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More Books

If you’ve been reading my notes for a while, you know that I praised Elizabeth Gilbert’s Eat, Pray, Love: One Woman’s Search for Everything Across Italy, India and Indonesia. a memoir of her sojourns in these countries. I mentioned it here because it has some interesting observations on the culture of these very different locales.

She has just come out with another volume, Committed: A Skeptic Makes Peace with Marriage which is about marriage and her decision to marry for a second time. What does this have to do with living abroad? Well, when in Bali, she fell in love with a man who is Brazilian. They became involved and lived together until...surprise, surprise… he was stopped by Homeland Security in Dallas for having exited and entered the U.S. too many times. Such are the hazards of international relationships and one should be aware that this can happen. Marriages would solve the problem, however. They are, in effect, “sentenced” to marry.  Deciding that they wanted to be together while he awaited a new visa, they found inexpensive places to stay in Southeast Asia.

The reason prospective expats might benefit from this book is Gilbert’s perceptive analysis of the difference between a traveler and someone who is at home anywhere. She admits she’s a traveler. When she and Filipe arrive at a comfortable hotel in Bangkok, he wants to sit by the pool and read mysteries while she wants to go to Cambodia and visit the temples there. Filipe is a person who is at home wherever he happens to be, so he’ll be happy living wherever she wants, while she acknowledges that she would not consider settling permanently anywhere but along the U.S. eastern seaboard. So, if you’re still wondering if you and your significant other are suited to the expat life, it’s not enough that you enjoy traveling. Stop and ask yourselves, can you be at home anywhere?

Another book I can’t resist mentioning though it doesn’t have much to do with being an expat is Yann Martel’s Life of Pi, just because, in my opinion, it’s a gripping story, very well done. You can see what it’s about by looking at the cover, but there’s far more to it.

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Nicaragua - Real Men Don’t Carry Umbrellas

If you want to live in the tropics on a budget and don’t mind foregoing certain amenities, Nicaragua might be the place for you. There are drawbacks: the roads are bumpy and sometimes flooded; temperatures range from hot to very hot; utilities aren’t always reliable. Umbrellas are available, of course, but as Randall Wood and Jashua Berman write in Moon Living Abroad in Nicaragua, “...although Nica men sing dance, and write poetry, real men definitely do not carry umbrellas.”

This is just one item in their list, “What Nicaragua Has Taught Me.” Wood and Berman moved to Nicaragua in 1998 and they write, “it ended up being the perfect fit.” These writers know and understand Nicaragua; it may help that Wood has Nicaraguan in-laws. This the book to read if you’re seriously thinking of Nicaragua as a place to live or even to visit. Part of Moon’s respected Living Abroad series (not related to Network for Living Abroad), it’s one of the best in the series.

Nicaragua is either the second or the third poorest country in Latin America, depending on your source of information. However, low prices should never be the prime reason for moving to a new country and a new culture, and these authors warn against moving to Nicaragua to take advantage of cheap land and cheap labor.

Expats who come here because of the friendly people, relaxed pace and breathtaking landscape won’t be disappointed. While expats often fail at becoming part of the local culture elsewhere, Nicas take an unusual interest in foreigners. Very little English is spoken, and the authors recommend learning at least some Spanish.

Nicaragua has visa and residency programs that allow foreigners to live here. There’s red tap, of course. Wood and Berman suggest getting to know the vendors outside the immigration building because you’ll be making many visits and eating many lunches here. They acknowledge that the process may be discouraging, and they offer some useful tips.

A special program lets retirees bring in a vehicle and up to $10,000 worth of personal possessions. Since cars, electronics, furniture and linens cost more here, this can make sense. These authors note, however, that many don’t take advantage of this.

The book suggests budgeting $800 to $1200 for living expenses, more in some areas, and other sources hae recently pegged the amount at $1000. Individual needs vary, of course. Doing business is possible in Nicaragua, but this book warns that it’s “not for the faint of heart.” Opportunities to volunteer abound, however. Many expats who are far from wealthy come here hoping to make a difference.

