From the April 01, 2010 issue of Futures Magazine • Subscribe!

Why we need a global currency

BEHAVIOR AS AN INDICATOR
People tend to consume and spend in patterns which can be influenced. As people continue to spend, behavioral patterns are shaped by many factors, which in turn shape the markets that coincide with the products or services that correlate. For example, in America, technology markets are shaped by marketing and advertising. American consumers tend to consume according to the most frequent, most actively marketed products. This is true throughout most countries. People tend to go with the majority and try what is most prominently displayed in front of them at any given moment. This is often displayed prominently by watching which companies are the most voluminous and volatile in any given sector, on any given market. Comparing the similarities between these companies market-to-market strengthens the theory and its application to investment philosophy.
It is possible to find comparable theories of behavior, which correlate to consistent patterns exemplified in global financial markets, which can be translated into trading methods.

Relative to this effect, we can look for patterns that occur within the demographic of the consuming majority to find consistencies within sectors. Once we do this, we can see clearly where money is moving, and then understand where the power of our American dollar really lies and where the weaknesses are.

Comparing sectors across markets is an invaluable tool for managers because it allows us to see a broader spectrum of movement that is lost in the normal modes of day-to-day analysis. We can see movement of money on a global scale by comparing sectors to each other and diving into the most voluminous and volatile companies in those sectors, then cross-referencing them with other companies or commodities traded on other markets. This opens up an entirely new method of investing. Sector plays across markets can yield both short-term and long-term opportunities, which are often played out in the news and can be monitored for movement triggers by watching global developments.

The dollar is spread out all over the world. Our mortgages are mostly owned by the Middle East through money infused to save dying mortgage companies. Our real estate is mostly owned by China in the form of T-bills and bonds. Our labor is being outsourced. Our debt in general is held by other countries who have purchased it with the desire to be paid back with interest.

And right now, America is really cheap relative to everywhere else. And the world knows it, and so they are buying. When they’re buying, they’re buying in dollars. The currencies are being converted, so now when you have all of these different world currencies coming together and making claim to different aspects of our economy, you realize that the money that has been invested here in America is going to stay here. This is because of the fact that when the dollar does finally turn around, and it will, it will be advantageous to have the dollar, and converting it back to the native currency will have lost its luster because the strength of the dollar will make it more attractive to keep.

And like pouring cream into coffee, a world currency dilution will occur, one that will take other currencies off the table and more and more countries will accept the dollar again as their preferred currency. Have you been on a trip to Mexico in the last 30 years? You can pay for things in dollars down there because the dollar has more power than the peso. That same relationship will start to emerge in other countries around the world, and when it does, you better be ready.

These patterns, these decisions, these observations of human activity can all be incorporated into your trading and investment plan. That means investing in a diversified portfolio of equities that represent the sectors that are seeing the most money flow, as well as commodities that are seeing the most money flow.

By watching these patterns and identifying the major sectors that are seeing the most activity, forecasts can be made that resemble the direction that each of these markets is going to be taking. When these directions are played both individually and in a relational play between markets, investors can truly diversify their portfolios and make what likely will be larger profits than if investing or trading on a more micro level.

Along the path to the global currency, those who hold the dollar will continue to increase their wealth relative to the rest of the world, and the continual observation of and analysis of index futures is one of the best ways to take advantage of this.

Investors and money managers should pay close attention to markets and companies that have a prominent position in their sector; show a keen use of marketing and advertising­; have more cash than debt on their books; and have a presence in multiple international markets.

Yiorgo Aretos is the CEO and founder of The TMP Group LLC, a Commodity Trading Advisor. Contact him at yiorgo@theTMPProject.com, TwitterName: TMPDyno.

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