Category Archive: FX Theory

Contrarian Investment, FX Rates and the Misleading Concept Called GDP

We extended and improved our existing post to contrarian investing. It was published on Seeking Alpha. We are pleased that it was awarded the Editor’s Pick.
Gross Domestic Product(ion) is (or has become) a measurement of activity and consumption, but not of capital accumulation and production.
In many cases, GDP growth is negatively correlated to saving. Higher savings (aka austerity) leads to lower GDP growth today, but to higher GDP in the future. In its worst case, GDP growth could be completely based on credit, eliminating the capital basis of a country (example Greece).
FX rates are less driven by GDP but by savings and investments, in particular on the corporate side, by investors and micro-economic indicators.
In addition to micro-economic indicators like price to cash flow or price to book ratio, the saving rate is the best macro-economic indicator of the investment style called “contrarian investing.”

Permanent link to this article: http://snbchf.com/2014/07/fx-rates-misleading-concept-called-gdp/

FX Rates, Contrarian Investments and the Misleading Concept Called GDP

We extended our existing post to contrarian investing. It was published on Seeking Alpha and awarded the Editor’s Pick.
Gross Domestic Product(ion) is (or has become) a measurement of activity and consumption, but not of capital accumulation and production.
In many cases, GDP growth is negatively correlated to saving. Higher savings (aka austerity) leads to lower GDP growth today, but to higher GDP in the future.
In its worst case, GDP growth could be completely based on credit, eliminating the capital basis of a country (example Greece).
FX rates are less driven by GDP but by savings and investments, in particular on the corporate side, by investors and micro-economic indicators.
In addition to micro-economic indicators like price to cash flow or price to book ratio, the saving rate is the best macro-economic indicator of the investment style called “contrarian investing.”

Permanent link to this article: http://snbchf.com/fx-theory/fx-rates-contrarian-investing-misleading-concept-gdp/

Net International Investment Position United Kingdom

Permanent link to this article: http://snbchf.com/fx-theory/wealth-niip/net-international-investment-position-united-kingdom/

Net International Investment Position Switzerland and Italy

Permanent link to this article: http://snbchf.com/fx-theory/wealth-niip/net-international-investment-position-switzerland-italy/

Net International Investment Position

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The Euro is Poised for a Steady Rise, Expect $1.50 in 2 to 4 Years

Permanent link to this article: http://snbchf.com/fx-theory/eurusd-1-50/

FX Rates, the Balance of Payments Model and Central Bank Interventions

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Permanent link to this article: http://snbchf.com/fx-theory/fx-rates-balance-payments-model-central-bank-interventions/

OECD Purchasing Power Parity Index

Permanent link to this article: http://snbchf.com/fx-theory/purchasing-power-parity/oecd-purchasing-power-parity-index/

Purchasing Power Parity: Big Mac and Starbucks Tall Latte

Permanent link to this article: http://snbchf.com/fx-theory/purchasing-power-parity/purchasing-power-parity-big-mac-starbucks-tall-latte/

Differences in global CPI baskets

Permanent link to this article: http://snbchf.com/fx-theory/purchasing-power-parity/differences-cpi-baskets/

Currencies: Asian vs. American bloc

Permanent link to this article: http://snbchf.com/fx-theory/fx-price-movements/asian-bloc-american-bloc/

The Holy Grail of Long-Term Currency Movements: Crowther’s Balances and Imbalances of Payments

Permanent link to this article: http://snbchf.com/fx-theory/crowthers-balances-imbalances-payments/

The Main FX Trading Strategies

Permanent link to this article: http://snbchf.com/fx-theory/main-fx-trading-strategies/

FX Theory: The relationship between Current Accounts Surpluses and the Carry Trade

Permanent link to this article: http://snbchf.com/fx-theory/current-account-carry-trade/

FX Theory: Currencies of Countries with High Economic Freedom, Immigration and Savings Must Appreciate

Permanent link to this article: http://snbchf.com/fx-theory/currencies-freedom-immigration-and-savings/

FX Theory: Interest Rate Parity

Permanent link to this article: http://snbchf.com/fx-theory/interest-rate-parity/

Explaining price movements in FX rates

Permanent link to this article: http://snbchf.com/fx-theory/fx-price-movements/

What Determines FX Rates?

Permanent link to this article: http://snbchf.com/fx-theory/what-determines-fx-rates/

Currency Wars: How to Push and Talk Down Your Currency?

Permanent link to this article: http://snbchf.com/fx-theory/currency-wars-how-to-push-and-talk-down-your-currency/

Real Effective Exchange Rate, Swiss Franc, Yen and Renminbi

Permanent link to this article: http://snbchf.com/fx-theory/real-effective-exchange-rate/

The Relationship between Current Accounts and Savings

Permanent link to this article: http://snbchf.com/fx-theory/current-accounts-savings/

FX Theory: Wealth and Net International Investment Position

Permanent link to this article: http://snbchf.com/fx-theory/wealth-niip/

FX Theory: Carry Trade and Reverse Carry Trade

Permanent link to this article: http://snbchf.com/fx-theory/interest-rate-and-carry-trade/

Permanent link to this article: http://snbchf.com/2012/12/fx-theory-the-balance-of-payments-model-explained-in-400-words/

FX Theory: The Long-Term View: Real Mean Reversion

Permanent link to this article: http://snbchf.com/fx-theory/real-mean-reversion/

The Balance of Payments Model

Permanent link to this article: http://snbchf.com/fx-theory/balance-of-payments-model/

FX Theory: Purchasing Power Parity

Permanent link to this article: http://snbchf.com/fx-theory/purchasing-power-parity/

FX Theory: The Asset Market Model

Permanent link to this article: http://snbchf.com/fx-theory/the-asset-market-model/

Ist der Franken überbewertet? Kaufkraftparitäten

  Nach dem starken Anstieg des Frankens in den letzten Jahren, sagten Ökonomen wie O’Neilly von Goldman Sachs oder die der Schweizerischen Nationalbank (SNB), dass die Schweizer Währung überbewertet wäre. Einige benutzen den “Big Mac Index”, den OECD-Kaufkraftsparitätsindex oder Kaufkraftparitäten auf der Basis von Konsumentenpreisen als Beweis. Wir zeigen, dass aber nur die Kaufkraftparität aufgrund von …

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Permanent link to this article: http://snbchf.com/2012/12/ist-der-franken-uberbewertet-kaufkraftparitaten/

Best Trading Tips

Permanent link to this article: http://snbchf.com/fx-theory/best-trading-tips/

FX Theory, The Most Relevant Posts

Permanent link to this article: http://snbchf.com/fx-theory/

Will the EUR/CHF never rise over 1.22 again ?

Abstract: Basic foreign exchange theory, the SNB price stability mandate and strong fundamentals for Switzerland and bad ones for the peripheral countries of the euro zone speak for the thesis that the EUR/CHF exchange rate might never go over the level of around 1.22 or 1.23 again. Therefore the SNB will need to think about …

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Permanent link to this article: http://snbchf.com/2012/02/will-the-eurchf-never-rise-over-1-22-again/

Inflation, Central Banks and Interest Rates

Permanent link to this article: http://snbchf.com/fx-theory/inflation-central-banks-and-interest-rates/