After many years watching markets, the only fundamental truth that summarizes how markets move goes as follows: currencies are mean reverting and the extraneous shocks necessary to bring values closer to parity will occur. In other words when a currency is too pricey like the euro used to be, something will happen to make it cheaper like the current Hellenistic crisis.

And what is the best way to assess if a currency is too pricey beyond all sophisticated models created by erudite Doctors in Economics. Simply ask tourists who visit Europe from the USA or vice versa, and they will tell you when the God of Currencies has lost its mind, like when he had the euro at or over 1.50 to the dollar for a long period of time. This was so absurd that Paris was determined to be the most expensive city in the world for the cost of living according to a prominent European magazine.

Yes Paris was ahead of New York, Tokyo or Hong Kong. And given the relative wealth available in the 4 cities in question, this was simply a ludicrous bogus statistic stemming from an exaggerated value of the euro. Now back to a 1.25 FX rate, I bet you Paris is not number one anymore.

So often the highly complex econometric models from Ivy League educated Professors of Economics will equate with what all the talkative taxi drivers of the big cities in the world know from talking to travelers. Assuming such models are correct.

If there is a positive consequence from the Greek debacle, it is to bring the value of European assets back to more a reasonable level, starting with its currency the euro. The purchasing-power parity is what rules currencies at the end of the day and this is getting truer if economic players are given the opportunity to arbitrage geographical locations.

One such PPA model by the OECD said 6 months ago that the euro was 21% overvalued. Nice evaluation and it is now approximately correctly valued versus the green back. Another similar model by the IMF says that the Chinese Yuan is 75% undervalued and we all know this one. This is the reason why China is getting so strong with its cheap exports. And the Greek crisis is given them a new reason not to let their currency appreciate at this point.

USA: 0; Europe: -1; China: +1.

Not that long ago everyone was talking and blogging about the weak dollar, the end of America’s economic hegemony and its unsolvable deficit, deflation and the search for a replacement to the greenback.

Just a few months later the dollar has appreciated by 10% and the same bloggers are starting to worry if this dollar strength will have dire consequences. Here this discussion is focused on the USD versus Euro rate, a good summary of dollar strength or weakness.

This is all a matter of perspective. In my mind the EUR fluctuates in a big range [1.20-155] and this is where it belongs. Parity of purchasing power is a concept that traders and short-term investors tend to forget, but this is truly what defines the exchange rate. There are arbitrages from real good markets that guarantee that the dollar cannot stay too strong against the euro for  a prolonged period of time, and vice versa.

This fundamental truth is getting truer and truer and this is what guarantees that PPA theory will have its moment of glory. This is truer because the world is more integrated and arbitrages in real goods are easier and more predominant.

For example retired people in Europe may decide to buy their second home in Spain or in Florida. In the upper middle class this is common and the level of the exchange rate will be a significant determinant in their choice. As flying is easy and cheap, it does not make much difference to fly from Budapest to Barcelona or Miami.

The Internet facilitates the buying of all kinds of products that will be manufactured on the continent with the more favorable exchange rate. If one of the currencies were to diverge too much, natural commerce adjustments will occur that will modify supply demand to reverse the imbalance and the trend.

America and Europe are getting more alike, culturally and commercially, hence their currencies will stay in line for the most part. So expect the EUR to stay within [1.20-1.55] in the foreseeable future. But of course play the small trends and swings for short-term trading profits.

Japanese Yen

The Japanese recently made a new high, reaching levels unseen since 1995.

As a country depending a lot on finished good exports (Japan has no natural resources to export) since after World War II, the strength or weakness of its currency is a matter of national concern. When the Americans ruled and reorganized Japan in 1945, they created today’s Japanese Yen with a conversion rate of 360 Yen for one dollar.

Last Friday the Nippon currency reached 86.58, a fourteen years low and a long way from the initial rate set by the American. And this is getting closer to making an all time high.

This is bad news for the country which has suffered from deflation for the past decade. This is likely to continue with a stronger Yen making all imports cheaper. This is also bad news for local investors. On one hand the Japanese stock market never likes a strong Yen; on the other hand all financial derivatives based on getting cheap Yen financing including carry trades will suffer from a stronger Yen.

