FREE KIC - NO. 5 FEBRUARY 06
Why waste so much time talking about Exchange Rates
If I turn on CNBC or Bloomberg television one more time and have to listen to some currency economist waffling on about the dollar or the yen or the euro I think I will go mad. If I pick up the FT or a research note from an investment bank strategist going on about sterling I think I will go doubly mad.
Finally after twenty years involved in financial markets I can stand it no more. Why donft we admit that it is a waste of time to try to predict short term currency movements. Why donft we just accept that even trying to predict long term currency moves is incredibly difficult. I donft know if the euro/dollar will go to 110 or to 130 in the coming months but I do know that I donft want to listen to so many hours of discussion that goes over and over the same old issues like the current account deficit or interest rate differentials.
If I feel uncomfortable with exchange rate fluctuations I have the choice to either stick to investments in my base currency or hedge the foreign currency. By doing this I can use my time in a better way and for me this means getting to know individual companies really well.
If CNBC and Bloomberg devoted half the time they devoted to exchange rates to talking in far more detail about individual companies I think that they would be providing a far more valuable service. I presume that most of the presenters on these stations have limited knowledge about individual companies and therefore find it far easier to talk about exchange rates. In fact I presume that CNBC and Bloomberg television are both run on the basis that their presenters know a little bit more than their audience. This is why most professional investors do not look for information on individual companies from these sources. Professional investors know that they need to dig a good bit deeper. Amateur investors are now in the lucky position to be able to do the same. The internet has opened up a whole new world of detail. Anyone can now go onto the website of any reasonably sized company (Japanese companies being the exception) and listen to quarterly / half yearly results webcasts and presentations given by management to fund managers and analysts. Donft take my word for it, take the time yourself and go into the website of a Glaxo or a Diageo or Cisco and go into the Investor Relations section and you will be pleasantly surprised by the detail available. If after you have done this you still find exchange rate discussions more interesting you are quite likely to be an accountant or an actuary!!!