Highlights in this issue:

*** The biggest shift in market history is coming – be prepared…
*** Four reasons why trading currencies movements is the only chance you have at real wealth...
*** Get in on the action before it’s too late...
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From the pen of Karin Iten…

Dear Investment Academy Reader,

Forget BP.

Forget the Greek crisis.

The one really important story in the global economy right now is currencies.

Today, MoneyWeek Online expert Matthew Lynn tells you why. 

Get on the right side of this market shift – before it passes you by

A once-in-a generation shift in the way the world orders its money is taking place. Companies and investors need to get on the right side of it – because calling currency movements correctly is likely to be far more important than any other single decision they make.

Don't let news releases catch you out

There was certainly no shortage of news for the foreign exchange markets to get excited about over past two weeks. The most significant was the Chinese announcement that they were letting the yuan float upwards against the dollar. The informal peg to the dollar, which has been maintained by China’s buying vast quantities of foreign currency to keep the yuan down is going to be slowly relaxed. The currency made its strongest gain in 20 months in response to the news.

No one expects the yuan suddenly to shoot upwards in value. The Chinese won’t allow any sudden movements in its value to jeopardise their own economy or their mighty export machine. But there was little mistaking that it was a signal of intent. The yuan is about to resume its gradual rise in importance in the global markets.

Less widely reported, but potentially equally significant, were the comments of the Russian president Dmitry Medvedev. At a conference in St Petersburg, he put forward the claims of the rouble to become one of the world’s main reserve currencies. “Only three, five years ago it seemed like a fantasy to create a new reserve currency,” he said. “Now we are seriously discussing it.”

It’s only a little over a decade since the Russian economy collapsed and it was defaulting on its debts. At that point, most investors would have reckoned the Zimbabwean dollar had more chance of becoming a reserve currency than the rouble. But Russia has one of the fastest-growing economies in the world and its vast quantities of raw materials mean it’s stockpiling foreign currency the way it used to stockpile nuclear weapons. With more than $450bn stashed away, Russia has the third-largest foreign currency reserves in the world.

Meanwhile, the euro limps from crisis to crisis....

When the euro launched, its creators believed it had the potential to become the world’s pre-eminent global currency, replacing the dollar. It was a nice idea. And it could have worked. But it needed to be a hard currency, a recreation of the German deutschmark on a larger scale.

By bailing out the profligate Greeks, it’s been turned into a weak, inflationary currency – more like a new lira than a new mark. It can forget any pretensions to global status now – the markets will be more interested in speculating about its ultimate demise.

Nor should the relative strength of the dollar fool anyone…

In times of turmoil, there is always a flight to safety back to the dollar. But the American currency is still of declining importance. The US no longer has the share of the global economy it once had. And the country’s trade and budget deficits remain enormous. Like the pound a century ago, it’s being eclipsed. It can no longer be the sun around which other currencies revolve.

Investors should take four things from all of this…

#1: The currencies of the BRIC nations – Brazil, Russia, India, and China – will grow in importance
Goldman Sachs is already predicting that the rouble and the yuan will be added to the basket of currencies that make up the International Monetary Fund’s special drawing rights by 2015. A world in which the dollar, the yen and the euro were the crucial currencies will have to make way for one in which the rouble and the yuan play an increasing role. The Brazilian real and Indian rupee are very likely to follow.

#2: It’s going to happen a lot quicker than you think
Trends can take years to get established, but once a tipping point is reached, they move very quickly. The euro could be written out of the script any day. The dollar may not be very far behind.

#3: Expect intense volatility
The world is moving from a dollar-based currency system, with important roles for the euro and the yen, to something far more complex. It might be based on gold. It might be based on a basket of global currencies. It might well be based on the yuan. Expect a period of instability while the old system gets torn up and a new one emerges.

#4: There will be winners and losers
The dollar and the euro will be the big losers: The latter probably won’t survive and the former will lose much of its old importance. All the BRIC countries will see their currencies appreciate over time. The pound will do badly as it gets pushed further towards the margins of the world trading system (although it will benefit a little from turmoil in the eurozone). Gold will rise a lot further as investors look for a shelter from the storms in the exchange markets. So too will the minor currencies that are so far viewed as a safe haven: The Swiss franc, most obviously, but also the Israeli shekel and the Australian dollar.

You need to be ready for the inevitable

All this means currency movements will dwarf any other single factor when it comes to whether you make or lose money in the markets. For the next decade, forex is going to be where all the action is. To ensure you’re in on the action, read more about how to take advantage of the fastest moving market in the world here...

Here’s to your financial freedom

Matthew Lynn
for the Investment Academy