Do you often feel that itch to check how the peso is doing? Are you dismayed every time the peso strengthens (thanks for the correction, Gretch!) further against the dollar, worried that your earnings in dollars are losing value?
The Implied Forward rate is very important for anyone wishing to take a position in the markets. By definition, all speculative views on the market are only profitable when the rates that occur are different than those implied. Therefore when looking to establish a position, it is important to compare your view with the Implied Forward. If it is the same, there is no opportunity to profit from your view. The difference between the current Spot rate and the Implied Forward is known as the amount "built in" to the market.Noet also says you should widen your horizon to beyond the US dollar. A lot of MoneySmarts readers are getting interested in the euro and I have seen the mutual fund industry react to that by offering euro funds. One of the things I learned from Noet’s article is to take advantage of the various financial instruments out there to preserve the value of your portfolio. Dependence on one or two types will not protect us from more financial crises – and you have to accept the fact that the world is not immune from them. The China bubble for example is already putting people at the edge of their seats. This article brought back memories for me. At the time of the crisis, it felt like the end of the world as we knew it. And yet, look at us, 10 years from now. We are wiser and more cautious, but more hopeful. Good virtues that would help us deal with the next crisis.
salve:
There's an opportunity in every crisis. The '97 crisis was an opportunity to buy cheap real estate and cheap stocks. You buy low and sell high. Right? I don't know why many people want to buy when prices are at record high. Don't try to avoid loss by hedging. Strive to win by being one step ahead of the pack.
"Winning is the best. Losing is okay too. The worst thing you can do is to hedge. To hedge is to fail." - Andy Grove (Only the Paranoid Survive)
"Unless you're a short seller or a poet looking for a wealthy spouse, it never pays to be pessimistic." - Peter Lynch (Beating the Street)
check that. has to be "off with a 'no'" rather...
I really feel the word "falls" in the second sentence should have been GAINS or APPRECIATES. Strenghten in value is more like it but definitely NOT "falls." It is very clear from the 3rd sentence that the "you" is being paid in US$
WHY would an OFW like me feel worried that my earnings in US$ are losing value if the PESO falls further against the green bucks?? Rather, I would be rejoicing instead of feeling so MUCH dismay had the peso been falling further/ WEAKENING against the dollar.
It's extremely PAINFUL to describe in words how sickening this feeling of seeing the peso gain in value the past 32 months. It is STILL very fresh in my memory that my family received 5,615 for every US$100 they parted w/ the money changer as recent as NOV 2004. Those 5,615 pesos could purchase a lot more than 4,520 pesos, yesterday's prevailing exchange RATE
@pinoyinvestor:I don’t know why many people want to buy when prices are at record high.
Many people would buy high and sell higher, or would buy low and sell lower. It is impossible to predict the lowest of the low, or the highest of the high, IMO.
Opps, just a correction. The above should read: Many people (if your long) would buy high and sell higher; and (if your short) sell low and sell lower. This is because it is impossible to predict the lowest of the low, or the highest of the high, IMO.
what happened to my comment?
Gretchen,
I am not an OFW but my dad used to be one, and I want to say that I feel sorry you and your family. But I want you to realize that in every facet of the economy there is a trade-off, and the topic at hand is no exception. I can say this government is having a hard time resolving this issue.
if the peso appreciates...
less costs on oil importation (cheaper oil price)
less interest payments to NG external debt (more budget for social services)
importers happy (more products on less dollars)
OFWs hurt (less value for dollars)
exports hurt (price of exports become less competitive)
if the peso depreciates...
costly oil importation (higher oil price)
more interest payments to NG external debt (less budget for social services)
importers hurt (less products on dollars)
OFWs happy (more value for dollars)
exports happy (price of exports become more competitive)
This dollar phenomenon is not confined here in the Phils. Other asian countries are also experiencing appreciation in their currencies. This is not our fault, but of the US. Their economy is slowing down, and as an effect their currency will also weaken.
@qcol: Nobody can predict the lowest low or the highest high. But the best investors buy at lower low or sell at higher high than the rest. Reminds me of an anecdote from my favorite investor, Carl Icahn.
When Trump's distressed bond went down to 25 cents to a dollar, I started buying. My friend keeps yelling at me: you're crazy Carl! It's gonna blow up! you're gonna lose your shirt! I said c'mon Donald spend $1 billion in this new building. The value is there. I bought all the bonds I could get my hands on. I'm the only one buying in the market. After the bond went up from 25 to 96 cents, this same guy calls me: hey Carl, can I buy some of your bonds at 96? They're great, they're gonna go up to a dollar!
That's the herd mentality. Always too little too late. :-)
pinoy investor, buying low and selling high requires an intimate knowledge of the markets -- whether you are talking of the real estate markets, the stock markets, the foreign exchange markets, or the commodities markets. Its a good strategy and one that's actually very simple to understand. My take is that only the really disciplined can pull this off. Therefore, if one is serious about investing well, there is a need to understand what it will take to successfuly use this strategy.
Why? Unloading something that is performing spectalarly is naturally painful and goes against human nature. Buying something that's not sexy in terms of returns reminds me of Noah building the ark when it was sunny and the sky was clear. But, really, thats how one can maximize returns. Some pick up on the herd mentality early on the game and benefit, but not as well as those who start getting the herd excited about something.
qwerty, sorry, i must have deleted your comment inadvertently along with those who were profaning about francswiss! Would you mind sending them again?
PBF, Gretchen, gcol -- i hope you are reading the newer posts on the implied forward rates. As I said in my comments on that thread: there ARE tools so that we don't always get adversely affected by the spot forex rates. Cheers!
Thanks Salve. I was just making a point to Gretchen that external factors should also be looked up to see the peso appreciation phenomenon. And as you said in your latest post, the gov't might end-up losing precious resources in trying to defend our currency. Thanks for discussing the tools so that we don’t always get adversely affected by the spot forex rates.
salve:
The best investors like Buffett and Icahn don't time the market. They don't care if it's bear or bull. They do asset plays. They just buy good and undervalued assets, then sell at the right price.
The herd doesn't understand asset plays. They trade emotionally - buy when everybody's buying, sell when everybody's selling. In Icahn's anecdote, it wasn't great market timing. He just knew the asset is much more than 25 cents to a dollar. It crashed because the herd panicked.
Timing the market is a poor way to make money. It's better to do asset plays.
@salve: the francswiss stuff turned that ugly huh? regarding the comment anyway, no big deal really. :)
as i said i encountered a lot of material regarding asian economies a decade after the asian fiscal crisis as early as late last year and a lot of them mentioning government intervention somewhat conflicts with the idea of going against it. commonly mentioned in this regard is China.
take for instance Prof. Walden Bello's Globalization in Retreat posted in the Inquirer, (or was it still Inq7 then?) early this year. in it he writes:
am i missing something here? i know the piece comes from an international economics and political perspective with globalization primarily in focus so i might as well ask what it means from a personal finance perspective when governments don't intervene in the market.
yey!!! blockquotes do work in comments here!!!
@querty,
"what it means from a personal finance perspective when governments don’t intervene in the market."
it simply means that your investment choices and decisions will only be affected by market forces. Example, If your investment is in dollar and the government didn't intervene with our exchange rate then it is your choice to stay in dollar or shift to pesos.
can anybody please explain why should anyone be happy when the peso gains against the dollar when prices of commodities are still going up instead of the going down? Isn't that kindda weird?
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