This situation illustrates the eternal debate about the merit and benefit of using a floating currency for a trading country. Japan let its currency floating completely during financial deregulation in the 80’s under pressure from the American. But the Big Brother in the North, China, has not fallen to similar pressure. And their exports are booming but their currency is not that strong.

A large part of China’s recent economic success and rise to the top of commercial leagues can be attributed to the weakness of the Renminbi. The Chinese engineered a massive devaluation of their currency in the 80’s and even though the Yuan is nowadays pegged at 6,83 after its recent appreciation, it is still a long way from its value of 1,50 in 1980.

The bottom line is that the currency policies employed by Japan and China in the past twenty years have been opposite in many respects, helping the gap shrink between these two countries. This simple notion can explain tremendous wealth creation in the Middle Kingdom with simultaneous wealth erosion in the Land of the Rising Sun.

As the Japanese officials are starting to show signs of concern after the latest Yen appreciation, it is going to be interesting to watch this next episode in the saga of Asian currencies.

This is nothing new to be honest and this was said years ago, even decades ago, until the dollar strengthened and then weakened ago.

Abandoning the dollar as the main international currency is a topic probably older than most currency traders nowadays. But years after years the dollar remains the main currency for forex trading, real goods trading, commodity trading in particular crude oil, currency reserves, etc. And if you travel and believe me I have traveled, and if you can only carry one currency with you, which one do you think it is going to be? Ok, ok sometimes the euro is more accepted such as in old French colonies in Africa, but this is by far the minority.

So why do people keep on writing thousands of pages and blogs about the demise of the dollar? The short answer I guess is people do not learn. Anyway the slightly longer answer is you need a currency to replace the dollar. It is not going to be the euro, because the euro is still a new currency (ten years old!) and even a large portion of Europeans do not like the euro, and it would be hard to convince the rest of the World to make it the reference currency. Yes one reason they do not like it is that it has induced concealed inflation.

You see, you need one currency to replace the dollar, and that currency has to be strong. The dollar will not be replaced by a smaller currency. Using a basket of currency to replace the dollar will never happen either. Why? Because a basket is not a currency in itself, it is an artificial creation with no relation to a real physical reality. The dollar is the dollar because it is backed by the power of the United States economy and population and army. Three not small backers. Baskets never have and never will be trusted and be able to compete with a true currency. Historically they have never worked. Just take the example of the predecessor of the euro, the ECU. It failed like all baskets, because the weaker elements in the basket make the basket fail.

So the point is only a currency can replace the dollar and it has to be strong. I just explained that the euro is not ready, far from it. What are the other strong currencies. The British Pound and Swiss French are way too small and local currencies to be even considered. The real serious contender is the Japanese Yen, and here again it cannot and will never replace the US dollar. First Japan is less than half the size of the US economy. Japan has no military. The Japanese Yen is not use as a currency for trading, unless one Japanese counterpart is involved in the transaction as buyer or seller.

So here we are, keep on printing pages after pages saying that crude oil will soon be traded in another currency like you have been saying for over ten years, and I am still waiting.

Wait, wait. So that is it? The truth is yes that is it. I hear someone say the Yuan. Please do I need to answer that? It is not even a freely traded currency please.

Summary: the dollar will remain the dominant world currency as long as there is no candidate for its replacement.

“Easing” just stands for making life easy for the banks, and indirectly for everyone, from an economic standpoint. “Quantitative” stands for quantity.

Ok, let us stop the bullshit for a minute. I find that one of the miracles of this new millennium is that a new widespread trend has emerged. The skill to rename old things with new names so that they seem to be completely novel and modern technologies, whereas there are simply rehashed old techniques. So to put it in plain English, quantitative easing simply means to print money.

This is certainly not new, and monarchs and emperors have used it since ancient time, any time they lacked the means to conduct the policies they wished to follow. Remember that Napoleon sold Louisiana (which was about one third of the United States by then) for a meager twenty million. So at least he had something to sell to finance his wars.

