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The events of this past weekend were pretty monumental for the world currency industry (and the world in general). Up until Greece’s Sunday elections, animosity regarding the stability of the euro in the event of a Greek exit had been running rampant amongst investors.

Now, with the results finally established, they were able to enjoy a brief moment of revelry in the electoral success of the pro-bailout New Democracy party.

An Article in The New York Times provides a good outline of what potentially could have happened to the euro had the leftist Syriza party won. Vowing to repudiate the country’s bailout agreement with the “troika” of the European Union, the European Central Bank, and the International Monetary Fund, this move would have siphoned financing of Greek banks. In turn, this would have rendered them unable to continue operating and eventually drop the euro and revert back to the drachma.

But alas, this was not the case, and so being within hours of the election, investors applauded the win by reorienting the falling euro in a much-needed upward direction. Unfortunately, the vivacity didn’t carry into Monday market action. The euro fell flat once again as concerns regarding Spain’s astronomic bond yields crept back into investor’s psyches. With interest rates having breeched the 7 percent mark, these loans are being viewed as unsustainable.

But amongst the angst, some positivity prevails arriving in the form of Asian market success. Emerging Asian currencies gained as a result of investor’s newfound comfort in the pro-bailout results, enthusing them to add a few riskier assets. Overall, Asian markets experienced widespread lifts with the Japanese Nikkei index prevailing with a rise of almost 2 percent.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

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Today’s roster of top tier bulge banks holds some of the most colossal and well-known institutions in finance. JPMorgan Chase & Co., Deutsche Bank, Citigroup Inc., Morgan Stanley and Goldman Sachs; a few names that everyone’s heard, and almost everyone has an opinion about (usually in regards to their size). Of late, JPMorgan and Morgan Stanley have been receiving the majority of media flack with the whole $2B trade loss and Facebook equity underwriting investigation.

Though one bank has been doing a very good job at laying low for the past few months, and it wasn’t long ago that Goldman Sachs could hardly keep itself out of the news for more than five minutes. So one must wonder now, without the media blowing them up left and right, what has this large investment bank been up to?

A CNBC article answered this question by revealing that the bank has been doing a good job of being well, not so large. This fall, the firm is said to name less than 100 new partners; a group of higher ups at the firm that’s shrinking steadily. After scrupulous vetting of these potential hires, the selected few are compensated handsomely (senior partner and CEO Blankfein pulled in an annual salary of $12 million in 2011) while gaining access to prestigious jobs at the firm. This alone would make one question why over the past year Goldman has seen a steady exodus of those employees fortunate enough to hold partner positions at the bank.

After reducing its total employee count by about 8 percent in the last year, as well as laying off about 50 last week, it’s clear that something is amiss with the firms growth pattern. As Goldman deflates as a whole in size, the heft of its partnership base usually lessens in congruence.

So where is this drastic size reduction coming from? Greece.

A few weeks ago, I wrote a post about how a potential Greek euro exit would likely affect the US. One of the main concerns was that it could set in motion a widespread panic amongst investors, who would then impulsively retract their allocated capital. Today, a Bloomberg article showed evidence of this theory starting to make its presence known.

The piece provided insight about how European turmoil is directly correlated to success amongst the investment banking industry. More specifically, the article looks at Greece and their potential abandonment of the euro for a return back to the drachma.

A Goldman analyst showed last week that for a third year straight, revenue from investment banking and trading is in danger of dropping at least 30 percent from the first quarter. The deadly combination of deal volume slowing, wider credit spreads, heightened volatility, and equity and credit markets falling, can all be traced back to fears of a Greek euro exit, followed by the spread of the European sovereign-debt crisis. These ingredients are the direct result of investors putting themselves into a defensive monetary state over the aforementioned euro woes.

This tension is taking its toll on the paychecks of investment bank employees, as 11 analysts reduced earnings estimates for the New York based Goldman Sachs in the past four weeks. The question now is whether these declines are cyclical, or indicative of a general phasing out of the investment banking industry. Boston Consulting Group, Inc. stated in late April that banks of this kind will see very little revenue growth during the next few years and will be forced to cut up to 30 percent of their managers.

Jamie Dimon and Lloyed C. Blankfein, CEOs of JPMorgan and Goldman Sachs respectively, are in adamant agreeance that this is, of course, is nothing more than a phase and the industry will undoubtedly bounce back. David Konrad, an analyst at KBW Inc. in New York, gives a bit of hope to the fighting back of these banks by pointing out that due to their large amounts of capital and strong liquidity, any program coming out of Europe that the market responds positively to will inevitably have a bold impact on valuations. He recalls how stocks have been known to jump up to 30 percent on just a bit of breathing room.

