Jump to content
House Price Crash Forum
Automotive Engineer

A Run On The Pound, And How Could We Protect Our Money?

Recommended Posts

Last month, I posted a video about black Wednesday on a thread. I can't remember which one so I'll repost here:

I'm too lazy to explain what black Wednesday was, so this excerpt from wikipedia will have to do.

In politics and economics, Black Wednesday is 16 September 1992, when the British Conservative government was forced to withdraw the pound sterling from the European Exchange Rate Mechanism (ERM) after it was unable to keep the pound above its agreed lower limit in the ERM. George Soros, the most high-profile of the currency market speculators, made over £1 billion[1] in profit by short selling sterling.

In 1997, the UK Treasury estimated the cost of Black Wednesday at £3.4 billion,[citation needed] and other sources gave estimates as high as £27 billion. In 2005, documents released under the Freedom of Information Act revealed that the actual cost may have been £3.3 billion.[2]

The trading losses in August and September were estimated at £800 million, but the main loss to taxpayers arose because the devaluation could have made them a profit. The papers show that if the government had maintained $24 billion foreign currency reserves and the pound had fallen by the same amount, the UK would have made a £2.4 billion profit on sterling's devaluation.[3][need quotation to verify]

What I worry about is the possibility of another black Wednesday type event (does not necessarily have to be on Wednesday). There are several reasons that I believe this could happen, many of which the members of this forum know quite well, starting with an obvious giant housing bubble, but also including

  • Very low interest rates
  • Brexit fears
  • Trade imbalances
  • Unemployment, high cost of welfare, other high costs
  • George Osborne's failed attempt to significantly decrease the debt/deficit

I'm not going to go into detail of the above, there are plenty of threads about these subjects.

Given the similarities between where we find ourselves now, and the last black Wednesday, I am willing to take the leap that if another one does occur, the government will try to use the same thing to shore up the pound. First, the government will

  • Attempt to reassure everyone that everything is ok, which will fail as everyone will now panic
  • Buy back pounds by using the nations foreign currency reserves (and maybe gold), this will also fail
  • Raise interest rates brutally, which may or may not work, and lastly

Now you may think at that this is good, as we can see full HPC as well as good saving rates at the bank, enabling us to finally own our own homes but, the government may use the last trick in their arsenal to prevent the pound from plummeting

  • DEVALUATION

What I wanted to focus for the rest of this thread is, how do we best protect ourselves from all of the above?

I have some half cooked ideas but they need some scrutiny.

  • Changing pounds to another currency which is deemed safer
  • Buying precious metals
  • Savings accounts
  • Buying stocks or assets (not housing assets)

None of the above are perfect ideas. Changing pounds to another currency will cost some money if you use the post office, so there will be some loss there. I found an online service called transferwise, which is an international money transfer system, created by the same people as PayPal, that works like the bank but with way better rates than conventional currency exchanges.

For example, as I wrote this post, the exchange rate from the GBP to the USD was 1: 1.415. Tranferwise gives you 1: 1.4084. I did a calculation and this works out to be 0.99533% efficient. The problem is, this service is a money transfer service, which means you need a bank account at the other end if you are going to transfer to yourself. In this case I would need a bank account in USD if I wanted to change pounds to dollars with this method.

Another method, which is 100% efficient without fee's or charges, but probably a pain in the **** to use, is oxchange. A peer to peer exchange, where you log in with your facebook, and place an order to buy another currency for a certain amount, and the program matches you with someone who wants to sell their currency for the amount proposed. I see this working in London with tech savy tourists in a startbucks. This won't be very good up in the sticks though.

However, changing pounds to another currency wont protect the value of that currency in the long term, as all fiat devaluates over time (unless there is deflation). Which brings me to the next option.

Buying precious metals. This has been discussed to death, there is a mega thread pinned at the top of the forum.

Gold has historically been used as money. The government can't print gold so it can be a useful tool to store value, except its very very expensive, doesn't yield dividends and gold sellers sell at slightly over spot. Another thing against gold, is that it's price fluctuates like it's a roller coaster. If we head down towards a black Wednesday, gold inventories aimed towards small investors will run dry pretty quick. If I wanted to buy a small gold coin, which is the best service available?

