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An unlikely case study…what went wrong?

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An unlikely case study…what went wrong?

Post by Sean on Sat Oct 11, 2008 9:15 pm

Good Day Currency Traders! Very Happy

The Japanese and British stock markets fell nearly 10% last night, and U.S. markets are likely to end the day very badly yet again. The short side is about the only trade that has made money in recent weeks. Yet at the very least we'd expect the "dead-cat bounce" soon, a bear market rally...the kind that makes it difficult and dangerous to short the markets.

And if the markets actually bottom soon, short selling could just take your losses so far and multiply them. But there are a few new developing trends that seem to offer long-term trades with significant profit potential. The trends are the reversal and decline of the emerging economies amidst an undeniable global economic slowdown. The trades are against the currencies. Basketball

So far this week, we've looked at opportunities in Poland and the Czech Republic and seen how their weakening currencies have already given us gains of 960% and 1,010%. At the same time, by the way, the Hungarian Forint has generated two winning trades for us - one that we closed out for 360% and the other for 1,230%.

I say this not to brag. Right now, the currency markets are handing us some great trades. But we've taken some lumps in our time and no doubt will again.

The point is, I have never seen clearer tradable trends in the high-profit potential exotic currency markets as I do today. And those opportunities are not only in the emerging markets of central and eastern Europe...but all over the world.

Today, we're going to look at the single best trading opportunity for exotic currencies in Asia. We're going to see why the Thai baht is in trouble and could provide some very significant profits for savvy traders. bounce


Damaging Mix of Economic and Political Problems
Will Send Investors Running Out of Thailand

You know by now that emerging market currencies are like bodybuilders on steroids. When they get their fix of liquidity (capital flowing in) they are very powerful and outperform the major currency block by a wide margin. But if their source dries up, just like a junkie, they quickly loose strength and can crash and burn.

Among emerging Asian currencies, the Thai baht appears most exposed to global market conditions, most vulnerable to the crash-and-burn scenario. Keep in mind, Thailand was ground zero for the Asian Financial Crisis back in 1997-98. It has history. And history is bound to repeat itself!

As recession digs in across the developed world, demand is swooning. This trend is already being reflected in the price of commodities. Crude oil, specifically, has plunged like a refrigerator off a high-dive. And demand in the developed world is set to taper off even further.

Simply put: Sinking demand is very bad news for the emerging market world, especially Thailand where 70% of their gross domestic product flows from exports.

And if you're wondering what country is the largest single importer of Thai exports, look no further than the United States. It's safe to say Thailand is as tied into the global slowdown as anyone.

Estimates had been calling for export growth, in dollar terms, of 15-19% in 2009. But wait - scratch that. The Thai Chamber of Commerce now expects only single-digit export growth next year. Annual export growth collapsed from July to August, falling from 43.9% to 15.5%.

And that's just the beginning of the story for Thailand... Rolling Eyes


Instability Bringing Thailand to Its Knees

Until lately Thailand had been suffering from surging inflation and a central bank scared to take action. Annual price growth ran as fast as 9.2% in June.

But since global demand has self-destructed and crude oil prices have sunk considerably in recent months, the inflation rate in Thailand has eased to the 6% range.

Still, that's not so healthy. But the fact that core inflation is moving down towards more comfortable levels for the central bank means their focus is shifting towards maintaining growth. The impact of the global credit crisis on Thailand's economy remains to be seen. But it's no stretch to expect disappointing numbers once the dust settles on this global meltdown.

But falling growth will exacerbate already high political tensions, and vice versa.

Protests between supporters of the previously ousted government and its opponents have already prompted a State of Emergency. It has since been lifted, but the government can only hope the situation doesn't escalate again.

If government officials are preoccupied with the growing political crisis, then they will be distracted from mounting economic pressures. And oddly, mounting economic woes have a way of increasing political tensions because people naturally seek scapegoats for their problems.

Needless to say, the thought of yet another change of government is reason enough for foreign investors to flee Thailand. Mix it with a deteriorating export market and you're shaving at least a percentage point off of GDP, possibly more.

Can you say capital flight? We think it comes soon.

Our sole Thai baht trade has produced 220% gains in about 2 ½ months. We expect many more profitable trades on the baht and the crushing reality of a global recession weighs on the export-dependent currency like a boulder.

Monday, we'll be traveling south to the emerging-market of South Africa - but more specifically - we'll discuss the economic factors responsible for recently handing us an 890% gain on the rand.

But in the meantime...

Sean

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