So could all of this drastic shrinking represent the end of the age where grand investment banks rule the financial industry?  Or is it in fact no more than a shock absorption effect occurring as they bend to accommodate European turmoil? As we all know, yes, they are big. But are they really too big to fail?

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

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An article on CNNMoney about Greece’s pending decision on exiting the euro (or the “Grexit,” as it is called) brought up a very good question: why isn’t more attention being paid to what the country’s choice will mean for the US? The clock certainly has not stopped ticking and the election that will likely make or break the country’s euro membership is set to take place next month.

Well, the good news is that in terms of trade, the US economy will hardly feel the tremors produced by the potential Grexit threat, should it materialize. Only a meager 0.1% of American exports go to Greece, with 14% going to the euro zone in general. If Europe is shaken by their decision, US trade should come out relatively unscathed.

The place of worry with this situation is actually a bit more speculative. Economists fear that should a Grexit occur, it could trigger big time panic amongst investors, who will then make mad dash bank runs, which in turn will further disrupt the Euro that includes bigger debt-laden countries. How’s that for looming dark cloud syndrome?

With over 20% of all loans that happen in the US coming from European banks, a debt selloff could potentially hinder their willingness to lend. Though US banks have been actively reducing their exposure to peripheral euro zone countries, a great deal more exposure to the wider euro zone in general still remains.

Does this mean the US should really start focusing on a contingency plan should Greece decide to return to the drachma?

View the full article here.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

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Our Two Cents – Week of 5/14/12

Rain, rain, go away. While Boston has been under rain showers for the past week, and recovering from the Celtics loss May 14, we drizzled some of the top headlines from the financial markets into this week’s roundup.

In the U.S. the economy continues to show signs of improvement. Jobless claims now stand at 367,000—1,000 less than last week, and job openings in March are the highest in almost four years, as employers advertised 3.74 million job openings. Additionally, economic confidence remains steady at -18, up slightly from the previous week and slightly better than the -20 average for the month of April.

In the eurozone, the German economy grew by 0.5 percent in Q1 2012 after it contracted 0.2 percent in Q4 2011. Economists predicted a growth rate of 0.1 percent, and some experts speculated Germany—the economic backbone of Europe—could help save the eurozone from recession. Macroscopically for the eurozone, economists predicted an economic growth of 1 percent for 2013, with the European Commissioner for Economic and Monetary Affairs Olli Rehn saying “a recovery is in sight” for the area. After Greece entered its second week without a government, the European Commission hoped the country would remain part of the eurozone, not withdrawing from the region and returning to its drachma form of currency.

For hedge funds, they saw an inflows increase of 1.24 percent so far in May, according to the GlobeOp Capital Movement Index.

• German Economy Grows Fast in Q1 2012 – 0.5%, Forex Crunch, May 15, 2012
• EU Commission wants Greece to stay in euro zone, Reuters, May 14, 2012
• Hedge Funds See Inflows Of 1.24% In May, FINalternatives, May 11, 2012
• Eurozone economy to shrink by 0.3%, EU Commission says, BBC, May 11, 2012
• US Jobless Claims Remain Low, Forex Crunch, May 10, 2012
• March job openings were the highest in almost four years, USA Today, May 8, 2012
• U.S. Economic Confidence Steady at Relatively Improved Level, Gallup, March 8, 2012

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

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News broke Sunday night reporting the death of North Korea’s enigmatic leader, Kim Jong Il, followed swiftly by debate about the impact his successor Kim Jong Un will have on the country’s economy and society – as well as the market’s reaction to his father’s death.

Meanwhile Europe continued to dominate world headlines as it devises next steps after proposing a treaty last week designed to strength fiscal discipline for the European Union. In the United States, the economy continues showing signs of improvement as it eases some minds heading into the highly anticipated holiday week.

