The £ Is Dropping

[Wahoo]

Basically we are looking at the correction that should have been allowed to happen in 2008.

We would be in a good position now, if the system had been allowed to reset then.

The sticking plasters have come off and the blood is flowing.

[Barnsey]

So just how low is this going to go? Parity with the dollar or below?

I see Lloyds shares are getting trashed today. 7% and falling.

Some analyists at major banks (*pinch of salt*) now expect a low of $1.16-1.20 and 1.10 euros by Autumn/Christmas and to pretty much stay there until Summer, many modest estimates at just below $1.30 but we're already there!

[copydude]

Can anyone take this seriously?

The pound has fallen against a basket case of currencies.

Did you notice how it fell more than six points against the Papuan New Guinea Kina (PGK) as Brexit shockwaves ripped through its palpituating economy?

And all despite the fact that nothing has fundamentally changed since June 23rd.

Well, that’s not entirely true. Britain was downgraded by the ratings agencies, notable for giving a triple A rating to junk Mortgage Backed Securities and pretty much wrecking the economies of two continents.

To be fair, they downgraded the EU, but with the outlook as stable. Hmmm. As stable as an Italian bank? An EU where one of only four net contributors has upped and left?

Why do we take any notice of the markets, who panic and rally the way a teenager on crack has mood swings?

[Silverfinger]

Why do we take any notice of the markets, who panic and rally the way a teenager on crack has mood swings?

Because the teenagers' need for crack determines the price of it.

[Riedquat]

Why do we take any notice of the markets, who panic and rally the way a teenager on crack has mood swings?

It's like living surrounded by misbehaved children. You can pander to them and keep them reasonably quiet some of the time but it doesn't take much for them to start being, well, childish, throwing things around and generally breaking stuff, particularly when they're told that you've had enough of their bad behaviour. They don't do much useful but they can break things.

[slawek]

First signs of inflation

http://www.bbc.co.uk/news/technology-36722155

[One-percent]

Shiny baubles more expensive then

[winkie]

All price rises will be blamed.....like going to war will be blamed....each will blame each other.

[Frugal Git]

First signs of inflation

http://www.bbc.co.uk/news/technology-36722155

BBC more than a week behind as always. Posted about this last week.

[council dweller]

Well, I`ve only got a computer (a 4 year old Lenovo )

Replacement or growth industry ? I`d say the former .

[VeryMeanReversion]

So knowing about a coming 40% drop in the currency, you definitely wouldn't have been any better off exiting it, instead of buying assets denominated in it?

I am expecting all currencies to get trashed. Fundamentally, it is the only way to resolve excess debt. Although this is technically inflation, I don't expect reported inflation (measured in prices of consumer goods) to get very high.

The task was to work out what to do with the cash I had (STR fund and pension fund), if (as I do) the value of that cash is going down fast.

- I don't like PM's (no yield + storage costs + counterparty risk). Fun for speculators but not me.

- I need one house but don't want more => Buy one with enough land for kids to build their own on-site. Think multi-generationally.

- Treasuries look like a bubble and no/negative yield => safe but a guaranteed loser after platform costs

- Equities gives you a share of something real => amazingly, this still has good yields in the current environment. Good legal protection but have to cope with volatility. Low transaction/carry costs and able to buy a wide spread of companies with foreign earnings that have good chance of maintaining their real value.

- No interest in collectibles, classics cars or anything like that.

- No interest in foreign currency accounts. Low interest rates and hassle to setup/maintain.

All assets are denominated in some currency. I needed to buy something so the best option was a "real-terms income stream". Large-cap divis have been remarkable stable in their earnings over many years, even though their shares prices are very volatile.

[Democorruptcy]

I am expecting all currencies to get trashed. Fundamentally, it is the only way to resolve excess debt. Although this is technically inflation, I don't expect reported inflation (measured in prices of consumer goods) to get very high.

The task was to work out what to do with the cash I had (STR fund and pension fund), if (as I do) the value of that cash is going down fast.

- I don't like PM's (no yield + storage costs + counterparty risk). Fun for speculators but not me.

- I need one house but don't want more => Buy one with enough land for kids to build their own on-site. Think multi-generationally.

- Treasuries look like a bubble and no/negative yield => safe but a guaranteed loser after platform costs

- Equities gives you a share of something real => amazingly, this still has good yields in the current environment. Good legal protection but have to cope with volatility. Low transaction/carry costs and able to buy a wide spread of companies with foreign earnings that have good chance of maintaining their real value.

- No interest in collectibles, classics cars or anything like that.

- No interest in foreign currency accounts. Low interest rates and hassle to setup/maintain.

All assets are denominated in some currency. I needed to buy something so the best option was a "real-terms income stream". Large-cap divis have been remarkable stable in their earnings over many years, even though their shares prices are very volatile.

My point was that in your earlier post you said you knew sterling was going to become farepak tokens. Now you say you think all currencies will be trashed. Though USD is 40% up against sterling. So you could have bought USD denominated shares and income and profited more?

[AC44]

So at what point does the BoE stop supporting the housing ponzi scheme and starts defending the £?

Is it when it reaches parity with $? Is at 1.10$?

