Tag Archives: WSJ

Social media guru Brian Solis has published a new book entitled “The End of Business as Normal,” which he discusses in this recent Fast Company article. This article presents the incontrovertible stats and facts that illustrate how social technologies and media have become core to our cultural fabric.

The title of Solis’s new book got me thinking about how social has already created new business models and opportunities and has breathed new life into some older industries.

Financial services companies such as Currensee would not exist and blossom were it not for the power of social networks to meet the need of Forex traders and institutional and retail investors seeking to collaborate and mimic trading strategies. StockTwits is another example of a financial service spawned by social. It’s also helping other Fortune 500 companies ‘get social.’ Meantime, “old-school” financial institutions have been realizing that social media not only augments their services but also provides new opportunities for marketing and customer communications. Check out this story about The Hartford’s recent “Achieve Without Limits” social campaign.

The music industry has been impacted on all fronts by social media. MySpace, an early darling of the social space, has become a destination for bands and singers to directly connect with fans. Facebook has provided another booming platform for artists who are using applications such as RootMusic’s BandPages to promote themselves to fans (RootMusic even drummed up $16 million in recent funding). And the innovation keeps humming – just last week RockCityClub, creator of the world’s first “Social Music Network” for independent music artists and bands, went live. Meantime, Spotify’s integration with Facebook keeps it top of the music social apps.

Another industry completely transformed because of social media is news reporting and publishing. Today, citizen journalists break the news. We turn to Twitter and Facebook as our “ticker.” Journalists themselves tweet second-by-second updates, creating real-time news feeds. NPR’s Andy Carvin’s vanguard coverage and curation of the Arab Spring set the bar for other reporters and news organizations. Mainstays of the media, the Wall Street Journal and The New York Times have also innovated their business models and products to compete for, retain and profit from their socially motivated readers and subscribers. If you’re interested in this topic, it’s worth reading Matthew Ingram’s regular column on GigaOm.

Needless to say, we are in the midst of an incredible social orbit. Social is the new normal, to quote Solis. I agree 100 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.

Adam at Forex Blog has posted a critique of a Wall Street Journal article which discusses the pending loss of primary reserve currency status for the US dollar. The WSJ article, written by Barry Eichengreen, provides some very interesting information about the use of the dollar in global trade and financial transactions. For example, 85% of foreign-exchange transactions world-wide are trades of other currencies for dollars, and the dollar is the currency of denomination of half of all international debt securities, though in the latter case I'd ask what share of those debt securities are actually US government and related agency debt. Eichengreen believes, however, that the dollar will lose preeminence in the next 10 years.

Here are his reasons why:

1) Changes in technology mean exchanging less prominent currencies is less difficult and expensive than it was.

2) The dollar will soon have real rivals with the euro and Chinese yuan as the most likely candidates.

3) The dollar is at risk of losing its safe-haven status.

Let me address these points individually.

Changing Technology
I've been around long enough to remember when trading was done by telephone, not online. The technology has come along in leaps and bounds in the last decade or so. It's not just better tech, though, that makes for lower costs. It's also the fact that as forex market volumes have increased, and there's become more competition in the brokering and dealing arena, spreads have come down significantly. That's where you get the real cost savings.

It's worth noting, though, that as transaction costs have declined, we haven't seen any real marked shift in currency reserves. The dollar is still just about the same proportion of global reserves now as it has been for years. Technological improvements, as Adam notes in his piece, don't really impact the supply and demand for a currency. Maybe just a bit on the margins.

Rival Currencies
There have always been rivals to the dollar for the top spot. When the euro was launched it was immediately viewed by some as a challenger for the crown (though obviously not by those who thought the Euro Zone would blow apart). Why else do you think the SWIFT code for the exchange rate to the dollar was chosen to be EUR/USD rather than USD/EUR? It's been a dozen years now, though. As Adam notes, the euro suffers from being comprised of diverse parts. The debt and equity markets are fragmented among the constituent countries, countries with different credit and economic profiles. This makes for a much more shallow market for global investors to park their cash.

As for China, until the yuan is fully floated, it's not even a debate. Even if the yuan were freely floating right now, it would still be a big ask for it to challenge the dollar for prime reserve currency status. The Chinese financial markets are in their infancy. It will take much more than just 10 years for them to get big enough to be able to support major capital flows. Even the Asian Development Bank doesn't see the yuan as being a major factor in the currency reserve area. Adam notes that they forecast it will only account for 3-12% of international reserves by 2035.

What about the Swiss franc or the Japanese yen? Switzerland is too small an economy for the franc to ever be a major reserve currency. The Japanese economy is obviously a major one, but a key factor in being a prime reserve currency is having a balance of payments deficit. Japan does not have that (though things could change as the population there continues to age). This is also something that works against the yuan.

Loss of Safe-Haven Status
Eichengreen makes the point that recent economic and fiscal developments have caused the world to rethink the stability of the US markets and economy, putting the country's ability to sustain its track record of paying its obligations in doubt. It's a fair point. As Adam commented, though, this is old news, and is also of concern for the likes of the Yen and the Euro as well. The financial crisis didn't only do damage to the US system.

I disagree, however, with Adam calling the yen a, if not the, premier safe-haven currency now. Yes, the yen absolutely benefits greatly when the markets go into flight-to-quality mode. That, however, is related to the carry trade where yen are being borrowed to fund investments in other currencies. Scared investors bail out of those investments, meaning they convert their money back to yen and pay off the loans they took out. This is not the same as capital flowing into yen-denominated securities the way it flows into US Treasury securities in a panic.

For all the issues with deficits and the like, the US Treasury market remains the place risk averse money goes. So long as that remains the case, the dollar will remain the primary safe haven currency. There may be times when other currencies step in to the spotlight, as the franc has done recently on geopolitical developments, but those are transitory periods and not the real panic situations.

The Bottom Line
The dollar is not going to lose its position at the top of the heap any time soon. That's not to say there won't be variation in its exchange rate values, because there most certainly will be. That's also not to say countries and companies won't diversify their holdings, because they will as suits their needs. It's just that no major alternatives are going to be viable in the near future.

Perusing the Wall Street Journal, we were pleased to see Currensee's Chief Market Analyst, Shaun Downey, quoted in reference to the Canadian Dollar's crossover into parity territory with the greenback

"CQG's Downey said a close below C$1.0000 would target a move to C$0.9740. A move through resistance at the top of the recent range would clear a path to $1.0264, he said.

'When it breaks, you're looking for a reasonably big move, that's for sure,' Downey said."

You may remember that we had a guest post last week by Yohay Elam discussing Kathy Lien's post about the USD/CAD.  Yohay suggested that the CAD would probably gain strength on positive news, but the WSJ called the move "little changed" even after good trade reports.  Many - including Downey - are waiting for a bigger move yet to come, but which way?

Taking a quick peek at the Currensee dash and social indicators, we can see that the community is split with about 1/2 of the volume short and winning, but only 1/3 of the positions in the black.  Checking out the leaderboard, we can see that seven of the top 20 traders by performance are trading the USD/CAD, a higher rate than the community at large.  If you were trading friends with those top traders, you'd have an idea of which way they were leaning on this pair.

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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.