Americans, a negative spiral actually ensued.  More recently, riots in Egypt in January 2011 caused more harm than good, as oil prices were affected following revolts against the economic and political policies of President Mubarak.  Finally, riots in England in recent days have caused significant financial damage to small business owners, who may be forced to close their doors or declare bankruptcy, damaging the economy even further.

The global economy may not look too sunny right now, but there’s no question that political discord will not solve the problems any time in the near future.  We haven’t seen sufficient economic stimulus in the US since the war in Afghanistan began, nor have we seen any local riots yield dramatic economic upswings.  So, instead of being angry about the global economic crisis, why not spend our energies searching for ways we can profit from the volatility, if not in immediately, then in the long run?

Global speculation about whether the US would default on its loans ended today as President Obama signed a debt-limit compromise plan which will raise the nation’s debt ceiling until 2013 and reduce spending by over $2 trillion during the next 10 years.  On the heels of this compromise, the respected rating companies Moody’s and Fitch Ratings both decided to keep the country’s debt rating at AAA, though both ratings agencies retained a negative outlook on the rating which could spell trouble for the US in the next 12-18 months if things don’t improve quickly.  It has yet to be seen whether the third global ratings agency, the S&P, will maintain the highest ratings for the US or will downgrade the country’s ratings.

Although the US markets were already closed by the time Moody’s announced its decision, the Dollar fell to an all-time low after Fitch’s announcement, though it did hold steady against the Euro.  US stocks also plummeted, falling 2.6 percent and erasing all of its gains for the year.  This loss followed seven consecutive days of losses which were likely the result of a decline in consumer confidence before today’s vote.  It also created the longest losing streak in the US stock market since Q3 2008.

There’s no question that although the US debt crisis averted a debt default in the immediate, the crisis is far from over.  Not only does the bill threaten to slow economic growth in the country, but it promises only minimal debt reductions, which won’t likely provide the long term economic reinforcements that the country so desperately needs.

Although the upcoming non-farm payroll report is likely to show a slight improvement as compared to last unemployment figures, analysts are predicting that this development may be short lived as the new bill slowly takes effect.

The Frank-Dodd Wall Street Reform and Consumer Protection Act was passed by Congress nearly a year ago, but the repercussions of this act will be felt more palpably in the coming days, when Forex brokers that are not regulated by the CFTC permanently close their doors to US Forex traders.  A handful of brokers have already begun turning away US traders, and all others will be required to do so by July 15^th, 2011.

The goal of the bill was to protect American investors, as a direct response to the financial maelstrom resulting from the recession that has been plaguing the country since the early part of the millennium.  The part that pertains to the Forex industry stipulates that only brokers that are regulated by the NFA and CFTC can serve US traders.  Traders who fail to close their accounts before July 15^th will have their positions closed automatically.  Some brokers, such as TadawulFX will be closed by July 8^th, and other brokers may close their US accounts earlier at their discretion.  Not surprisingly, traders who wish to withdraw their funds must request the withdrawal with the same method they used to deposit.  We recommend that this request be made as soon as possible, as many brokers are already struggling to deal with the inundation of requests.

Brokers that are set to close their doors to US traders on July 15^th include Dukascopy, ACMarkets and MIG.  Other international Forex brokers including InstaForex (InstaTrade), FXOpen, and the now-defunct GIGFX, among others have been sued by the CFTC in Federal District Courts in New York, Chicago, Kansas City and the District of Columbia.  Defendants are accused of operating without an American license and soliciting traders illegally.  Most of the defendants are also accused of taking the other side of a trader’s position without being registered.

Forex brokers regulated by the CFTC are required to adhere to a stringent list of guidelines that aren’t imposed upon brokers in most other countries.  Among the guidelines for CFTC regulated brokers:

• Maximum leverage of 50:1
• Rigorous record-keeping in accordance with specific reporting requirements
• Maintenance of net capital of $20 million plus 5 percent of the amount, if any, by which liabilities to retail Forex customers exceed $10 million

US traders who are currently trading with an international Forex brokerage are encouraged to find a new broker immediately.