Currency

The relationship between any two currencies is important. As one currency weakens relative to the other, it loses purchasing power but gains favoritism in international trade. This is one reason that China has artificially devalued its currency, the Yuan, in order to boost international demand for its goods. The profits lost by keeping the Yuan relative value low is more than gained back with increased exports to foreign countries.

Likewise, when there are large spikes or dips between the value of two currencies it creates a good opportunity for the purchaser if the difference in value has swung in a favorable direction. If we look at the Euro versus the US Dollar in 2008 the ratio was just under 1.6, meaning that 1 Euro was worth about 1.6 US  Dollars. Today, that ratio is down to 1.25. This represents roughly a 25% difference in value in favor to the US Dollar. It is without doubt that the debt crisis in Europe is the leading factor in the keeping the Euro/Dollar ratio at its current value. That being said, I believe that if anyone has been currently contemplating either traveling to Europe or purchasing any goods produced in the Euro Zone it is currently one of the best times to do so in the last three or four years.

Now, lets look at someways to take advantage of this currency relationship. There are a few ways for a possible gain when and if the Euro regains some strength back compared to the US Dollar. One way is to go is walking into your local bank and purchasing a bunch Euros and then buying back US Dollars when the Euro becomes more valuable. An other way to attempt to gain from Euro bounce-back is to purchase an Exchange Traded Fund (ETF). There are a few Euro denominated ETFs traded in the US markets, and they provide potential returns just like a convention stock. These returns are then multiplied by the change in value of the Euro/Dollar. This makes the trade more volatile, and thus increases the risk. It is possible to have a trading gain be offset by a currency swing in the same trading day. One fund that meets these criteria is iShares' Euro Corporate Bond fund: IBCX. It holds bonds from major corporations in the Euro Zone, and its returns are also influenced by the value of the Euro/Dollar. I have not personally bought this fund, just one that is on my watch list. I think that it would be a good time to invest in this security, as I believe that the Euro/Dollar will not devalue much farther than it already has, as well as I hope that we have seen the worst out of the European debt crisis.

Education: The Crisis of Credit

This is one of the best financial educational videos I have seen. It came out a long time ago and has over one million views on YouTube. It covers the basics of how some recent financial innovation and shady business practices got the world into our current financial mess. Please enjoy The Crisis of Credit: Visualized by Jonathan Jarvis:

If you are interested and intrigued about this topic and wish to know more, I suggest reading The Big Short by Michael Lewis. It is a good book, easy to read, and goes deeper into the details of the housing bubble.

Jumping the Gun

Well, its appears like I was overly concerned with the Greek voters on Friday, which prompted me to sell almost all of my positions in my portfolio. Now it appears, according to the AP! that the New Democracy, the political party in Greece who is in support to a European Union bailout, has secured more parliamentary seats than the anti-bailout party, the Pasoks. (http://finance.yahoo.com/news/greece-pro-bailout-parties-could-184929628.html) So it appears that Greece will remain in the Euro Zone for the time being. 

I believe that when the markets open Monday morning the two stocks that I sold on Friday are going to rally; NBG and BNPQY. I am going to attempt to purchase them again in pre-trading before the market opens. I am also going to double down and purchase more share than I originally did last week.

Firesale

Today, I sold almost all of my stocks, including the ones I purchased yesterday in two European banks. National Bank of Greece SA (NBG) with a 7.81% gain, and BNP Paribas SA (BNPQY) with a 4.11% gain. I am happy to book the profit on the trades from yesterday and not risk any potential fallout from the Greek vote this weekend and whether or not the Federal Reserve will supply more stimulus to boost economic growth. I might buy back into the positions after the market opens on Monday depending on the state of the news and how the market is heading.

Casino Royal

My trading report for today: I have established a long position on two European banks. I bought of the National Bank of Greece SA (NBG) and BNP Paribas SA (BNPQY), at $1.60 and $17.88 respectively. BNP Paribas is a stock that I have been eyeing for awhile now and think that it is a good stock to own for a significant amount of time. On the other hand, my purchase of the Bank of Greece is a purely speculative bet that the price of the stock will increase in the next few days of trading. Hopefully my bet pays off in the coming days.

Prime Time for Real Estate

With home prices hovering about what they were in the early 2000's and mortgage rates hitting historic lows, I believe that, if you can afford to, it is time to buy! In economics, the demand of a superior good is dependent on income; as income rises the demand for a superior good rises, and as income falls the demand falls accordingly. According to the US Department of Commerce, wage and salary income increased $12.9 billion in April and $17.9 billion in March. As long as the recovery continues I believe that home prices are at their bottom and are poised for a increase in the foreseeable future. While prices will not see an increase like they did with the housing bubble, I predict that they will raise enough for it to be worth the time and risk of an investment.

I was reading an article in the Wall Street Journal a few days ago which underscored the income-demand relationship of real estate economics (http://online.wsj.com/article/SB10001424052702304821304577440473581936752.html?mod=WSJ_RealEstate_LeftTopNews). The article stated that "bigger homes are making a comeback", as well as the average home price nationwide was up from $282,600 to $269,900 in the month of April alone. The article states that the increase in demand was influenced mostly by lower mortgage rates, which can be found under 4% for a 30-year fixed rate mortgage. Also to keep in mind are that interest payments made to your mortgage lender can be tax deductible, but as with any major financial decision you should speak to a CPA to have a clear understanding on your personal finances.

Jason Berry, a friend and licensed realtor, informed me of a few opportunities to invest in real estate in Northern California. Doing some independent research, I found from Zillow.com that while home prices in Sacramento are down 4% year to date, looking from Q-4 of 2011 to Q-1 of 2012 home prices have increased 2.4%, and from April to May have increased in 4.3%. This increase in home prices signal to me that is is indeed a good time to purchase home property in that particular area. Jason provided an interesting graphic for the prices of real estate in the Sacramento area, which states that the six month median price has increased by 4.4%, and the percentage difference month to month is down just 0.6%. If any one is interested in more information about homes in the Sacramento area, I encourage you to contact Jason or find more information at http://realestatewithjason.com/.

SuccESs

In yesterday's after-hours trading session, I purchased EnergySoltuions, Inc. (ES) because I thought it was oversold. ES had a daily volume of over 32 million shares traded, almost 36 times its normal level of 850 thousand shares (3-month average). The stock was oversold and my gamble paid off with the stock up 7.41% to $1.74 at the close of regular trading hours. I cashed in and sold late in the day at $1.73. I bought the stock at $1.66 and made a 4.13% gain on the trade. After closing my position on EnergySolutions, I looked for more potentially oversold stocks. I did not find any that I found worth the risk, so selling was my only trade for today.