Like others in the series, the book gives sample itineraries for trips lasting one week, two weeks and one month. The most pages, however, are devoted to various cities, towns and neighborhoods where expats may want to live. Also included are fascinating profiles of expats with details of their lifestyle along with any complaints and advice to others.

Employed expats are more likely to live in Managua, the capital, and the book describes various neighborhoods. Expats who have a choice may opt for the charming,colonial city of Granada, situated on Lake Cocibolca. Nearby Las Isletas, a peninsula, is a tourist destination with some restrictions on buying property.

The Southwest, along the Pacific and to the north of Costa Rica, draws more local tourism as well as backpackers. The town of San Juan offers rentals and real estate in all price ranges. Note: no building is permitted along the beach. Further south, Isla de Ometepe is a charming spot that has avoided the real estate boom across the lake in Granada.

Leon, the other colonial city, is in the north, with a more pronounced dry season along with higher temperatures. Home to the National University, and a haven of progressive thought, it offers old world charm equal to that of Granada with housing costs are lower. Nearby are beach towns with reasonable rentals.

The Caribbean Coast is a world apart, a rustic spot even by Nicaraguan standards. It was colonized by the British, who left the indigenous peoples intact and armed them with muskets, hence the name “Miskito” (no, not mosquito) Coast.

Also included here are Spanish phrases, basic vocabulary, multiple resources and bibliography. It’s all in a paperback small enough to take with you.

A Call to Help Flood Victims in Peru

Over 12,000 people have suffered the effects of severe flooding in Peru ’s Sacred Valley between Cusco and Machu Picchu. Planeterra has mobilized an onsight team to help with the immediate needs of the local people. The nonprofit has established an online help site: Peru Flood Relief (https://app.etapestry.com/fundraiser/PlaneterraFoundation/PeruFloods/) where the public can make charitable donations.

One of the communities severely impacted by the flooding is Ccaccaccollo, an indigineous community devoted to pastoral and agricultural activities. It is also home to Planeterra’s women’s weaving cooperative (http://www.planeterra.org/pages/project/19.php?id=23), a community which travelers visit as part of the organization’s Project Peru voluntourism adventure.

An appeal has also gone out to anyone now in or planning to visit Cuzco. Donations of blankets, sleeping bags, warm clothes for children and adults, jackets, raincoats, tents and mattresses, dried food (rice, pasta, oatmeal, cans of tuna, sugar, salt, evaporated milk, etc) and matches can be dropped off at: Hotel Tupac Yupanqui (Calle 236 San Agustin) in Cusco.

German Mettle?

An update from the currency exchange firm World First.

”People think we are in a mess. We are.” George Papaconstantinou, Greek Finance Minster.

I had the opportunity to sit next to an eminent economist at a reunion dinner on Saturday. The former chief Labor economic adviser now specializes in financial regulation and he certainly had some interesting comments on the current sovereign debt crisis in Greece, what it could mean going forward and why it highlights the problem of trying to use a unified monetary policy to control such disparate economies.

Interestingly, the whole crisis could be averted should Germany come out and publically guarantee the debt.  However, this is a risky strategy even though the Germans hold the largest percentage of Greek debt. The number of countries behind Greece with the potential for similar problems has been well documented and the precedent set could be rather dangerous. The cost of insuring against sovereign default soared in January and the concern that the loss in confidence in sovereign debt, especially US treasures, considered the world’s risk free asset, could have calamitous consequences for the still fragile recovery. Exaggerated fears of sovereign risk could prompt governments into premature fiscal austerity, which could push the world economy back into recession.

In spite of this, the Germans are less than willing to come out and make this statement because, as the premier global manufacturer, they are seeing the euro weaken and with it increasing the competitiveness of their goods in the market. They will have been especially keen to see the large EURUSD move over the past few weeks with many in Germany rubbing their hands with glee.