In Europe, Italian Prime Minister Mario Monti won a confidence vote from officials to expedite its 30-billion-euro budget crafted to restore the country’s economic confidence and revive its stagnant growth. The passage comes after a week of strikes from Italy’s three biggest labor unions because they say Monti’s package will hurt workers, pensions and the country itself. After passing the House, the measure now moves to the Senate where it’s expected to be actioned by Christmas. While Italy seeks to improve its economy, Poland has been recognized for its robust economy. Experts believe that Poland may have the last healthy economy in Europe as the country’s capital Warsaw received revitalization and the country overall experienced economic growth and increased foreign investments. The question, though, is Poland going to remain as strong as it is now? Because many of its neighbors are suffering in the euro zone, residual effects could spill over the borders to Poland—especially because the country’s main stock index is down 24 percent since April. Unfortunately, some other European countries aren’t in as great shape as Poland. France could see a downgrade of its triple-A rating by Standard & Poor’s. French officials say the speculated credit lowering would be “cataclysmic” to its economy. Germany is still trying to lead through the crisis, opposing euro bonds and lifting bailout cap. In Greece, the nation has abandoned the euro and returned to its drachma currency, and in Britain, Prime Minister David Cameron faced hecklers about vetoing the proposed European Union treaty.

There was good news in the United States last week. Retail sales rose for the sixth straight month, increasing 0.2 percent in November and showing signs that the U.S. economy is growing. Consumer prices also remained steady as the consumer price index went unchanged last month in November. Jobless claims dropped to 366,000, marking a three-year low and signal some recovery to the job market. In the hedge fund world, legendary hedge funder Julian Robertson of Tiger Management Co. is explaining why so many hedge funds are now cropping up. He says the hedge funds business is becoming tougher because more hedge funds are being created as they’re the best way to pay the experienced Wall Street guys.

• Economists React: How Will Kim Jong Il’s Death Impact Markets? The Wall Street Journal, Dec. 19, 2011
• Monti Wins Confidence Vote in Italy’s Lower House, The New York Times, Dec. 16, 2011
• Consumer Prices Steady , Wall Street Journal, Dec. 16, 2011
• US Jobless Claims Drop to 366K – 3 Year Low – EUR/USD Rises, Forex Crunch, Dec. 15, 2011
• Legendary Hedge Funder Julian Robertson Explains Why There Are So Many Hedge Funds Popping Up Now, Business Insider, Dec. 15, 2011
• Poland Skirts Euro Zone Woes, for Now, The New York Times, Dec. 14, 2011
• Leaders Grow Further Apart on Solutions , Wall Street Journal, Dec. 14, 2011
• Retail Sales Rise For Sixth Straight Month, NPR, Dec. 13, 2011
• Cameron Says His Veto on Europe Treaty Protects Britain, The New York Times, Dec. 12, 2011

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

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Greece is recognized internationally for its architectural marvels such as the Acropolis, but the European country may be more currently known for its recent economic instability, looming on the brink of default. As the European debit crisis continues to broil, discussions swirl about whether or not to return Greece to its former currency – the Drachma – that financial officials say would allow market forces to set the country’s wage levels. Portugal, Italy, Ireland, Greece and Spain – Europe’s PIIGS nations – have felt the most painful tremors of the crisis, and the economic powerhouse of Germany has been whistled in to bailout weaker nations.

Despite the trouble, the Drachma has a rich history that has spread throughout the Hellenistic world and the influences of Alexander the Great. This is our first post in our new series about “currency culture,” where we’ll examine the history of different world currencies and how they’ve played a role in popular culture. With an Olympic-sized introduction, here are some interesting facts about the Drachma:

• In the beginning, the drachma was a handful of six metal sticks used as a form of currency as early as 1100 BC.
• Reintroduced in 1832, replacing the phoenix after the establishment of the modern state Greece.
• Derived from the Greek word drássomai, which means “to grasp.”
• Also a small unit of weight.
• Large round coins made of gold or silver.
• Symbols include Δρχ., Δρ. or ₯
• Embossed with images of various Greek Gods.
• There was a 1981 episode of “The Fonz and the Happy Days Gang” called “The 20,000 Drachma Pyramid.”
• In the “Percy Jackson and the Olympians: The Lightning Thief” video game (based off the 2010 fantasy film), drachmas aren’t used as currency, but instead as equipment for characters. There are 20 drachmas for collection in the game.
• In 2002, the drachma ceased because of the euro’s introduction.

For some hope that the Euro crisis will be solved soon and Greece will regain momentum, we can remember some wise words from Aristotle. “It is during our darkest moments that we must focus to see the light,” the great philosopher said.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

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The Euro Zone periphery countries are major news drivers in the markets right now. Developments surrounding these so-called PIIGS (Portugal, Ireland, Italy, Greece, Spain) have become big drivers in not just the euro, but in the whole forex market. In fact, they have been moving stock, bond, and commodity markets as well. No doubt this is something which will carry on for a while.

