Search

 

 

Informative Articles

Business and the Forex
The business world is a complex web of supply and demand. Money and goods, physical or otherwise, pass through the global market every single day. To meet this exchange between one country and another, foreign exchange, or forex, was born. The term...
Forex broker involvement optional
To trade on the forex market, the largest financial market on the planet, one must use a forex broker. Not unlike a stock broker, a forex broker can also makes suggestions about which moves to make when exchanging foreign currency. Some forex...
Forex market offers opportunity and information
The forex market is what is called an international exchange currency market, where currencies are exchanged on a daily basis. There are five forex market centers around the world – New York, London, Tokyo, Frankfurt and Zurich. One does not need...
The Basics of Forex
Foreign exchange market is also known as Forex or FX market. To date, it is the world’s biggest “economic bazaar”. FX produces an average of over $1 trillion daily earnings. That is 30 times more than combining all the volumes of America’s equity...
The Seven Most Traded Currencies in FOREX.
Currencies are traded in dollar amounts called “lots”. One lot is equal to $1,000, which controls $100,000 in currency. This is what is known as the "margin". You can control $100,000 worth of currency for only 1,000 dollars. This is what is called...
 
How to Profit From Ben Bernanke & a Volatile Federal Reserve

President Bush has nominated Ben Bernanke, his chief economic advisor, to replace Alan Greenspan. Bernanke has the credentials to be a good Fed chairman, and the market spoke favorably of him on the day of his appointment. (More on Bernanke below.) Wall Street has given high marks to Alan Greenspan as a "maestro" in the all-important world of money and banking. Under his leadership, he has guided the U.S. economy through two bear markets (1987 and 2000-03) that flanked the longest sustained expansion in our history. But that does not mean that speculative opportunities for profit haven't existed during his near 20-year reign in Washington...and we might see more of the same in the Ben Bernanke era. The fact is that beneath the thin veneer of Alan Greenspan's monotone voice is a man whose insides have sometimes been eaten up with worry about an Asia currency crisis, a Russian economic collapse, Y2K, and threatening inflation. And he often overreacted to perceived threats, causing opportunities to make a lot of money. Today, we'll review the Greenspan era, see just how many times the Fed changed policy during his tenure, and get a take on where we're headed under Ben Bernanke...

Alan Greenspan's reign will have lasted from 1987 to 2006. Amazingly, during that period, Fed policy has changed seven times, moving between easy and tight money. That's a change in monetary policy every two to three years!

From the crash in 1987 to 1990, Greenspan & Co. raised rates as inflation picked up. Then from 1990 to 1991, they sharply cut rates during the recession. In 1994, Greenspan overreacted to a fear of inflation by raising rates and generating a bear market on Wall Street. The inflation fear never materialized.

Over the following five years, the Fed panicked three times regarding:

The Asian currency crisis in 1997 The Russian economic collapse in 1998 The Y2K computer threat in 1999 In each case, the Fed injected new money into the global economy. From here, a gradual decline in rates masked the huge increase in liquidity Greenspan had engineered to avert trouble during the late 1990s. As a result, a massive bubble developed in high tech, and the stock market in general. In many ways, Greenspan may have been in part responsible for the "irrational exuberance" on Wall Street, adding some gasoline to the booming fire in tech stocks, to use Steve Forbes' phrase from my interview with Steve last week. When the Y2K crisis never developed, Greenspan quickly reversed his


Ex-Lacrosse Player Guilty Of 2nd-Degree Murder
Former University of Virginia lacrosse player George Huguely V was convicted Wednesday in the May 2010 slaying of his ex-girlfriend, who also played lacrosse for the university. Jurors rejected a first-degree murder verdict and possible life sentence, instead finding him guilty of second-degree murder, and recommending a 25-year term.

Virginia House Revises Controversial Abortion Bill
The amended bill requires women seeking abortions to undergo an external ultrasound, not a more invasive procedure. The state's Republican governor came out against requiring the more invasive procedure after the proposal drew national outrage. The amended bill now returns to the Senate, where it will likely be killed.

Is A Lie Just Free Speech, Or Is It A Crime?
The Supreme Court heard oral arguments Wednesday over the constitutionality of a law that makes it a crime to lie about having received a military medal. But the questions posed by the justices ranged far beyond that from deceptive advertising to lying on a date.


position and decided to quickly increase rates and curtail liquidity in 2000. Not surprisingly, the stock market (especially the tech-ladened Nasdaq) collapsed and entered a three-year bear market - the Dow losing up to 40% of its value, the Nasdaq almost 80%.

Later in 2000, Greenspan embarked on a road of reducing rates all the way down to 1%, far below the "natural rate" of interest. Greenspan said he feared a Japanese-style deflation. It's worth mentioning that Ben Bernanke was a member of the Fed board during this time, and was a cheerleader for this easy-money policy. Once, when asked if there was anything else the Fed could do to stimulate the economy, Bernanke bluntly replied, "Print dollars!" But America is no Japan, and the fear of deflation was overblown, even after 9/11. Fortunately, the United States has enjoyed a vigorous recovery since 2003, thanks in part to Greenspan's efforts.

Meanwhile, the Fed's artificial low-interest rate policy created all kinds of new profitable ventures. This was especially the case in real estate and on Wall Street, where investors bid up mortgage REITs, and other interest-sensitive investments, to astronomical levels. Now, the Greenspan Fed has embarked on another campaign to dampen a recent spat of inflation, and they are raising rates every six weeks. As a result, the mortgage REITs, muni bonds, and other interest-sensitive investments have come down.

Conclusions and Bernanke's Direction In short, the Fed's actions can be a huge source of profit for quick-minded investors. I suspect that the new Fed chairman, Ben Bernanke, will offer similar opportunities over the next few years. Bernanke is a big promoter of "inflation targeting," a policy adopted by many other countries, including Canada, Australia and the European Union. That could be one reason the stock market is rallying, because low inflation favors traditional stock and bond markets. But I wouldn't count out future dramatic changes in policy under Bernanke, similar to the ones we experienced under Greenspan.

Good trading, Mark

About the author:

Dr. Mark Skousen is a professional economist, financial advisor, university professor, author of over 20 books, and Chairman/Editor of Investment U. In the IU e-Letter, Dr. Skousen helps nearly 300,000 readers become better investors with actionable investment advice, including the Profiting from Ben Bernanke article above.