If you compare the UK to Germany, the argument for a weaker GBP becomes stronger with time and is testament to the ability of the UK to set its own monetary policy. As we have mentioned before, this allows the Central Bank to control the supply of money, availability of money and the interest rate. It has been essential in guiding the country through recession and has enabled a very close degree of control to be exerted over the economy, the lack of which some European countries have deeply missed.

The news that the UK Government still had to borrow in January, when historically incoming tax receipts sure up finances, was a stark reminder of the fragility of the recovery ahead. If the predicted exaggeration of sovereign debt risk is born out it would have catastrophic consequences on the recovery as the Government would be forced into a premature period of austerity. The need to not turn off the taps too soon versus need to sure up the debt position in the country to something resembling sustainable are the two conflicting worries that keep ministers up at night.

The complex relationships between sovereign debt and the foreign exchange market can be seen more now than ever before and with the Germans eager for a weaker euro it would be foolish for Britain to think that a stronger pound would do the economy any favors at the present time. So while both the UK and Europe would like to see a stronger pound, it might be to the detriment of the recovery. You can’t always get what you want, but if you try sometimes, well you might find you’ll get what you need.

Trade of the Week

This week’s trade of the week is a Tarn Convertible. This structure combines the ability to buy above the current market price with the ability to gain should the market move in the client’s favor.

The way a TARN works is the client has a strike rate above the current market, in this example at 1.61 on GBP/USD, and a “bucket” of figures to use, let’s say 17. If the market is trading at 1.52 then the client will get 1.61 and have to spend 9 figures from their bucket. The next month they have 8 figures to spend and this continues until the bucket reaches zero or the term of the structure comes to an end.

If the market is trading above 1.61 then the client is able to benefit up to a level of 1.66 without using any of their remaining figures in the bucket. If on the day of expiry the market is trading above 1.66, the client is obliged to buy his dollars at the strike rate of 1.61.

This trade works for both buyers and sellers of sterling and is available against other currencies (euro, yen, Aussie, Kiwi).

For more information, see World First.

See Disclaimer below.

GREECE HAD HELP FROM GOLDMAN SACHS

The debt crisis has more in common with the credit crisis in the U.S. than one might think. According to a New York Times story, February 13, Greece has sought and found help in the form of innovative financial products from none other than Goldman Sachs.

Greece needed money but its politicians, like politicians everywhere, did not want to be seen as incurring debt. Almost no rules exist as to how countries may find the money to meet their needs.

The bankers invented new financial instruments and gave them names from Greek antiquity. Aeolos, a legal entity created in 2001, helped Greece reduce the debt on its balance sheet that year. In exchange for ready cash Greece gave away future landing fees at the country’s airports. Ariadne, created in 2000, meant forfeiting the revenue from its national lottery. These appeared on the books as sales rather than loans.

There were more such deals, all effectively mortgaging the future of a country with such a proud past, and threatening European and in fact global economic stability.

The Plot Thickens in Greece

An update from the currency exchange firm World First.

The story in the markets at the moment is Greece. A country that contributes roughly 2% of the EU’s GDP could contribute to the downfall of the biggest single currency experiment since cavemen fashioned tokens from shiny rocks.

But it won’t. The Union must come first. A poll in the German paper Bild am Sonntag showed that the 53% of respondents wanted Greece thrown out of the EU and over 60% were adamant that German money should not be paid to the Greeks in the form of a bailout. Germans obviously have short memories; it was the beggar thy neighbor approach to crisis in 2008 that extended the downturn. A similar lack of foresight would likely see this Hellenic hell spiral down deeper.

Angela Merkel is a canny political operator; you have to be to become the first female Chancellor. The fact is that the German economy is exposed to the PIIGS heavily. German investment in Portuguese, Irish, Italian, Greek and Spanish debt roughly equates to 19% of German GDP ($3.65 trillion in 2008). $693.5bn; so roughly the same size as the Polish economy or half the size of Canadian GDP. Germany simply can’t afford to let Greece or any other EU members go bust. Doing so would leave a hole in their finances so monstrous that the rest of the EU would implode.