Earlier French Kings who did not have this luxury would routinely burn their Jewish bankers in the public square in order to cancel the royal debts and to get free assets in the process. Even earlier, since Antiquity the Royal Mint was the ideal medium to secretly change the composition of coins, hence creating many new coins from fewer old ones. When note bills became in use, it was much easier (literally and figuratively), as Government just had to go to the printing machine to get money.

Technically it is done differently nowadays thanks to the use of the digital money market and of sophisticated Central Bank operations. It is all a matter of orchestrating complicated monetary transactions through computers, networks and data center. Money is simply equivalent to how some bits are organized on some magnetic disks at some obscure data center.

Joke aside, financial markets have recovered nicely all over the World, not in small part because of the quantitative easing engineered from the United States. So far it seems to work.

Even though many non-believers doubt that this policy can work in the long term, it is clear that the recent economic maelstrom has lost is intensity and that a gentle global recovery is under way.

Following the Asian crisis in the late 1990s, a similar policy of quantitative easing was conducted by the Japanese Central Bank until 2006, adopting a zero interest rate policy, expanding banks’ balance sheets and purchasing long-term bonds. But this stimulus failed to materialize into any visible economic benefit, as banks continued to refuse to lend money even though that where overwhelmed with it.

This is what Keynes calls the liquidity trap, i.e. when interest rates are near zero, no more impetus can be gained from such monetary policy because interest rate cannot go below zero (usually). Fortunately the American and Japanese economies and cultures are radically different, so there is no need to believe that what occurred in the Land of the Rising Sun will repeat in America.

In particular their size and global economic importance differ, and one is a major exporting country whereas the other a major importing country. Also the US Government has adopted a wider policy than their Japanese counterparts.

It seems to work for now, but it is too early to tell the long-term consequence of financial easing in the USA. As his leading advocate, it is certainly one of the main arguments on how president Obama will be judged in the history books.

Many are of the opinion that credit score is an important indicator of your financial health. Undoubtedly it is but there is another number that reflects your financial responsibility. It is your debt income ratio. DTI or debt-to income ratio is made up of a front ratio and a back ratio.

The front ratio indicates the payments you make for your mortgage. It includes PITI or the amount you pay for the principal amount, for insurance, taxes, interest etc. The back ratio includes the amount you pay for the aforesaid as well as payments you make for credit cards, student loans, alimony, child support, legal judgments etc.

Debt-to income ratio is calculated as – Total debt payments/ total monthly payments. It is expressed as percentage. Your debt income ratio is important as it helps lenders to determine your repayment capacity. Generally, 28/36 is a standard debt-to income ratio. And lenders prefer to extend mortgage to borrowers with this debt income ratio. However, there are variations to the 28/36 rule. The FHA or Federal Housing Administration allows you to avail loan if you have a DTI of 29/41. The required DTI also varies from one lender to another.

Having a good debt-to income ratio doesn’t necessarily mean that you qualify for a loan. This is just one of the various parameters for qualifying for a mortgage.

Your debt-to income ratio escalates if you avail more loans. Your debt income ratio is directly proportional to your financial well being. Higher is your debt income; greater are your chances of facing financial hazards.

There are different facets of credit repair that many consumers are unaware of. It is important to know the credit repair facts if you want a stable credit rating. You may be denied credit if you have a bad credit rating. Several instances have also been reported when you have been making payments regularly but your credit report shows the reverse. It may be an instance of identity theft. When you are a victim of identity theft, you will find inappropriate information entered in your credit report. There may be instances when the names and addresses may not be yours.

Therefore, it is very important to review your credit report from time to time to see if it requires any “repair”. Know your rights to deal with your creditors better. As per the FCRA or Fair Credit Reporting Act, you are entitled to get a free credit report under the following circumstances.

• If you are unemployed and planning to look for employment within the next 60 days, you can get hold of a free credit report.
• If a lender has refused to give you credit, you can review your credit report by requesting for a free credit report.
• You are also entitled to get a free credit report if an insurance carrier denies your request for insurance coverage.

