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Chapter 1. The Truly Modern Market > Everybody's Talking About It

Everybody's Talking About It

Another sign that the Forex market has come of age is that everyone's talking about it—investors, financial gurus, and world leaders.

Warren Buffet, whose Berkshire Hathaway fund has realized an average 22 percent increase in book value annually since 1965, announced in his 2003 letter to shareholders that he had, for the first time, entered the foreign exchange market on a large scale in 2002 and that he had increased his position in 2003.

Buffet attributed his move to the alarming increases in U.S. trade and government deficits. Buffet, one of the most successful investors in history, knows that weakness in the U.S. dollar could undermine the billions of dollars worth of assets he owns. “I feel more comfortable owning foreign-exchange contracts that are at least a partial offset to that position,” he concluded.

In 2003, Morgan Stanley told its clients that they should take advantage of stock opportunities in Japan and Europe. The firm took that position because it believes stocks in those countries are undervalued and because it wants its clients to have a hedge against the further decline of the dollar. Stephen Roach, Morgan Stanley's chief economist in the U.S., warned that the dollar's value could not be sustained given the U.S. account and trade deficits. “America's massive current-account deficit cries out for a depreciation of the dollar,” he wrote. (See http://www.globalagenda-magazine.com/2004/stephenroach.asp.)

The point here is not that investors should worry about the supposed imminent decline of the dollar (although a cautious, watchful eye would help), but that Wall Street believes investors should factor in currency fluctuations when planning their portfolios.

If the Forex market has drawn the attention of economists and market managers, political leaders have been incensed by it. Jacques Chirac, president of France, reportedly called aggressive foreign exchange traders the “AIDS of our economies.”

Mahathir Mohamad, prime minister of Malaysia, blamed the economic troubles of the late 1990s in his country on “rogue speculators . . . anarchists wanting to destroy weak countries in their crusade for open societies, to force us to submit to the dictatorship of international manipulators.” He openly called international financier George Soros a “moron.”

Whether Forex is being touted by Wall Street or disparaged by politicians, there is little question that the market has arrived in the investing mainstream, and this role will only grow as globalization accelerates. As the world grows even closer together over the next two decades, the question every investor should ask himself is how he should handle the change.

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