There is a split in the ruling coalition with one politician going as far to say “Solving this problem cannot be about aid for Greece. If anything, it’s about keeping any damage away from German taxpayers.”

The outlook for the euro is, as a result, weak. Hedge Funds and the speculative fraternity will look to drive the currency to its knees as rumor and uncertainty continues to swirl. The EU economy was the least well equipped to deal with the problems that the credit crunch and the winds of austerity brought to its shores.

There is a meeting going on between European finance ministers to discuss the Greek problem Change in a normal state normally moves in painfully slow increments. Greece cannot wait forever though; if no bailout is forthcoming by April then the Uk along with its European neighbors, will be entering a chapter of financial history that would truly define downturn.

Disclaimer: The above comments are the views of World First and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as of the date of the briefing and are subject to change without notice.

Any rates given are “interbank” i.e. for amounts of £5million and thus are not indicative of rates offered by World First for smaller amounts. E&OE. Definitions of jargon/market terms can be found in our Glossary of Foreign Exchange Terms.

This financial promotion is issued in the United Kingdom by World First Markets Limited which is authorized and regulated by the Financial Services Authority (“FSA”) to provide advice on and execute trades in derivatives.  Please note that other activities that may be referred to in this material, such as the execution of spot foreign exchange trades, do not fall under the remit of the FSA.  World First Markets Limited’s FSA Firm Reference Number is 477561.

Investing in any of the hedging strategies contained in this material involves certain risks, for example that the exchange rate at expiry of the contract is less favorable than if you had entered into a forward contract.  Please ensure that you fully understand these risks before investing.  If you are in any doubt as to the nature of these risks, please speak with your financial adviser or an adviser at World First Markets Limited.

There are a number of charges that we will levy if you enter into a hedging strategy.  The nature of these charges depends upon the specific strategy, but may include an up front premium.  We recommend that you read carefully the details of these charges which are set out alongside the description of each strategy.

For your protection, telephone calls are usually recorded

For more information see World First. 

Safety Tips for Driving in Ireland

Whether you go to Ireland for a vacation or to find a new home abroad, you’ll probably want to rent a car or “hire a car,” as they say over there. Whatever your goals are, you’ll get more out of your trip with a car because so many interesting places are not accessible by bus or train.

If you’re coming from the U.S. or one of the other countries where people drive on the right side of the road, your’re probably aware that in Ireland, people drive on the left. Don’t let this deter you from getting behind the wheel of a car. When you pick up your rental car in Dublin one of the other cities such as Shannon or Cork, take a few minutes to get oriented before setting of on this venture.

Become accustomed to the layout of the car and the image you see in the mirrors. With the driver’s seat is on the right, notice that your left hand controls the gear shift. The door and the wing mirror will be on the right and the central rear view mirror will be on your left. Test the various controls before and make sure you understand how they work. Be sure you know where the windshield wiper and headlight controls are.

Remember as you head into traffic - always stay to the left of the road. This may be easier to do if you consider that you, the driver, will always be near the center of the road and the oncoming traffic. Also, pass traffic islands to the left and go clockwise on roundabouts.
The first thing in the morning or after driving on quieter roads, people may forget; stay alert and you’ll do fine.

Also, familiarize yourself with Irish road signs before you arrive; books for travelers often include them. Warning signs may seem provincial, but the most if not all are understandable. Direction signs for motorways will be in blue, for national roads in green, and for local roads in white. Signposts for places of interest appear on a brown background with white lettering.

Make sure you have enough gas or petrol as filling up stations can be quite spaced out in rural areas, with most of them not offering 24 hours a day, 7 days a week service. Try to fill up whenever the tank is half-empty.

Drive with care and consideration and expect the unexpected. Ireland is largely a rural country and many of their roads will have rural traffic, such as tractors and farm machinery on them, especially from March to October. Wildlife or farm animals such as sheep and cattle may also appear from nowhere, so drive slowly around blind curves and at the crest of hills.

