UltraSimpleCurrencies soverein

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Ultra-Simple

CurrenciesThe ETF Solution to

Harness the Dollar-Busting Power of

Foreign Currencies


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Published by:World Currency Watch

Currency Capitalist98 S.E. 6th Avenue, Suite 2

Delray Beach, FL 33483 USAUSA oll Free el: 800-818-6934Email: [email protected]

Web site: www.worldcurrencywatch.com

Copyright 2010 byCurrency Capitalist. All international and domestic rights reserved. No part o this publication may bereproduced in any orm, printed or electronic, without prior written permission rom the publisher, Currency Capitalist.

Notice: Tis publication is designed to provide accurate and authoritative inormation in regard to the subject mattercovered. It is sold and distributed with the understanding that the authors, publisher and sellers are not engaged in ren-dering legal, accounting or other proessional advice or service. I legal or other expert assistance is required, the serviceso a competent proessional advisor should be sought.

Te inormation and recommendations contained in this brochure have been compiled rom sources considered reliable.Employees, ocers, and directors oCurrency Capitalistdo not receive ees or commissions or any recommendations oservices or products in this brochure. Investment and other recommendations carry inherent risks. As no investment rec-ommendation can be guaranteed, Currency Capitalisttakes no responsibility or any loss or inconvenience i one choosesto accept them.

Any inormation or statements contained in this publication are not to be considered by the reader as personalized in-vestment advice. Te authors and any agents oCurrency Capitalistare not licensed under U.S. or other securities laws toaddress particular investment situations and nothing herein should be deemed as personalized investment advice.


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Currencies Made

ULTRA-Simple

The Solution that can start you on your way to

trading currencies RIGHT NOW

Congratulations! Youve just taken your rst step in what is without a doubt the easiest way to takeadvantage o the oreign exchange or currency market. Te investment vehicle discussed in thisreport is currency EFs, or what we call International Vouchers.

For years, the oreign exchange market was a trillion dollarinter-bank market. Tat meant currencies were bought andsold between banks and large nancial institutions or sumsstarting in the millions. Literally, i you didnt have upwards

o US$10,000,000, you were simply locked out o all theincredible benets that currencies could aord.

But all that has changed in recent years with the introductiono currency EFs. Now with a simple, single investmentyou can harness all the power and benets that institutionalinvestors had at their disposal. With no special accounts. And with very modest minimums

So What Is an ETF?

An EF, or an Exchange raded Fund, is essentially a basket o securities that are designed to

mimic or track an underlying product an index or average, or example. In this case, they aredesigned to replicate individual oreign currencies.

Tis is easy or them to do because each und holds large sums o the actual currencies that theyrepresent. Its bought or sold just like any other type o und. Each unit o an EF that you buy letsyou control 100 units o the underlying currency. Tis makes them an extraordinarily easy way to getinto the currency markets.

Tere are EFs that represent all the major currencies traded around the world and then some.Even better, they provide an extremely aordable way to take advantage o this limitless market. Illexplain in more detail in a minute.

EFs are so simple that you can probably get started with them right away. But rst give me just asecond to explain exactly why Im sure youll want to make use o these antastic vehicles.

The Beauty o Currency ETFs

Tere are many compelling reasons to make currency EFs part o your investment arsenal. Buthere are just a ew o the major ones or you to consider

1. Tey give you hassle-free access to the currency market. Now, with currency EFs, even


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conservative, risk-conscious investors can eel comortable using the currency market in theirinvesting. Every recommendation can be traded on either the American Stock Exchange or theNYSE-Arca. Accessible either through your current online account or via your broker, currency EFsrequire no special accounts or other requirements. In other words, you can now trade a currency justas easily as you would any stock.

2. Tey let you diversify your investments and grab yield to boot. Investing in currency EFscan protect a good deal o your purchasing power against a collapsing U.S. dollar. Just like the bigboys in the oreign exchange market, you can now hedge against the bucks long-term decline.Ater all, no matter how well your U.S. dollar based investments perorm, youre losing out on evenlarger prot potential as the greenback sinks lower.

But theyre not only or dollar bear markets. You can just as easily take advantage o a dollar rallyagainst any major currency by selling currency EFs. And thats another antastic benet o EFs the ability to sell them short. Tere are no special restrictions on short selling like in the stockmarket. Simply sell the EF, drop a stop in the market, and youll be able to prot rom any dollarrally against that currency. Its that simple.

And an added bonus o holding certain currency-specic EFs is the dividend yield. Tats right!Tose select currency EFs sponsored by Rydex Fund Company pay a monthly dividend based uponthe yield in the local currency market. o check out the current yield o each o these EFs, simplytype this link into your web browser and discover Rydex sponsored EFs or yoursel:http://www.currencyshares.com/Home/CurrencyShares.rails.

3. Youve heard it before, Te trend is your friend. aking a longer-term approach withcurrency EFs means you can ride the trend. Tis way you can get in on the sweet spot o long termcurrency market trends. Tat is exactly one o the main advantages currencies tend to have overstocks and bonds they trend over the long term.

