I swapped my play money from JPY to AUD in late October, when AUD was about 39.5 pence. By today it had climbed to 47.2 pence (a 19% profit, in GBP terms) and as my nerves are now shot, I have converted it all back to GBP, which, I am happy to add, brings my total GBP gains on my two FX trades for the year to about 70%. Which is nowhere near as heroic as it sounds, as I was down about 5% over the previous three and a half years, not having earned a penny interest in the meantime.
Yes, I know the UK economy is spiralling downwards, and news will remain bad for a good while longer, but there is always a distinct possibility that GBP has overshot its 'fair value' (whatever that is) i.e. is undervalued, i.e. is worth buying. It's not like all the other economies aren't going to tank as well. 
I haven't the time to update that chart, but in the past week or two, GBP has slumped to well below 0.8 times its long run average against a basket of other major currencies, which is one heck of a drop.
Monday 29 December 2008
Is sterling oversold?
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13 comments:
Do you know what happened to the dollar today?
Re your last para: yes, maybe, but on previous occasions the govt has taken proper measures to deal with the problem - unlike the current hoon who seems determined that we shall end up as the European Zimbabwe.. I suspect further decline, until you-know-who gets the message(s) the markets and the rest of the world are trying to get through to him.
Henry: Check out Bearwatch blog. He has a sidebar widget that contains up to the minute exchange rates. Scroll down and choose your own currencies.
thanks Pessy
It would be interesting to plot Sterling and other currencies against the Gold price.
2009: gbp/eur to remain at current levels, gbp to appreciate against usd as usd dead-cat-bounce comes to abrupt end.
pessy: what problem? inflation is a problem (as Bobby M will testify). currency decline isn't.
I'm long the Kiwi.
Gosh, what fun to say such things.
I'm long the Euro, I'm long the greenback.
I can remember when everyone had illicit Deutschmarks hidden at home.
I suppose the answer to your question is another question - what is the (hidden) strength in the UK economy (relative to other economies) which you should buy into? Frankly, I can't see any strengths hidden or otherwise: no (or no easily accessible) raw materials (eg coal, iron, oil, gas); a poorly educated work-force; a weakened international financial service sector; a permanent indigenously grown food deficit etc. I can imagine EUR/GBP and USD/GBP fluctuations over an extended period which might produce currency trading profits, but all of this on a long downward journey for the GBP.
Accordingly:
Question - why would you buy sterling?
Answer - you wouldn't.
"no (or no easily accessible) raw materials (eg coal, iron, oil, gas)"
Aside from the coal, and another 10 years of oil and gas
"a poorly educated work-force"
No, this is a Bizarre Self-Hating Myth. The UK workforce is very well educated by international standards at middle-to-top levels, it's just the bottom 40% or so who aren't.
"a weakened international financial service sector"
...but how much weakened? Enough that the UK's economy will decline by a third relative to the eurozone? Because that's what the rate movement over the last year implies.
a permanent indigenously grown food deficit etc.
Bothered - food costs next to nothing anyway (net imports are £10bn, or less than 1% of GDP).
Question - why would you buy sterling?
Because you believe that the decline seen over 2008 more than compensates for the long-term weakening in our economy that the decline in the global financial sector has caused. Pretty fucking obvious, really.
That shouldn't be read as a prediction of the £/€ rate over the next 12 months, obviously: a) The Market Can Stay Irrational Longer Than You Can Stay Solvent (TM) b) the £/€ rate pre-2008 may have irrationally higher than the 'right' value even if the financial sector had continued to generate 2007 levels of income.
"another 10 years of oil and gas"
only just and in steep decline
"The UK workforce is very well educated by international standards" "it's just the bottom 40% or so who aren't."
Wow - that's impressive. I assume you're not an employer seeking moderately literate and numerate workers.
"Because you believe that the decline seen over 2008 more than compensates for the long-term weakening in our economy"
Well, I don't believe that - the £'s decline only partially compensates. Nothing you've written convinces me that there is anything positive (currently or in prospect) in the UK's economic condition which provides justification for the £ staying at present levels.
@ JB and U (Trade and Aid Ministers respectively) - on educational standards, maybe I'm just arrogant or something, but it strikes me that even people coming out of university don't seem very well educated nowadays - but perhaps they never were.
When I was a lad in the early 1980s I was told that the average academic achievement was 2 CSEs. I doubt whether much has changed.
@ U, I agree that the UK economy might be among those hardest hit by the next depression, but it's not like the other countries are immune. Yes, we would expect GBP to fall relative to the others, but which countries are going to prosper? Answer, none of 'em.
The point about currencies is, it is a zero sum game and the bad news is usually already priced in. A thirty per cent fall is one heck of a fall, remembering that it is a relative fall, not an absolute one (maybe people from another planet would mark all the other world's currencies down by 50% and GBP by 65% or something).
John B: "currency decline isn't a problem"///
Yes it is if, like me, you live overseas and need to draw some cash intermittently from the UK. I (and millions of others like me) have seen our hard earned and prudently saved for a rainy day resources decline (robbed?) by over 30% in the past few months.
But if you insist, change my use of "problem" to "situation".
MW
Re education: in my business (which, among other things, puts together corporate structures for an international clientele) I need employees who not only understand what's going on (so they must be intelligent, literate and numerate) but can explain matters to clients most of whom speak English very well but whose native language is not English. Accordingly, my people must be able to explain the whats and whys in good, simple and understandable English.
Unfortunately, despite real effort on my part I have rarely been able to find such people (at a reasonable salary - I can't compete with City lawyers) straight out of university. I don't even bother any more with those straight out of school: they can hardly dress themselves and, despite a clutch of "good" GCSEs and "A" levels, find it difficult to speak clearly - let alone write - in English.
Most of my staff were educated in the 50s and 60s and left (grammar/secondary modern) school at 15 and are nearing retirement. I fear for the future as one by one they retire. Recently we tried to recruit university graduates. As you suspect their deficiences were awesome and frightening: very few could put together a grammatical sentence in English or do any simple calculations except with calculators (and even here the decimal point was often misplaced so that, for instance, the answer to "what is 25% of 90?" was often 2.25 or 225). Although in the end we recruited two graduates with Upper 2s from red-brick universities, after 2 months training they just weren't up to snuff (as well as finding it impossible to come in punctually 5 days a week). They had to be fired at the end of their probationary period.
The above is, of course, anecdotal and a very small sample but in talking to others in my service sector it appears they have exactly the same problems. I don't believe that there exists a sector of the economy where a lack of basic education is of no importance. If the government admits that 40% of school-leavers are functionally illiterate and innumerate then I guess the real figure is much higher with disastrous consequences for us all.
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