Avoid illegal parking; many towns employ private companies to monitor parked autos. Those not legally parked can be clamped or towed away, resulting in inconvenience as well as a large fine before you can continue on your way.

Know your car, follow these basic steps and you will enjoy the winding and undulating roads of Ireland and the many things that the Emerald Isle has to offer the visitor or the prospective resident. If something seems confusing or if you get lost, don’t hesitate to ask for help. The Irish people are famous for their hospitality and friendliness, so you’re not likely to be disappointed.

Trouble Ahead in European Markets

Stock markets across Europe have plunged as much as 6% amid worries that a financial crisis might be just around the corner with the result that the Euro is now at $1.37. a seven-month low against the US dollar. The dollar’s bounce hurt the prices of commodities traded globally in terms of the U.S. currency.

Like the United States, Europe has been suffering from a recession. France and Germany, the largest of the 16 countries using the euro as their currency, have taken important steps toward economic stability. Certain other countries—including Greece, Portugal, Spain and Ireland (all expat havens, by the way)—are having difficulty paying for years of debt-driven expansion. The debts are now coming due and in a worst case scenario, defaults could ensue, with a ripple effect across Europe.

In the credit markets on Thursday, February 4, the cost of insuring the debt of the countries with large budget deficits against default rose. This came on the heels of several items of grim news. One was that the European Commission had put Greece under more pressure to cut its deficit. Another was that the Portuguese government had sold only €300 million ($417 million) of treasury bills at an auction, compared with an offer of €500 million. and finally,that the Spanish government had raised its budget deficit forecasts for 2010 through 2012.

The European Central Bank is leaving the key lending rate for the 16-nation euro zone unchanged at 1%, and the Bank of England is keeping its interest rate 0.5%.for the time being, the Bank of England has halted the central bank’s 200 billion pound ($319 billion) series of bond purchases, opting to weigh the impact of so-called quantitative easing on the British economy.

The Chicago Board Options Exchange’s Volatility Index or the VIX, which measures investors’ nervousness about upcoming market swings, soared 20.9% on Thursday. The index is trackable (and tradeable) as VXX.

Swiss Banks Resume Secrecy

Swiss courts have ruled that disclosing names on bank accounts in would be in violation of Swiss laws regarding banking secrecy. This is after UBS, the large Swiss bank, had announced the intention to reveal the names of its U.S. clients who might be in violation of U.S. tax laws. The Swiss cabinet plans to continue its talks with the U.S. government and acknowledges that the U. S. might continue civil proceedings against UBS.

Expat Artists Choose China

Life-size ice sculptures of children left to melt in a Beijing park were shown on television all over the world. Meant to dramatize global warming and commissioned by Greenpeace, the sculptures were the work of Joseph Ellis, an expat in China who left New York five years ago. He attended China’s Central Academy of Fine Arts, becoming the only Westerner to graduate from the prestigious school. In addition to the Greenpeace commission, he sells his work to major corporations and to Chinese collectors. He now works in Jingdezhen in the south of the country, where his studio of over 10,000 square feet rents for about $245 per month.

Cheap digs are usually what draws artists to certain neighborhoods, cities and countries. However, China also offers art materials at prices far lower than those in the U.S. or Europe. This offers artists the opportunity to experiment with media that would be prohibitively expensive anywhere else.

But that’s not all. As an article in The New York Times, January 10, notes, China is edgy, dynamic."The whole country’s on the hustle. It’s like New York in the ‘70s. I fit in here,” says Brooklyn-born artist Alfredo Martinez.

Recently bulldozers were dispatched to demolish illegally build structures, some of them artist studios, outside of Beijing. Some studios were destroyed, but then the bulldozers stopped, leaving many of them intact. Even this did not send the artists home though some moved to other communities in China.

For more, see www.nytimes.com/design. The article is titled “For Expatriates in China, Creative Lives of Plenty.” For general information on expat life in China, see Moon Living Abroad in China, Including Hong Kong and Macau (Paperback) by Barbara Strother and Stuart Strother.

