Friday, 13 January 2012

What 2012 Will Bring

2011 left us with many lessons, namely, currency can be deadly.
The simplest hedges against the declining dollar and the US federal reserves monetary policy has been caught in trouble. Causing the loss of billions of dollars and upsetting even the more respected bankers on Wall Street.
One of the best performing currencies of 2010, the Brazilian real lost ground sharply.
The Euro zone was left in uproar as the countries managing the crisis continue to find solutions to bail out the countries in great peril.
However, if you study 2011 you may be able to see opportunities which are being presented this year.
But firstly, lets look at which currencies should be religiously avoided.

Lets first start with the Euro. The strength of the Euro is such that if the crisis were confined to Greece and Portugal the currency would remain strong. The system is set up in a way to support struggling countries by the strength of greater countries. Unfortunately the crisis is much more widespread. Economic upturn has spread to Spain and Italy, both of which are far to large for the Euro zone to bail out. This leaves the Euro zone in a precarious position.
In the same way that it is set up to secure the financial future of smaller economies, the suffering is also spread through the larger economies. Many economists are predicting that the Euro zone will have no choice but to fall apart, securing the economies of the strong economies by separating them from the weak ones. If this happens the Euro value will drop as it gets fazed out.
The Euro zone destruction may create opportunities, but more about that latter.

The Japanese Yen has been an excellent performer over the last few years. Since 2007 it has risen in value by 50% US dollar and despite the disasters of 2011 rose 6% over the year. However, Japan relies heavily on exports and at this high value exports are suffering. The Government is likely to take actions to reduce the value to encourage the market. The Government is also suffering from a debt of over 200% GDP which is become seriously worrying.
The Yen may still rise and there might still be money to be made, however, anyone thinking of investing should be very careful. The yen should be treated as unsafe.

The British Pound may also face trouble. The British Government has a deficit as large as Americas and the economy is quite reliant on the financial services.
The Bank of England has announced a quantitative easing program equal to the $2trillion program of the united states.
The Pound will be effected by the American economy, if the US comes into more trouble so will the Pound.
That said there is some good news for the Pound, they have managed modest debt repayments which encourages confidence in its economy.

The Swiss Franc made a lot of ground during 2011 and looked set to continue into 2012 however, the Swiss government have made it clear that they intend to print money in order to ease its gain.

If you steer clear of these currencies you should remain relitivly safe.
That said I would encourage you to do research of your own, remember, economists aren't always right.