I you get the undamentals right in this market, you can ride those trends or many months, oreven years.

Oten or substantial prots.

And currency EFs are the perect vehicle todo this because, unlike options or utures, theyhave no expiration date. Simply get in and ridethe trend or as ar as it takes you.

Te average market cycle in the dollar is aboutsix years. Tat means you will have plenty o

trending opportunities to make money even witha very conservative approach. A typical holdingperiod could range rom a ew months to a year or more. I the undamentals support the trend,theres no reason to hop o the gravy train.

4. Tey are generally uncorrelated to stocks and bonds. Tats rightthe currency marketis almost entirely uncorrelated to the stock and bond markets. And at a time when investors aregrowing increasingly concerned about the outlook or stocks, currencies are vital to a well-diversied,


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global portolio. No matter what happens in the stock or bond market, currencies will always bemoving and providing you opportunities or prot.

Just have a look at the perormance o the British pound versus the yield on a ten year treasurynote. reasuries are all over the place, while the trend in the pound has been long and strong completely unaected by the whips o the U.S. market.

And Currency EFs Oer Even More Benets, Including:

Continuous liquid markets during trading hours that means its easy to get in and outTeres no minimum investment and they all oer very reasonable prices you can get in oras little as US$100Ability to sell short no restrictions on short selling so you can take advantage o up anddownward trendsYou can buy on margin to enhance your leverage i you maintain a margin account withyour broker, you can easily double the returns you get with currency EFsTey closely ollow the price o the underlying currency so you get the ull benet o the

moves in the Forex marketYou can easily use them to hedge currency risk in an international stock portolioTeir simplicity will allow you to create a diversied currency portolio just likesophisticated institutional investors in an instant

Currency Pricing Made (Extremely) Simple

One o the greatest advantages o currency EFs is how simple they are to understand. Te Forexmarket is lled with peculiarities that, while not rocket science, can be very conusing. Currenciesare traded in pairs and you have to understand their particular pricing method known as pips.Intimidating to say the least. And thats bad because it oten scares many investors away romspectacular prot opportunities.

EFs eliminate all o that.

Currency EFs are all priced in U.S. dollars and represent 100 units o the oreign currency. Sodisregarding ees or commissions or the moment, a price quote o 149.55 in the euro EF meansyou pay US$149.55 per EF contract. And at 100 units o currency per EF, every penny change inthe price o the underlying currency is worth US$1 to you.


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Lets take a look at an historical price movement in the euro EF. In February o 2007 you couldhave bought the FXE EF or under US$130. Less than a year later, the EF rallied to just belowUS$150. Tats a 15.5% return on your money in less than one year.

And it can get even better. Because i you have a margin account set up you could leverage yourposition at 2-to-1 so your return doubles to nearly 31%!

Investors and traders are quickly waking up to the power within the currency markets. And EFsare truly the next big thing. Te universe o available currency EFs are expanding rapidly. Somuch so that Wisdomree Dreyus recently added a whole new lineup that allows exposure to somecurrencies once very much o-limits to the average investor.

So What ETFs are Available to You Today?

Tere are three groups o unds or you to choose rom:

1. Rydex Investments now oers their Rydex CurrencyShares all available on NYSEArca. Tisgroup o EFs includes:

euro (FXE)British pound (FXB)Mexican peso (FXM)Swedish krona (FXS)Australian dollar (FXA)Canadian dollar (FXC)Swiss ranc (FXF)

Japanese yen (FXY)You can get more detailed inormation on these investment vehicles at:

http://www.CurrencyShares.com/.

2. Wisdomree Investments oers theirWisdomree Dreyfus Currency Income Funds. Tesecan all be traded on NYSE Arca and include:

Chinese yuan (CYB)


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Indian rupee (ICN)Brazilian real (BZF)euro (EU)South Arican rand (SZR)New Zealand dollar (BNZ)

U.S. Current Income (USY)Japanese yen (JYF)

You can get more detailed inormation on these investment vehicles at:www.wisdomtree.com/ets/index-currency.asp.

3. Invesco PowerShares include specialized unds available on the American Stock Exchange:

DB U.S. Dollar Bearish (UDN)DB U.S. Dollar Bullish (UUP)DB G10 Currency Harvest (DBV)

You can get more detailed inormation on these investment vehicles at:

www.InvescoPowerShares.com/products/.

Your Hot O the Press ETF Recommendation Time to Take Advantage o

the Crumbling euro

Ater more than seven years o consistent strength against the U.S. dollar, the euro has becomesignicantly overvalued, given the current economic conditions surrounding it. We continue toreceive more and more validation, based on dismal economic news rom Europe. And that tells us weare on the right track when we consider any rally in the euro against the dollar as another excellentopportunity to sell the currency.