Visit the Famous Blarney Castle

One of Ireland’s most famous tourist attractions is the world-famous Blarney Stone, found at Blarney Castle in County Cork. Visitors to the country can rent a car at Dublin Airport or in other major cities then head for the south of Ireland and the Blarney Estate to take part in the world famous tradition of kissing the Blarney Stone.

Built nearly 600 years ago by one of Ireland’s greatest clan leaders, Cormac McCarthy, the castle welcomes thousands of visitors from all over the world every year. The Blarney stone, also known as the Stone of Eloquence, was found at the top of the castle tower. Legend has it that those who kiss it will never again be at loss for words, or as the Irish say, people will be left with “the gift of the gab.” Historical personages, famous entertainers and international dignitaries from Sir Walter Scott to a number of American ex-Presidents have participated in this tradition, which has been carried out for over 200 years.

Located just 200 yards from Blarney Castle is Blarney House, built in 1874 and overlooking Blarney Lake. One of the most elegant of Ireland’s Great Houses, it is now a family home after being tastefully restored to its original glory. Fine collections of early furniture, works of art, tapestries and family portraits are displayed here. The Blarney House gardens include well maintained lawns and flowerbeds that descend toward the lake and offer a pleasing backdrop for the residence. A herd of cattle are kept within the gardens perimeter and live peacefully beneath the ancient lime, beech, oak and knotted walnut trees.

Tours of the house and gardens are offered during the summer season, with Blarney Estate also offering numerous woodland walks around the grounds of the park. The River Martin winds through the estate grounds, which are home to a vibrant collection of trees and shrubs including copper beech, ornamental pear, southern beech, evergreen oaks and nothofagus.

In case you’re wondering what nothofagus is, see http://en.wikipedia.org/wiki/Nothofagus.

Ho…Ho…Ho….

It’s that time of year again. I don’t blame anyone who is trying to stay out of the malls, although I think it’s good to patronize local merchants and craft fairs. I’m also a believer in giving a donation in someone’s name to a worthwhile cause.

Typically, I write about books here and a well-chosen book can be one of the most personal of gifts. Giving a book can say: “I know what you like, what ideas you appreciate, where you like to go in your imagination.” While you may not know what the person has not yet read, selecting a book they have read and loved sends the same message, maybe even a little stronger.

Some of my favorite books for giving are ones by the Brazilian writer Paulo Coehlo. The best known is The Alchemist.  It’s a sort of parable - simple, spiritual, beautiful. I’m also fond of The Witch of Portobello: A Novel (P.S.). It you’re not familiar with Coehlo, be aware that his work isn’t magic realism like that of Gabriel Garcia Marquez, whose Love in the Time of Cholera is another gift idea.  If you prefer to give a recently published book, consider this long-awaited American novel, A Gate at the Stairs by Lorrie Moore. She’s an unusual writer with a great many fans.

Calendars also make good gifts, and there are more choices than ever, especially for travelers and would-be expats. For example, there’s 365 Days in Italy Calendar 2010 (Picture-A-Day Wall Calendars) as well as Mexico - 2010 National Geographic Wall Calendar and Colors of Guatemala 2010 Calendar. These are just a few.

Thank you for subscribing to our Updates and for visiting our pages. Happy holidays to all. Be well, be safe and may 2010 be a better year for all!

The Dollar Next Year: Two Angles

An update from World First.

As we move into December it is necessary to bring you our thoughts as to movements of certain currencies in the coming year. We will aim to bring you views from both sides of the argument i.e. an argument for strengthening and an argument for a certain currency’s decline. In the first of this series we will look at the prospects of the most important global currency, the US dollar.

The case for the prosecution: a weaker greenback

The US is in a terrible state at the moment with a budget deficit as a percentage of GDP larger than anything since the end of WW2, while the money that it owes in the form of US treasury debt has almost tripled in the past year and is expected to expand by around $1trn a year for the next 15 years or so. This coupled with the expansion of spending needed to fund Obama’s healthcare plan, the ‘War on Terror’ and social security for baby boomers leads us to believe that they have two options; print more debt or hike taxes and slash spending.