Silver, is much cheaper than gold, and by some accounts is way under valued. Unfortunately silver is taxed with VAT. I've seen some websites, and just looking at the tax puts me off buying. However, after a bit of digging, I found that Estonia does not place VAT on silver, which allows one to buy silver at just slightly over spot. PROBLEM is, you have to get the silver from Estonia, meaning you loose out on shipping.

So maybe metals are not the way to go.

Savings accounts are not a good option with very low IR. Also, if the government devaluates the currency, it will do so by far more than the best HTB ISA. (4%)

Buying stocks or assets could be an option, provided they are very good quality stocks which pay dividends, this may be a way to make extra money. Trouble is finding those stocks, whilst massive QE and low IR has pushed almost all of them up into the stratosphere AND George Osborne, not one to miss a trick, has implemented a new tax on dividends, the son of a bitch.

So I'm out of ideas, and very tired, have to sleep. Thoughts?

Share this post


Link to post
Share on other sites

If you buy silver from somewhere like Bullionvault, then there is no VAT payable (as it is not delivered). Technically, as it is held in bailment, it is yours, rather than you being a creditor of Bullionvault's, so it is as close to ownership as you can get without taking delivery (and hence incurring VAT.)

As for other currencies, instead of moving your cash to a foreign currency account, which has significant costs, you could take out an appropriately sized spread bet at somewhere like IG Index shorting the GBP versus whatever currency you think is "safer." Gains (and loses) are tax free as it is deemed to be gambling by the HMRC. I'm not sure what the UK tax situation is for currency gains if you actually changed your money into a foreign currency and then changed it back at a future date. In Australia, that is treated differently from gambling and is taxable.

Edited by Tiger Woods?

Share this post


Link to post
Share on other sites

I'm of the belief that if you don't hold it you don't own it.

In essence, by doing what you suggest, you are lending money to bullion vault on the possible expectation that the price of silver MAY go up as the silver wont leave their vault. And if it does (or doesn't) you are still paying yearly fee's to bullionvault for the privilege of them holding your silver.

Edited by Automotive Engineer

Share this post


Link to post
Share on other sites

I did the whole USD bank account thing back in 2007. It was a massive faff for no real benefit (other than to the bank who did well out of the charges).

The FTSE 100 generate about 3/4 of their revenue overseas, so a FTSE Tracker should hold up reasonably well if GBP tanks.

Share this post


Link to post
Share on other sites

The FTSE 100 generate about 3/4 of their revenue overseas, so a FTSE Tracker should hold up reasonably well if GBP tanks.

That was one of the reasons I bought FTSE100 during its recent travels down to 5500. £'s earn nothing. Divi's from foreign earning look like a more viable way to maintain the real value of my savings.

Share this post


Link to post
Share on other sites

The value of our money is as vulnerable as the value of our housing stock....nothing stays the same forever, including our health,freedom and security......being aware,spotting the signs and seeing to it are in a position to act quickly......

Share this post


Link to post
Share on other sites

That was one of the reasons I bought FTSE100 during its recent travels down to 5500. £'s earn nothing. Divi's from foreign earning look like a more viable way to maintain the real value of my savings.

I've tried in the past targeting individual shares and timing my purchases, but it turns out I'm shit at stock picking and timing :)

So now I just do the pound cost averaging thing buying into trackers a fixed amount each month.

Share this post


Link to post
Share on other sites

£ stabilised against $ and € this morning. I bought Euros at €1.41 4 months back so sitting pretty right now. If Brexit I am looking at another 20% and UK house price falls of at least 5% before trading up on my UK bricks and mortar. UK property could start to look attractive to Expats in the EUrozone later this year.

Share this post


Link to post
Share on other sites

I hate to mention it but when talking about USD then Sterling is already down 32% since 2007.

Taxy taxy. If you buy more currency than for personal use, then CGT could apply on gains. If you buy shares outside a tax shelter like an ISA then CGT again. If they up interest rates you will pay more in tax on the interest. Plus expect a new higher tax on unearned income.

Share this post


Link to post
Share on other sites

£ stabilised against $ and € this morning. I bought Euros at €1.41 4 months back so sitting pretty right now. If Brexit I am looking at another 20% and UK house price falls of at least 5% before trading up on my UK bricks and mortar. UK property could start to look attractive to Expats in the EUrozone later this year.