Having a good credit rating is advantageous because it not only helps you to enjoy many financial benefits but you are also in a position to get credit at favorable terms.

If you are hiring the services of a credit repair company, try to figure out their credentials. However, you can save a lot of money if you can do the credit repair yourself. According to the Better Business Bureau, the number of companies involved in fraudulent activities is on the rise.

• Your interest rates are favorable

  In a credit card debt consolidation, the creditors agree to reduce interest rates.

• Your monthly payments are affordable

  Since your credit card interest rates are reduced, the amount you are required to pay every month also reduces. This enables you to make payments for your other financial obligations each month.

• An organized repayment schedule

  You are given an organized repayment schedule and it makes it easier for you to keep track of your payments.

• Creditors are paid regularly

  Since your monthly payments become affordable, you make payments regularly every month. This ensures that your creditors get paid regularly each month.

• Your credit score improves in due course

  Credit card debt consolidation has a positive effect on your credit score. As you start making payments regularly, your credit score improves gradually.

• Fear of being sued by creditors is reduced

  If you fall behind on payments, your debts pile up. And at one point of time, your creditors may threaten to sue you for non-payment. You can avoid such a situation.

• Avoid collection calls

  You can avoid collection calls if you consolidate your credit card debts.

Debt consolidation is a process that is widely accepted by many debtors. The fact that it has helped many to get out of debt has made it a favorite among debtors.

FICO (Fair Isaac Corporation) score is the most widely used scoring tools, with the help of which, your credit score is calculated. Though the credit score formula that FICO use is top secret, yet the company provides an overview of what it uses to calculate your score.

Credit score formula – its components

There are 5 key components of FICO credit score formula, which are discussed below.

1. Your payment history (35%) – It determines your ability to pay back your debts on time.

2. Amounts you owe (30%) – This part of your credit report examines your ability to repay your debts.

3. Length of your credit history (15%) – It is based on the oldest account in your credit file.

4. New credit (10%) – This portion is affected by any new hard inquiries made by your creditors.

5. Types of new credit (10%) – It is based on the types of credit accounts that you have.

Credit score formula – how it works

The scale of FICO credit score runs from 300 to 850. Your score is calculated on the basis of credit score formula and a number is assigned in between 300-850. The better your score, your chance of getting better interest rates on your loans increases. If your score is 720 or more, then you will get favorable terms and conditions on your loans.

Credit score formula – reconfigured by FICO

FICO has introduced some new changes in the year 2009. FICO now uses a new credit score formula in order to describe the credit problems in a better way. This new scoring technique is able to predict defaults about (5-15) % better than that of the older model.

FICO score is not the ultimate thing that your lenders consider while offering loans. Your chance of getting better rates on your loans increases if you have a good paying job.

Doctors, medication and hospitals are very much costly in Germany, therefore it is essential that you cover yourself for illness and urgent situations. A considerable number of people don’t have any clue to the question: what is private health insurance in Germany ?

There are two parallel health insurance arrangements in Germany:

State health insurance: It is being operated by the German government. The majority of German citizens and foreign nationals are bound to obtain state health insurance.

Private health insurance: This form of insurance might be selected in some particular circumstances. It usually provides an all-inclusive coverage. However, this is not beneficial for every individual.

More or less everybody can participate in the state health insurance programs, however, only a handful of people are permitted to exit this for a private health insurance policy.

Who Can Choose Private Health Insurance?

Theoretically, everyone cannot select private health insurance. As soon as you have left out from a state health insurance scheme, it is hard to return. Prior to making a decision, you must cautiously compare the pros and cons of the two systems.

If you have left the state health insurance scheme and are unable to return, the private health insurance companies would be compelled to provide you a basic tariff with equal fees as state health insurance from this year (2009).

Benefits of Private Health Insurance in Germany

Private health insurance in Germany offers the following benefits to the consumers:

• Contributions are calculated on the basis of your risk profile and not on your earnings
• Coverage offered are all-inclusive and encompass facilities like alternative treatment such as herbal therapy and acupuncture, private/semi-private hospitals, contact lenses and glasses and other interventions that are not covered by the state scheme.