As a fan, interested observer of American politics and a firm believer in Josiah Bartlet I think we can safely forget the last. Obama is not going to raise taxes on “middle America” this close to the mid-term elections and would not afterward for fear of giving the Republicans the White House back after his first term. Likewise he cannot cut spending at the fear of alienating moderate democrats and liberal Republicans when he needs to so much support on ramming through his healthcare plan Superman is in trouble and will have to do what all have done before him; spend like a drunken sailor.

This will continue in 2010 and therefore we are likely to see interest rates in the US continue to remain low for a very long time.  This should lead to a weaker dollar as other countries raise rates and attract inward investment on their debt. The US is now likely to move into a time in which it is comparatively a lot poorer than it has been in the past 100 years and could see its position as the global reserve currency threatened further.

The case for the defense: a stronger dollar

Those of my profession who are looking for a stronger USD over the next year or so are focusing on the first quarter of 2010 as the time in which the starting pistol will be fired. Quantitative easing should end in the US by March. QE has had a negative effect on long-term interest rate expectations and the belief is that as soon as the Fed stop their repurchase program we will see the market price in interest rate hikes towards the latter part of 2010.

Higher US rates may serve to weaken the prospects of emerging market investments (why take the risk when the return is comparable?) and benefit from its status as a haven currency Positive correlations to this probability have been seen over the past 10-15 years.

The other thing to bear in mind is the price of this debt in yield terms. The US are due to auction off close to $2.5trn over the course of 2010 with the Fed hardly absorbing any. This leaves other investors to pick up the slack. The Fed will not risk these issuances being undersubscribed and will post attractive interest rate coupons to the debt to attract the cash. That increase in interest rate should see a surge in dollar buying and a stronger dollar as a result.

Looking at the option market we have seen an increase in the cost of protecting against dollar strength, a sign of a market preparing for an onslaught. The price has risen so much that it we are not far from the price levels that were seen in the immediate aftermath of the Lehman bankruptcy for a three month horizon. It seems that the market is sensing a strong movement in favor of the US dollar around the end of Q1; an expectation that fits in with the possible Fed curtailing.

Conclusion: We believe that 2009 has been difficult to predict, however, it may be nothing compared to 2010 for the dollar market. With cues from the options market in particular we think a hedge via an options contract is the only sensible protection measure that can be taken. We are of the opinion that dollar will weaken in 2010 as the world continues to recover and the need for haven assets lessens but would still advise a protective hedge, an example of which is below.

Next week we will turn our thoughts on the euro.

Trade of the Week

This week’s trade of the week is a risk reversal from January to June. The client sells GBP and buys USD to pay suppliers in Taiwan. They had budgeted on the next six months of invoices at a GBPUSD rate of 1.62 on our advice, but were unwilling to use forward contracts to protect themselves as they believed that the pound would rise at some point against the dollar.

The client was able to achieve a worst case rate of 1.62on their option and they benefit up to a rate of 1.80. Should the GBPUSD rate be below 1.62 on expiry they are able to buy dollars at 1.62, if it is above 1.62 and below 1.80 they buy in the spot market and if it is above 1.80 they are obligated to buy at 1.80.

This strategy required a premium of 2.7% of the notional amount (the amount hedged), and is also relevant for sellers of sterling and buyers of other currencies. As there is a potential further weakening for sterling in the future, it provides a balanced upside for this potential, while guaranteeing a tight worst case rate.

For more information, see www.WorldFirst.com.

See Disclaimer below.

China Dominates the Thanksgiving Table

An Update from World First.