And at what point in time, does someone convert back to £ any $ or Euro?

https://twitter.com/fathomcomment/status/750627740538310656

[Roman Roady]

So at what point does the BoE stop supporting the housing ponzi scheme and starts defending the £?

Is it when it reaches parity with $? Is at 1.10$?

Later than is normally expected...if at all.

[thehowler]

Odd to be anticipating/engineering inflation, with signs of supermarket price cutting war, new car sales slipping and M and S food and clothing taking a hit.

It's hunker-down time...

[VeryMeanReversion]

My point was that in your earlier post you said you knew sterling was going to become farepak tokens. Now you say you think all currencies will be trashed. Though USD is 40% up against sterling. So you could have bought USD denominated shares and income and profited more?

I had looked at US shares but their P/Es seems a lot higher than the UK listed. Maybe they are more growth-oriented but I want boring real-income payers.

I could have bought foreign-listed shares as you say but it seems simpler to me to buy UK listed shared with international earnings. That way, I have no currency conversion costs, the big companies can do that more efficiently than me.

I don't know what the relative currency trash-rates will be so it doesn't make sense to get involved in taking on exchange risk.

[PaulParanoia]

And at what point in time, does someone convert back to £ any $ or Euro?

Good question. Since the start of the year, I've been converting my $ holdings to £s in tranches, as the pound continues to fall. The reason I take this approach is that I don't know from one month to the next which way the exchange rate is going to go. If the rate looks good at a certain time, I change a tranche up, leaving more available should a better opportuinity present itself down the line.

Obviously this can backfire. I'd changed 60% of my $s back to £s before the Brexit vote. So I've missed out on a lot of potential gains. However, if the vote had of gone the other way, my gains so far this year would have been locked in. It's very hard to time the markets correctly. All you can do is try to balance the risk vs the reward.

[Sour Mash]

Odd to be anticipating/engineering inflation, with signs of supermarket price cutting war, new car sales slipping and M and S food and clothing taking a hit.

It's hunker-down time...

Inflation there will be though, if the pound stays at this level or slips further. Energy and lots of commodities are sold in dollars so it will feed through. Can't see the BoE really caring though, we saw that they were prepared to let inflation consistently exceed the 2% target for years at a time without taking action and it's currently near zero anyway (official figures) so they have a lot of space to play with.

[FreeTrader]

Below is a chart from Eurostat which uses purchasing power parities to derive relative price levels across the EU and elsewhere. The data are for 2015.

From the notes: "The ratio is shown in relation to the EU average (EU28 = 100). If the index of the comparative price levels shown for a country is higher/ lower than 100, the country concerned is relatively expensive/cheap as compared with the EU average."

2015: France 105.4, Germany 99.8, UK 131.3
2004: France 110.1, Germany 104.9, UK 108.6

http://ec.europa.eu/eurostat/web/purchasing-power-parities/data/main-tables

[Democorruptcy]

I had looked at US shares but their P/Es seems a lot higher than the UK listed. Maybe they are more growth-oriented but I want boring real-income payers.

I could have bought foreign-listed shares as you say but it seems simpler to me to buy UK listed shared with international earnings. That way, I have no currency conversion costs, the big companies can do that more efficiently than me.

I don't know what the relative currency trash-rates will be so it doesn't make sense to get involved in taking on exchange risk.

Well knowing sterling was going to be farepak tokens, gave you a 40% buffer for small conversion costs.

[thirdwave]

Could this be down to improving margins on the back of a devalued £?

http://www.bbc.co.uk/news/business-36730759

[Ash4781]

First signs of inflation

http://www.bbc.co.uk/news/technology-36722155

Sounds like they have wafer thin margins.

I'm interested in the supermarkets. They could be caught in a right shitstorm where demand is weak and so is the pound raising import costs. Talk is Asda are about to start a price war which would be pretty bad for Tesco. If the commercial property market is weak too...

I'm not too sure on the clothing retailers.

Edited July 7, 2016 by Ash4781

[BorrowToLeech]

My point was that in your earlier post you said you knew sterling was going to become farepak tokens. Now you say you think all currencies will be trashed. Though USD is 40% up against sterling. So you could have bought USD denominated shares and income and profited more?

Er, the currency an asset is denominated in has absolutely no impact whatsoever on the risk of holding that asset.

There's no associated currency risk, unless the asset is actually tied to the currency directly (bonds, houses, etc).

If you hold gbp shares in a foreign company, it makes no difference to you if the currency rises or falls.

Edited July 7, 2016 by BuyToLeech

[reddog]

Could this be down to improving margins on the back of a devalued £?

http://www.bbc.co.uk/news/business-36730759

my personal take is that they were just trying to get the government to give them some concessions, as soon as it looked like the plants might close a whole load of sweetners were offered by the government to the prospective buyers. My take is the government has been well and truly played.

[kzb]

I'm not seeing any supermarket inflation yet. In fact, as Ash4781 says, there seem to be a lot of offers on at Asda currently.

I think we have to remember that the cost of basic raw foodstuffs is only a tiny fraction of the retail price of processed foods in a UK store. There's a lot of speculators and middle men making money in the food chain which means there's a lot of flexibility in the price.