European Banking Sector: a Ticking Bomb

Financial markets sentiment has recently improved considerably in Europe. Equities markets haverallied since early 2009, property prices are leveling o, and signs o a recovery in consumer andindustrial condence are starting to surace. But make no mistake. Te next European crisis is rightaround the corner.

Te European Central Bank (ECB), which oversees the 16-country bloc that uses the euro,recently released a report showing that euro-zone banks could still record a urther $398 billion inwrite downs by the end o next year, predominantly rom deaulting corporate and consumer loans.Te decline in consumer spending is already leading to rising loan-deault rates. With more andmore people losing their jobs, this problem will certainly aggravate.

ECBs latest six-monthly nancial stability review suggests euro-zone banks have absorbed barely60% o losses estimated or 2007-2010. Te spike in non perorming loans will lead to tighter creditconditions, which in turn will undermine any tentative recovery.

Tis rise in loan losses will certainly spill over to the economy; thousands o jobs in the nancialservice industry will be shed, adding to the already high unemployment and leading to a dangerous


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cycle. Te IMF already predicted that the euro region will be the worst perorming major economynext year as rising unemployment reduces consumer spending.

Tere is a rising chorus in the nancial industry that suspects that some o the major banks mightbe undercapitalized. In plain English, that means these institutions wont have enough cash to covertheir losses and will probably need a bailout to survive.

Te region has already seen what a devastating eect a banking crisis can have. Last year, whencredit started to dry up, banks quickly cut o unding, leading many o the worst-hit countries, suchas Hungary and Ukraine, to tap the International Monetary Fund or multibillion-dollar bailouts.But more write-downs will soon loom and when this happen, it will be a dj-vu crisis!

Accounting rulesallowing banks todelay write downsand the murkyoutlook or bank

prots add anunwelcome layero uncertainty.According toAudit Integrity,an accountingand governanceresearch rm, mosto Europes biggestnancial companiesemploy aggressive

accountingpractices that maymask their truenancial condition.Since banks donthave to writedown loans until borrowers stop making repayments, European institutions have been able to delaythe recognition o losses. But that strategy is not sustainable and those banks can only hide theirproblems or so long; with unemployment on the rise, loan losses will swell and banks will no longerbe able to conceal their weak nancial health rom investors.

Te European Bank or Reconstruction and Development recently warned that Eastern Europeaneconomies ace a rise in nonperorming loans and corporate deaults severe enough to destabilizetheir already shaky banking systems. Te Wall Street Journal recently published an article about thispossible second wave o nancial crisis. Te article reports that nonperorming loans are rising acrossEastern European countries and have doubled in the past year in urkey, Romania, Ukraine andAlbania.

Tis lack o transparency and the lingering uncertainty about the extent o uture losses are already

High ratios show that banks dont

have enough capital to co ver future

losses


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choking o supplies o resh credit to the economy, putting additional stress on the economy.

Tere are signs that a massive credit crunch is still taking place. Recent credit data, specicallythe collapse o the money supply (which is viewed as a sign o defation), suggests that loans tonon-nancials are still contracting. In the graph below, i you look only at the aggregate numbers,you will mistakenly conclude that there is no credit crunch in Germany, the euro zones economic

powerhouse. But take a closer look! Loans are being made primarily to low risk nancial institutions,limiting the nancing options o the corporate sector.

While in the U.S. most credit is supplied by capital markets, in Europe corporations dependmuch more on bank loans. Tis higher exposure to corporate loans will accentuate the banking crisis.

o make matters worse, European banks in general are less protable than American institutions.In countries such as Germany, or example, basic retail banking is only marginally protable, whichmeans it will take longer or banks to build a buer that can absorb uture losses.

European Governments are drowning in debt

Another huge problem in the euro zone is the rising public decit. Te public debt o variousnations is beginning to climb perilously close to 100% o GDP. Some analysts estimate that theprotracted recession could push the debt levels in Spain to 90% by 2011. In Italy the numbers arerising to 116%, Greece to 109%, Belgium to 101% and France to 86%.

Standard & Poors, the ratings agency, has already downgraded Spain, Portugal and Greecessovereign debt ratings along with Ireland, which was downgraded twice in three months.

With all these problems looming at the euro zone, the current levels o the euro are not justiedby undamentals. Te market will soon correct the mispricing o the currency, which is clearlyovervalued. Te recent improvement in market sentiment has driven the euro up to the 1.42 area, as

Banks are providing

loans to financial

institutions, but not to

corporations

Germany s till s uffer s fro m a ful l-blown cr edit crunch


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indicated by the graph below. But weak undamentals will ultimately be the catalyst o a correctionin the euro.

Te CurrencyShares Euro rust (FXE) is a great way to play the depreciation o the euro. I weare right about the dismal undamental backdrop or the euro zone, proting by going short thisEF is practically a lock.

Recommendation: Sell-short CurrencyShares Euro rust (FXE) and place a trailing stop-lossof 20%.

T hi s re c ent r ec o ver y is not

s u p p or t ed b y f u n d a m e n ta l s

You can easily proft rom the correction o an overvalued euro

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