The Greek bailout is probably the most dominant aspect of the sovereign issues right now. There have been voices on all sides talking about the need for a Greek default and exit from the euro, the extreme negative impact of a default/exit on the markets making that unthinkable, and everything in between on the opinion scale. I want to speak to the euro exit idea in this post.

Think on this question. What happens if Greece leaves the single currency?

Those who favor that kind of solution – or who at least think that’s the inevitable course – see that kind of move as being a way for Greece to clean the slate and become more competitive. The latter would be as a result of what would presumably be a weaker drachma than the euro. That would be good for the balance of trade, at least in theory. Sounds pretty good, right?

I’d put forth two potential major problems, however.

First, if Greece goes back on the drachma and it does indeed lose value relative to the euro, what impact would that have on the price of goods for businesses and consumers? Does Greece import a lot from the Euro Zone? Would the weaker drachma produce a price inflation via import prices? That certainly wouldn’t help the Greek economy at all.

Second, what happens to the existing debt of government, businesses and individuals that is currently denominated in euros? In a falling drachma situation, the cost of debt maintenance for euro-denominated liabilities would rise. That could have a potentially meaningful negative impact on the Greek financial system and economy, an impact not improved at all if there’s a rash of defaults.

There’s been a serious issue with this very sort of problem in Eastern Europe where consumers took out loans denominated in Swiss Francs. The Franc has been rising steadily for some time now, making those mortgage payments in local currency terms get more and more expensive to the borrowers. Imagine the impact on your monthly budget if your mortgage payment rose by 40%, which is about how much the Franc has gained against the dollar in the last 12 months.

So the question is what kind of exposure are we talking about here? Does the Greek private sector have a major euro liability exposure?

The impact of a weak drachma on the Greek economy in these sorts of terms is not something I’ve seen any discussion of so far. If a removal from the Euro Zone is to be contemplated, the questions above would have to be satisfactorily answered.

Looking for answers and more information? Currensee is hosting Charlie Fell, Jamie Coleman and Bob Iaccino on July 21st at 12PM EST to discuss. Register for their free webinar here.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

Author Bio

This week is an abbreviated trading week as the North America holidays curtail forex volatility at the outset of the week. When the markets do get back into swing the top focus looks to still be on Greece and if they are willing to accept the fiscal measures that will appease the markets. Greece is in no position to bargain so I would expect that we’ll see Greece saying all the right things this week. Those headlines will be scrolling on the ‘Feeds’ section on Currensee.

The immediate reaction in the markets I’d expect will be one of relief. Relief that Greece, for now, is still using the Euro as its currency of choice and not a weakened Drachma. In this situation the Euro should gain. It might be about time as well as it was just 2 months ago that Euro was trading above 1.50 versus the US Dollar.

I could be wrong though. Greece may say something this week that surprises us all. If that is the case and the markets are back at full strength then there will certainly be a reaction. Will we see a move to 1.35, 1.33 or even sub 1.30? It could happen as the markets will be looking past Greece and worrying about the other European (PIIGS) countries with the same problems who have been in the passenger seat up until this point.

These headlines will be scrolling down the ‘Feeds’ section on Currensee but what if you are away from the trading desk? You may be in Australia sleeping, or in Belgium working or in the ‘States out buying a coffee. All could happen. If you are Long Euro’s on the expectation that Greece will say the right thing but they surprise the markets then watch out. Are you protected? Well you should be.

I bring this up because the last time a nation withdrew from the Euro zone currency the markets witnessed a phenomenal move. Of course I’m referring to 1992 and the UK’s withdraw from the ERM. The British Pound went from above 2.00 to less than 1.55 to the US Dollar in a short time. You might suggest that times have changed and this could never happen again, well think again and remind yourself what occurred in 2008.

We’d all have loved to be on the right side of those trades and maybe you were in 2008. George Soros was in 1992 and became a financial sensation ‘overnight’. Successful traders usually have targeted areas that they expect to take profit and utilize stop-loss levels when their expectations prove to be wrong. The last thing that you want to have happen is to have one bad trade wipe your account out or ruin a string of profitable trades. Utilize a stop-loss to protect yourself.

Where you place that stop is a whole different story. One mistake that I made last month was moving my stop-loss around. For example I placed a slew of Yen trades on and nearly all the trades started out in the direction that I expected. I became comfortable and ignored the zig-zag of the market and moved my stop-loss essentially right on top of my entry price. Fast forward 8 hours later and the price level was where I expected the Yen to be but I was stopped out of most of my trades. Lesson, use a stop-loss but put it far enough away so your trade won’t be derailed but you will be protected if the markets go against your expectations so that you can live to trade another day.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.