The Value Of Money
There was a time you knew the value of your money.
That time may come again.
Commodity and currency
markets bob and weave on the futures exchanges in a
mixture of prize fighting and dance.
Currencies no longer have
any backing, except for a politicians promise.
Perception now determines
an individual currency's value as it floats or sinks
on the foreign exchange (forex, or FX) markets
against other measures of value.
If you have been watching
this forex futures dance for a while, you have realized
there is no continuing, rational valuation of FX.
What information everyone
values this week may be totally different than the topics
they discussed last week. In truth this weeks data may
be opposite of last weeks, and still effect the markets
the same direction. Excuses developed after the fact
are used to explain futures market action, not reasons.
The Kitchen is 70 degrees
Fahrenheit, the stove above 200 degrees, the kettle
of water boiling furiously between those temperatures.
If the stove is turned off, all will eventually reach
thermal equilibrium.
There is no equilibrium
in markets. If it was just normal rise and fall of economic
activity there would be shallow booms and busts, but
the trend would continue on a steady upward march.
Governments try to control
small booms and busts, making them larger and highly
unpredictable. Dozens of governments, each with their
own agenda, play with relationships of commodities and
currencies. It is like turning the stove to HIGH; the
water will boil furiously, and much will vanish as steam.
The prices of cash and
things will move quickly. It becomes difficult to determine
real relationships - if they exist at all. We all are
speculators in forex, the money we use for exchange
varies in value daily.
Right now governments
around the world are creating inflation, they are printing
money. More money means cash has less value, prices
of things therefore increase. Along with overworked
printing presses lending constraints have loosened,
putting ever more money into the system.
Inflation is a hidden
tax - governments spend money they don't have - and
pay the debts incurred with freshly minted cash. All
existing money is devalued by the dilution. Forex is
in essence an exchange of politicians promises. Inflating
money exchanged for other inflating money - true water
vapor, steam from the kettle.
There is a finite amount
of water in the kettle. At some point the water will
have evaporated, the pot will melt or start a fire.
To those of us in the real world of money - government
interventions will have created deflation or hyperinflation.
Perception becomes the
key to future forex values.
If you want to find a
way to judge future perceptions, technical financial
analysis claims to have the insight needed. The claim
is that past action reflects past psychology and perceptions,
and hence is a clue to the future. In practice it is
easier to look at the past and explain it than to look
at the future and decipher it.
If you are interested
in technical analysis, check out Robert Prechter's books,
especially Socionomics.
If nothing else you will learn a new way of considering
both past and future - and you will have enjoyed the
read. You may also enjoy History's
Hidden Engine, a documentary by an award winning
director on socionomic concepts.
In the meantime do not
pay too much attention to trader talk or news reports.
Analysts tend to view events, and then imagine a cause
for these events - a cause that will require you to
change investments - creating commissions.
Forex markets offer a
short term snapshot of currency values - but one that
has been manipulated by government players.
A better image of currency
and commodity markets is a lot of folks at a social
dance with a free buffet and open bar, waiting for the
last minute to rush the exits. - Did I mention the forex
building is on fire?
A Futures Market Speculation
Rule:
Fill your own pockets and leave
early.
It's ok to watch from a safe distance.
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