Multi Currency Advice – Beware


Multi currency advice can be dangerous these days because, as expected, Chicken Little and the doom and gloom gang are having a field day with dire predictions created by rising oil prices and the real estate crash.

 

For example Pravda, the Russian news Agency wrote:

 

“A forecast made by Denmark-based Saxo Bank, says chaos will take a grip on the world in 2008. Oil prices will skyrocket to 175 dollars per barrel, the Chinese market will collapse by 40 percent, whereas the U.S. will suffer a 25-percent setback. All this will happen because of the mortgage crisis in the USA which already slows down the U.S. economy. 

“High oil prices can bring only good to Russia , though. On the other hand, even if the above-mentioned forecast comes true, Russia will face serious problems in its economy too. It is worthy of note that the majority of Saxo Bank’s previous forecasts for 2007 have proved to be true to fact.   On New Year’s Eve most people recollect the outgoing year and hope for the best. However, Saxo Bank experts seem to be an exception from this nice tradition. David Karsbol, the head of market strategy for the bank, said that the forecast had not been made to intimidate people. ‘It gives a reason to think about the future of the market,’ he said.

“Saxo Bank experts believe that oil prices will hit the level of 175 dollars per barrel in 2008, whereas grain prices will double. The U.S. and the Chinese markets will collapse by 25 and 40 percent respectively by the end of the summer of 2008. Every third of ten U.S. large building companies will go bankrupt. The British economy will also start declining. The bank has its forecast on the new U.S. president too.

“The bank predicts that Ron Paul, the Texan Republican, will take the office in 2008.”

Saxo could be correct. However, it is worth noting that the other headlines in this Pravda page were:

“Top 5 warning signs in US economy”   

“Woman gets rich after being boiled alive “  

“Syphilis makes grand return to Europe ”

Here is the point.  Lots of people…will use the bad economic news…to create fear that helps their own hidden agenda.

In the case above look at the sources…Pravda online?  Pravda the Official News Agency of the Soviet Union was shut in 1991 by Boris Yeltsin.  Some of the former staff started two publications a Pravda newspaper and Pravda Online.

The official website of Pravda Online says:  “In spite of the fact that the journalists of both these publications are still in touch with each other, we have different conceptions about news about Russia and the world. The newspaper Pravda analyzes events from the point of view of the Party’s interests, whereas PRAVDA On-line takes a pro-Russian approach to forming its policy.”

Saxo according to Wikepedia, is tiny, privately held company that has only been a full bank for five years. This company offers very high risk, really highly leveraged currency and commodity trading services (extremely different from our multi currency concept). 

An employee of Saxo told a friend that Saxo’s management recently celebrated a record day with champagne! The reason for the record day was huge losses that forced clients to liquidate their positions!  According to the Danish Media this bank has such an aggressive employee culture they release/sack 10% of the workforce every year due to “poor” performance.  Such a strong sales culture can reduce consideration for  clients. 

 

The firm does have a banking license which means something good and  they offer very low trading costs. This however means that the bank needs turnover and we are told that they are renowned for pushing trades.

 

The newly appointed press officer of Saxo used to work for the Danish television and he was in Russia for many years which may be why they are quoted by Pravda.

The long winded point I am making is that during times of turmoil be extra careful of the sources of information you follow. Many will try to take extra advantage of you by creating undo fear.

I also wanted to be sure every reader realizes how different the Danish Jyske Bank is from Saxo.  Jyske huge, global and with roots that go back for over 100 years…publicly owned by hundreds of thousands of shareholders.   Versus Saxo…private two main shareholders …licensed for five years.  Jyske pays all their staff a flat salary they receive no bonus for making more money for the bank.  There is no temptation for employees to churn client accounts.

Now let’s look at some opposing view to Pravda and Saxo.

We looked last week at Jyske Bank’s opinion of the US market when they wrote:

 

“We raise US equities to overweight. The dollar has weakened markedly in recent quarters, and as a minimum we expect stabilization in the coming months. During periods with rising uncertainty and lower growth, the equity markets need considerable flexibility in the monetary policy. Although it is not our fundamental view that the US economy will be in recession, we trust that if this were to happen the Fed has shown during periods with negative growth that real interest rates close to zero or even in negative territory are not unusual. This will be a supportive factor.”

 

The economic reality of the past 100 years through economic times of thick and thin, is increased growth, wealth and prosperity.  Those who have counted on this and bought during the down times have gained huge profits.  Those how run in fear every time markets rebalance themselves after periods of excess lose.

 

Let’s take another look at an opposing view to Saxo.

 

Warren Buffet recently paid 4.5 billion dollars to buy about 60% of the Marmon Group, a conglomerate owning 125 mainly American companies 125 names that has $7 billion a year in annual revenue and about 21,500 employees.

 

Here is a quote from a December 26 2007 CNBC interview with Warren Buffet entitled “Bet on America “:

 

“Interviewer:  You know, Marmon’s got operations in China and Europe, but most of all it’s a U.S. company.  Is it fair to say that this is a bet on American industry?

 

Buffett:  Well, yeah, it’s very basic American industry.  It’s about as basic as it gets.  So, it’s, ah, it’s a bet, it’s a very large bet on America over a long period of time.”

 

This is the way to deal with downturns in the economy…find value and bet against the market.

 

Until next message, may nothing in your life be dire.

 

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