Yep, £ will go to whatever it needs to keep the foreign investment in real estate going. It is going to take everything.

Share this post


Link to post
Share on other sites

You can buy gold coins off the likes of TheGoldBullion for about the same price as spot. About £220 at the moment, just under 8 grams.

They are legal tender, CGT & VAT free.

As they say if you don't hold it, you don't own it. There are some very good opinions on here and just go with what is best for you OP.

Share this post


Link to post
Share on other sites

I hate to mention it but when talking about USD then Sterling is already down 32% since 2007.

Taxy taxy. If you buy more currency than for personal use, then CGT could apply on gains. If you buy shares outside a tax shelter like an ISA then CGT again. If they up interest rates you will pay more in tax on the interest. Plus expect a new higher tax on unearned income.

Tax on money changed for money, who the hell is going to enforce that? No chance.

Also more currency for personal use is too vague.

Share this post


Link to post
Share on other sites

You can buy gold coins off the likes of TheGoldBullion for about the same price as spot. About £220 at the moment, just under 8 grams.

They are legal tender, CGT & VAT free.

As they say if you don't hold it, you don't own it. There are some very good opinions on here and just go with what is best for you OP.

I think my best option is to diversify.

Buying a little bit of gold and holding some foreign cash by using a P2P (trading with tourists for spot) might be the best option. Shame I missed on the dollar rally though.

What other currency's are good to hold?

I think the Singapore dollar looks pretty solid.

I did the whole USD bank account thing back in 2007. It was a massive faff for no real benefit (other than to the bank who did well out of the charges).

The FTSE 100 generate about 3/4 of their revenue overseas, so a FTSE Tracker should hold up reasonably well if GBP tanks.

I'm intrigued. How do I get a FTSE tracker and how does it work?

Edited by Automotive Engineer

Share this post


Link to post
Share on other sites

what happens to long dated gilts if the pound suddenly falls 20%?

They are worth 20% less unless index-linked (and if the index really covers that 20%).

I did buy index-linked medium term gilts for the last few years for some protection. Sold them all last year after a good run.

Share this post


Link to post
Share on other sites

They are worth 20% less unless index-linked (and if the index really covers that 20%).

I did buy index-linked medium term gilts for the last few years for some protection. Sold them all last year after a good run.

I'm interested in this too. How does a gilt work?

Share this post


Link to post
Share on other sites

I really miss Lndnbllxman at times like these.

his advice (2009?) was to short sell sterling as it neared parity with Euro as it was 100% guaranteed to plunge below parity.

Jim Rogers my other favourite contra indicator. If he says sell sterling its a definate BUY.

Re OP - 1992 was defending a peg/band. We dont have a peg, so theres nothing to defend. Sterling is priced to market every moment.

Share this post


Link to post
Share on other sites

Tax on money changed for money, who the hell is going to enforce that? No chance.

Also more currency for personal use is too vague.

UK taxation is self assessment, it's the individuals responsibility.

Share this post


Link to post
Share on other sites

I think my best option is to diversify.

Buying a little bit of gold and holding some foreign cash by using a P2P (trading with tourists for spot) might be the best option. Shame I missed on the dollar rally though.

What other currency's are good to hold?

I think the Singapore dollar looks pretty solid.

I'm intrigued. How do I get a FTSE tracker and how does it work?

A tracker is an investment fund that tracks an index by owning the range of assets (or a close approximation of them) that make up that fund. You can get all sorts. You can buy them through a broker like any other investment fund. I buy mine in an ISA through Hargreaves Lansdown (other brokers are available).

These all sorts of different ones. You can get the FTSE 100, FTSE 250 etc. I also pound cost average into a gilt index tracker.

If you're looking to get into this sort of investing have a read up on 'Value Investing'. Benjamin Graham's book The Intelligent Investor is as good a start as any.

But remember, you need to develop a strategy that fits your own personal circumstances before you start buying anything. Whatever you do don't start buying stuff just because of things people on the internet say :)

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

  • Recently Browsing   0 members

    No registered users viewing this page.

  • The Prime Minister stated that there were three Brexit options available to the UK:   64 members have voted

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal

    Please sign in or register to vote in this poll. View topic


×

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.