The Pilgrims made seven times more graves than huts. No Americans have been more impoverished than these who, nevertheless, set aside a day of thanksgiving. ~H.U. Westermayer

American families will gather at this Thursday to celebrate Thanksgiving. It’s a time for family, a time of reflection and obviously, a time for giving thanks. The American family have not had much to celebrate over the past 12 months with consumer spending still depressed, house prices continuing to languish near the depths and a whopping health care bill still inching its way through the US Congress.

There is a division in Washington at the moment between the government’s currency talk and the government’s currency walk. The US government and Americans in general like to get behind a rallying symbol; baseball, apple pie, the star spangled banner but recently they had been beating the “strong dollar” drum.

Americans love a strong dollar. It’s a gesture of strength. The division is this: the dollar must stay strong to prevent foreign governments selling the debt that it has been chucking out for years and years. At the last calculation we believe that around 34% of US debt is held by foreign governments with the majority of that being held by the Chinese and Japanese. A significant weakening of the US dollar would see the value of these assets shrink and puts selling pressure on the debt. However a weak dollar would also cut the economy’s reliance on imports, stimulate the export market and, in a country with 10% unemployment, create valuable jobs. Ceteris paribus, you would then see consumer confidence pick up alongside consumer spending and a general improvement in the US economy.

We are still happy with our predictions that we will see dollar weakness over the course of 2009. We may not see the rate of decline that we have seen this year; dollar has weakened by 14% against sterling this year. A similar move from current levels would see GBP/USD at 1.89 in 12 months time but we doubt that the market would allow sterling to appreciate that much through a year that includes a general election.

Obama and Geithner, like Bush and Paulson before them, have a delicate balancing act to consider. It is certainly my opinion that we will not see a revaluation of the Chinese Yuan against the US dollar soon; there is very little incentive for the Chinese government to change the current dynamic.

The Americans will have to obey the golden rule: he who owns the gold, rules.

All this and more is available at www.worldfirst.com/blog.

Trade of the Week

This week’s trade is a risk reversal from January to June. The client sells GBP and buys EUR to pay suppliers in Germany. They had budgeted on the next six months of invoices at a GBPEUR rate of 1.09 on our advice, but were unwilling to use forward contracts to protect themselves as they believed that the pound would rise at some point against the euro.

The client was able to achieve a worst case rate of 1.09 on their option and they benefit up to a rate of 1.18. Should the GBPEUR rate be below 1.09 on expiry they are able to buy euros at 1.09, if it is above 1.09 and below 1.18 they buy in the spot market and if it is above 1.18 they are obligated to buy at 1.18.

This strategy required a premium of 1.4% of the notional amount (the amount hedged), and is also relevant for buyers of sterling and sellers of other currencies. As there is a potential further weakening for sterling in the future, it provides a balanced upside for this potential, while guaranteeing a tight worst case rate.

For more information, see www.WorldFirst.com. 

Weekend Update

Special Update from World First.

There is nothing worse than speaking to a depressive on Friday afternoon. Like a friend who texts on a Friday night “Only 2 days ‘til Monday!” some things we are happy to pretend to not have seen. The 500lb elephant in the room keeps trumpeting away, however, so let’s address him. We have started to see more and more analysts and commentators pointing towards a fall off in fortunes over the Christmas period; potholes and sleeping policeman in the road to recovery if you will.

These analysts expect to see such things in the coming months:

· Equity markets to begin to fall off heavily

· Dollar strength as risk averse investors jump back into US treasury bonds and bills

· GBP weakness as banks come back under pressure from balance sheet issues.

These are not the thoughts of some crackpot holed up in their bedroom and the justifications are listed below:

· US mortgage defaults have risen to a new record high. Now over 14% of all mortgages in the US are either already in foreclosure or at least one monthly payment behind.

· The number of positions betting on US dollar strength are at the highest level since this time last year.

. US consumer confidence and spending levels are still depressed with the only industries benefiting are artificially strong due to government stimulus (Cash for Clunkers, for example)

We are still very happy with a strong sterling outlook over the balance of next year but the lessons of last winter may need to be revisited. Personally I think you could do a lot worse than hedge around these levels.

For more information, see www.worldfirst.com.