Cheap Money & Big Opportunities!

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I suppose that there is only so much general business philosophy I can write about without boring you all to death…

If you follow this blog its most likely because you are interested in business and entrepreneurship and there is one thing that greatly affects business: currencies! The cost and availability of money, foreign and domestic, is crucial to any venture.

Currencies have a major impact on economies and the way money flows around the world. You may have been following the monetary policies of the world’s central or federal banks like the ECB, BOE, BOJ or the FED lately and they all seem to have the same objective: make the money of their country as cheap as possible to attract foreign investors and to stimulate exports. If every country pursues the same strategy however, there is a good chance that they cancel each other out.

Keeping an eye on currencies is always useful because you can shift your purchasing to reduce the cost of your products. Also, if your currency is weak, you have a competitive advantage in the countries with strong currencies. These are all elements to consider to get the best out of your business.

For example right now, as the Euro has weakened substantially against the U.S. Dollar, it is becoming more and more interesting to export products to the USA. The ECB seems to be the most aggressive central bank at the moment.

One very dangerous side effect of this “cheap money” policy is the constant rise of stock markets. The economies themselves don’t grow as quickly as the stock indices do so the gap between anticipation (speculation) and reality widens ever bigger. It is part of the human condition to be optimistic and as such, we always hope for things to go well. Always up, always better, always one more. That’s one of the reasons why casinos exit and do so well. Because against all odds we believe in the improbable. But casinos are a different matter all together!

Let me get back to currencies… There is another interesting aspect to consider because in theory, the value of a currency is the sum of the nations value, both physical and intrinsic. In this instance, I determine value as what someone else is willing to pay for it. In the past, we had the gold standard, where a nation’s currency was backed to a large extent by physical gold. This gave investors and the nation itself a certain sense of security. Today that’s all different… We wildly print as much money as we want and as we can to spend as much as possible. Essentially the truth is that most the money we trade is make-believe and it only works because as a whole, we recognise its value – this is just something to think about once in a while.

Considering all these thoughts and factors. what does the current monetary policy entail? The opinions of economists differ depending on their schools but we can all agree that cheap money leads to inflation rather sooner than later. What happens when we get inflation? The buying power of our own money fades, prices go up and that in turn is in most cases controlled by higher interest rates and lower money supply. The current strategy of our over-eager bankers will likely lead to a rude awakening in the medium term with quickly rising interest rates and less money floating around. This will largely impact the value of real estate because people won’t be able to afford their mortgages any more; stock markets will correct and if this occurs too harshly then the world dips into a recession. I’m not a negative person at all but its important to be aware of what looms to prepare and protect yourself and your family.

So what is the conclusion to all of this? Seize opportunities as and when you can. Get as much cheap money for your business as possible and I personally recommend that you get out of the stock market and focus your investments on ventures you can have an impact on, something you can control (at least in part).

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