Sean Hyman, Editor, Currency Cross Trader
I’ve always been a pretty independent thinker.
It used to get me into trouble in school. Needless to say, my principals knew me on a first name basis. I was always being called down to the office for one reason or another.
The irony is I did okay in school – as I talked back to my teachers. I just never believed in the system.
Like many entrepreneurs, I couldn’t focus on what my teachers told me I had to study in school. They kept telling me to think like everyone else, and I kept rebelling.
Honestly, I haven’t changed much. I still challenge authority – just in a more productive way. In fact, it’s the reason I’ve been successful over the last 20 years in the markets.
More specifically, it’s why I’ve picked straight winners for my currency subscribers in 2011. Let me explain…
Why Rebels and Currrency Profits Go Together
For the past decade, I’ve used my rebellious nature to stubbornly challenge what everyone tells me “must be” right in the currency market.
When the masses have been selling, I’ve been buying. That’s one characteristic of a successful trader. You have to be willing to dive in when everyone else is running for the exits.
As I mentioned, my Currency Cross Trader subscribers have enjoyed all winners this year (four in a row). When we first entered these positions, even my own subscribers balked at these trades.
No one agreed with me. But you see, I recommended they buy when seemingly “no one” wanted to buy. In other words, I was buying at a discount. And it paid off – we grabbed two 100 pip winners right off the bat in 2011. (That’s two 70% winners for you non-currency traders.)
Again, this is where independent thinking can save you – it helps you buy the most “hated” positions out there and grab the most profits.
That brings me to the latest currency that’s starting to pop up on my radar. It’s the British pound (or GBP in the currency market). I can’t find hardly anyone who likes the British pound right now…and honestly for good reason.
First of all, traders believe the problems in Europe will devastate the fragile economy of the U.K.
The U.K. also has too much debt…too much Quantitative Easing, too high taxes, many major political mistakes in my opinion, etc. However, what you have to remember is that the “best buys” are always when things are still looking dark and sentiment is still very ugly.
Why the Most Hated Currency Is
Making a Comeback
Currency investing at the core is very simple.
As inflation rises to unacceptable levels in a particular country, then that country’s central bank raises interest rates to slow down the inflation.
Currency traders love collecting higher yields on their positions. So as a central bank hikes rates, currency traders quickly buy up that country’s currency. Therefore money starts to flow into a currency as a result.
The pound has been falling compared to pretty much every currency right now. The pound has been dropping against the yen, Swiss franc, Australian dollar, etc.
So almost no one is expecting this picture to change. But it’s about to – thanks to inflation.
In the U.K., inflation is getting out of hand. The central bankers at the Bank of England have sat on their hands as long as they possibly can. Now they must act and hike rates to battle this inflation.
I’m not the only one who thinks so either.
Recently both the Bank of England and the European Central Bank have been talking about fighting inflation in the area. In fact, Mervyn King, Governor of the Bank of England, just sent out an Inflation Report on February 16th to explain why inflation is this high.
Anytime U.K. inflation grows above 3%, Governor King gets out his pen and starts explaining. You see, the U.K.’s annual year over year inflation target is 2%. But right now, it’s literally double that at 4%.
Governor King predicts it could go as high as 4.4% this year alone. That’s a problem that the central bank will have to solve.
A Lesson from the Middle East:
You Can’t Let Inflation Run Wild
You can’t play around with inflation. If you let it get out of hand, you can have rioting in the streets like we’re seeing in the Middle East right now.
That’s an example of “inflation gone wild” and the social unrest that comes from people when they spend most of their money on the basics.
So if you want to remain in power and not have a revolt on your hands…rule number one is “control inflation.” And that’s what the Bank of England will be forced to do at some point this year.
When that happens, the pound will rally regardless if it’s the most “hated” currency (outside the U.S. dollar) or not.
Even before that happens, the “smart money” at the major financial institutions will start buying up the British pound unannounced. As usual, they will want to quietly accumulate this currency before everyone notices. That will force the pound to rally ahead of time.
I believe it’s going to catch many off guard, as the masses are still pouring out of the pound. I’m just waiting patiently as the crowds run franticly away from the pound…for the “right time” to buy up the pound.
Mark my words: It won’t be too long before I’m buying.
Thanks for reading!
Sean Hyman
Editor, Currency Cross Trader