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FTBagain

Falling Pound Starting To Hurt

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The falling pound is getting close to the point when retailers start making a loss on 'cheap' inported goods as this artical in the Blog describes.

http://www.thisismoney.co.uk/news/article....06&in_page_id=2

If the Euro base rates go up on Thursday then the pound will be facing to two sided squeeze from the Dollar and and Euro, in its already weeked state, expect further falls in the future.

Also, the unions are starting to say what we have been saying for along time now, people pay for energy so you cannot strip energy inflation out of the figures forever. Starting to sound a bit like the 1970's all over again.

http://www.moneyweek.com/article/1489/inve...rdon-brown.html

Oil production took another knock as well this week. Indian production appears to have peaked as well as Kuwait’s big oil field. So we are rapidly approaching the point at which oil inflation starts to rise strongly.

http://news.bbc.co.uk/1/hi/business/4477676.stm

All in all, there must be quite a few very worried people in the BoE and Treasury.

Edited by FTBagain

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£1.00= 1.00eu so we can join the euro and move a small amount of exports

the UDD$ will drop when we all get to buy Oil in euro's come march 2006

i'll make a killing if i sold my euroland property and converted back to £Pounds as cach is king during a crash and i want to meet all them nice BTL's and make them a stupid offer they can not refuse :D

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Retailers are now paying more for goods bought in the Far East, compared to last year, due to the stronger USD. If exchange rates stay as they are, this effect will only increase into next year. Added to this, higher oil prices mean it is costing more to transport the goods back to the UK.

The retailers have bought more cautiously this year, learning the lesson of 2 disappointing Christmasses. This means there will be less bargains around in late December / early January than people are expecting.

Less bargains mean less deflation. There could even be some noticeable goods price inflation, depending on how much of the increases can be passed onto consumers at the moment (probably not much).

Any positive impact on the CPI figures should in turn have some bearing on MPC interest rate decisions.

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The Pound is and has been seriously overvalued in relation to the US$ for at least two years. In the run up to the late summer of 2003 the pound ranged between 1.50 and 1.60. In late 2003 it took off toward the heavens almost touching 2.00. It is now 1.72 which is still 10% above the pre-2003 range.

Its not the overvaluation of the pound that is the problem but the price of goods in the UK caused, in large part, by the distortions in the housing market and credit markets. House prices are too high and credit is too cheap. Inflation will correct both as interest rates rise and house prices fall.

The slow down in HPI from 20% a year to less than 3% points to one thing: HPI cycle is over and the forces of correction are manifesting themselves. As momentum to the downside increases the object that has suffered from the greatest level of economic distortion will find its own level and correct to more sustainable levels. The P/E ratios for housing are too high and they must drop accordingly.

I am holding all the proceeds of sale from my house in US$ and staying out of the housing market to rent. I believe sterling, which is hyper house price sensitive, will fall to more sustainable levels (1.50-1.60) with a commensurate 30-40% drop in house prices. These are moderate falls and if the economy goes into negative GDP we may yet see a true HPC (30% is a correction--not a crash) which, given the HPI of 120% or so, would be in the range of 50-60%.

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The Pound is and has been seriously overvalued in relation to the US$ for at least two years.

The pound has been overvalued relative to a country with a 1%-ish interest rate, the biggest trade deficit in the history of the world and the biggest government deficit in the history of the world, and with upcoming unfunded liabilities of 5-10 times its GDP?

I took most of my money out of sterling a few months ago, but I sure don't hold out much hope for the US dollar.

Edited by MarkG

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The pound has been overvalued relative to a country with a 1%-ish interest rate

US interest rate is now 4% and still climbing (for how much longer?).

the biggest trade deficit in the history of the world

To be fair they also have the biggest economy in the world, with GDP of about $12 trillion in 2004 dollars.

the biggest government deficit in the history of the world

Again, let's get this in proportion: it is only about 5% of GDP.

with upcoming unfunded liabilities of 5-10 times its GDP?

The thing about these upcoming liabilities is that most of them are simply government promises, and, as we all know, promises from politicians aren't worth the paper they're printed on (mostly US dollar bills).

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I believe sterling, which is hyper house price sensitive, will fall to more sustainable levels (1.50-1.60) with a commensurate 30-40% drop in house prices. These are moderate falls and if the economy goes into negative GDP we may yet see a true HPC (30% is a correction--not a crash) which, given the HPI of 120% or so, would be in the range of 50-60%.

ooh don't you'll get me over-excited :D

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US interest rate is now 4% and still climbing (for how much longer?).

Note: 'been'. For the last two years it's been much closer to 1%.

To be fair they also have the biggest economy in the world, with GDP of about $12 trillion in 2004 dollars.

The world is awash with dollars. They've printed so many trillions and trillions of dollars in the last few years that no-one knows what to do with them. Foreign central banks are probably having to build whole new vaults just to store the damn things. The value of the dollar against gold has about halved in six years.

And the pound has been overvalued in comparison?

IMHO the dollar has a heck of a long way to fall yet. The current level is driven by a 'rush to quality' as, particularly with the recent riots in Europe, it looks like the least worst of the major currencies for a while.

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The thing about these upcoming liabilities is that most of them are simply government promises, and, as we all know, promises from politicians aren't worth the paper they're printed on (mostly US dollar bills).

And if those politicians default on their promises, which as you point out are in the form of dollar bills or treasury bonds, exactly how much will that paper be worth?

The dollar has to come down by a significant amount over the next decade - the only real disagreement among economists is when and how it will happen.

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And if those politicians default on their promises, which as you point out are in the form of dollar bills or treasury bonds, exactly how much will that paper be worth?

The dollar has to come down by a significant amount over the next decade - the only real disagreement among economists is when and how it will happen.

Most things are relative. My bet is that the pound will continue to decline as against sterling. Not so sure how the $ will do against the Euro etc. The UK has relied on two underpinnings to justify the high level of the pound: HPI and North Sea Oil/Gas. Remove those two and there is not a lot left to give FOREX traders confidence. I suspect the decline in sterling from the 1.90's to the 1.70's has something to do with eroding confidence justified by house price declines (or at least stagnation) and problems associated with declining fuel reserves. The end of Gordon's economic miracle as evidenced by ongoing downward revisions in GDP do not bode well for sterling IMHO.

The US is a more resilient economy. The more money it owes China the more hooked China becomes. The massive reliance on Japanese goods throughout the 80's did little to help their economy in the 90's and early 2000's. Who you sell to often ends up controlling you.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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