Has anyone looked at long term strategy of looking at just buying real growth/low money printing?

S

Saltynuts

I know that lots of factors can go into what makes the exchange price of various currencies go up or down. But, in my mind, if you can find a country that has better real growth, and less money supply increases (i.e. less inflationary pressure) over the long haul versus another currency the former will do better.

Anyone have any studies or thoughts on this? And what are the best sources for long-term REAL growth and increases in money supplies of the various countries?

Thanks!!!
 
Saltynuts said:
I know that lots of factors can go into what makes the exchange price of various currencies go up or down. But, in my mind, if you can find a country that has better real growth, and less money supply increases (i.e. less inflationary pressure) over the long haul versus another currency the former will do better.

Anyone have any studies or thoughts on this? And what are the best sources for long-term REAL growth and increases in money supplies of the various countries?

Thanks!!!
More...
One place to start thinking about this is to look at relative interest rates. The relative interest rates of two currencies is the sole factor determining the forward/futures price of that currency pair. And while JPY was the exception that proved the rule, in general currencies respond over the longer term to interest rate differentials. Which then leads you to study the mechanisms and pressures on interest rates in a given country relative to other countries. A good macro econ MOOC will cover the basics of this. I also took a very good foreign exchange class in my MBA program that went into further details focusing on forex so I know those classes exist although its somewhat obscure so I'm not sure if there are any MOOCs. Just make sure you're taking a real grad level class, not someone trying to sell forex trading systems.
 
Equities in poor countries underperform despite high GDP growth due to high corruption and stupidity. Plus almost all poor countries have very inflationary fiat currencies.
 
I think, we should need to work on long term strategies rather than short term. This will definitely helps us in future to gain profit.
 
Sig said:
One place to start thinking about this is to look at relative interest rates. The relative interest rates of two currencies is the sole factor determining the forward/futures price of that currency pair. And while JPY was the exception that proved the rule, in general currencies respond over the longer term to interest rate differentials. Which then leads you to study the mechanisms and pressures on interest rates in a given country relative to other countries. A good macro econ MOOC will cover the basics of this. I also took a very good foreign exchange class in my MBA program that went into further details focusing on forex so I know those classes exist although its somewhat obscure so I'm not sure if there are any MOOCs. Just make sure you're taking a real grad level class, not someone trying to sell forex trading systems.
More...


Are you sure about that "The relative interest rates of two currencies is the sole factor determining the forward/futures price of that currency pair" statement Sig? I know little about FX, but that sounds very wrong to me - can't things like inflation, international travel, etc. etc. play a roll?

Take inflation. Country A has an interest rate of 3%, Country B has an interest rate of 5%. Without more you'd say B's currency should go up over time vis a vis Country As currency. But what in the inflation rate in country A is 2% a year and the inflation rate in Country B is 30% a year? No WAY does the B currency appreciate against the A currency over time despite the higher interest rate, the reverse would occur over the long haul.

Take Mexico and U.S. for example. I suspect Mexico has had a higher interest rate generally. But long term the dollar has been appreciating against the peso for decades. I suspect Mexico printing more money is a big part of it.

Thanks!!!
 
Saltynuts said:
Are you sure about that "The relative interest rates of two currencies is the sole factor determining the forward/futures price of that currency pair" statement Sig? I know little about FX, but that sounds very wrong to me - can't things like inflation, international travel, etc. etc. play a roll?

Take inflation. Country A has an interest rate of 3%, Country B has an interest rate of 5%. Without more you'd say B's currency should go up over time vis a vis Country As currency. But what in the inflation rate in country A is 2% a year and the inflation rate in Country B is 30% a year? No WAY does the B currency appreciate against the A currency over time despite the higher interest rate, the reverse would occur over the long haul.

Take Mexico and U.S. for example. I suspect Mexico has had a higher interest rate generally. But long term the dollar has been appreciating against the peso for decades. I suspect Mexico printing more money is a big part of it.

Thanks!!!
More...
Yeah, it's a fundamental aspect of forex forwards and futures markets. Futures are purely mechanically priced based on current spot and the relative interest rates of the two countries. It's a no arbitrage situation, if that wasn't the case you could set up a risk free arb by selling in one currency and investing the cash in an interest bearing account in the other while simultaneously entering the opposite futures position. As always there have been minor exceptions to this rule, usually when there are controls on currency exchange in one of the currencies, but certainly futures in forex have nothing to do with anticipated future demand.

Intuitively you've got it right, the higher interest rate currency will always be priced lower vs a lower rate currency in the futures market. Take a look at what MEX futures are trading at in the June futures vs today and if you apply the formula you'll see it's less than today by pretty much exactly as the formula predicts.

You're a smart guy and you probably could recreate the wheel around all this. But why not just capture the distilled learning of humankind on it from a 3 month free class and then use your mental energy to find inefficiencies and market breakdowns you can exploit?
 
Oh wow I see now Sig, at least I think. Since I've never traded currencies, I always forget that they are futures based. In my mind I'm always thinking, for example, if the U.S. is printing money like a drunken sailor, and the Swiss are being monetarily very responsible, low monetary growth rate, low inflation, etc., but still having good growth, then go long versus the U.S. dollar. But I think essentially what you are saying is that (and other things like the difference in interest rates) will already be priced into the futures markets, so you can't look at it that simplistically, you have to find some UNEXPECTED things, or in the alternative as you put it, inefficiencies, to really make a buck.

So, but putting currency trading aside, if I think the Swiss Frank is going to appreciate versus the dollar, could I not just go through my broker and buy Swiss equities on one or more Swiss exchanges? Isn't that converting my dollars into Swiss Franks, which if the Swiss Frank does appreciate versus the dollar will mean I have more $$$ (in addition/subtraction to any appreciation/depreciation in my Swiss equities) when I sell those Swiss equities and pull my money back into U.S. dollars?

On a broader scale, what if you go look at all the global currency futures markets. Find the currencies, based on the futures prices, that are expected to appreciate versus the dollar. Buy equities on those exchanges. If the market is right, and I highly suspect it is a majority of the time, you will on average get that uptick in the appreciation of those other currencies versus the base dollar currency, plus probably a decent expected average returns on the equities given that the economies of those countries will probably be pretty good/not too bad if their currencies are expected to appreciate versus the dollar.

Thoughts?

Thanks Sig!!!
 
Another newb question Sig. So do I understand these prices correctly?

https://www.barchart.com/futures/quotes/S6*0/futures-prices

1 Swiss Frank now gets 1.11 dollars, but at the end of 2025 it is forecasted to get 1.18 dollars more/less. So it is forecasted to increase in value versus the dollar. Just as I suspected haha!

By contrast:

https://www.barchart.com/futures/quotes/M6*0/futures-prices


For Mexican Pesos today they get .049 dollars and at the end of June 2020 they are projected to get .047 dollars. So a big knock against buying Mexican equities on the Mexican stock market.


That sound about right?

Thanks!!!
 
You must log in or register to reply here.
Back
Top