Monday, October 27, 2008

How far could the pound really fall?

Shares plunge as pound buckles

Sterling plunged again against the dollar this morning, having fallen through $1.60 for the first time in five years on Friday. The pound lost a further 3 cents to $1.542 amid mounting fears of a prolonged UK recession. The same fears forced down the FTSE 100, which plunged 185 points, or 4.7 per cent, after the opening with banks and insurance companies leading the way. European stock markets were also down around 5 per cent, following big falls in Asia with Hong Kong's Hang Seng down more than 10 per cent and the Nikkei in Tokyo losing 6 per cent.

Posted by flintster1994 @ 09:02 AM (1718 views)
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23 thoughts on “How far could the pound really fall?

  • Still a long way to go before it starts with a 2.

    But it might not take long at this rate.

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  • mountain goat says:

    The pound slid against the dollar and euro after an industry report said U.K. house prices dropped by the most in at least seven years this month and will keep falling as the economy deteriorates. – Bloomberg

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  • mountain goat says:

    Looks like Crash is about to announce increased borrowing today:

    “We will and can allow borrowing to rise to help restore demand and to come to the aid of workers, businesses and homeowners,” Brown will say in a speech in London today, according to extracts released by his office. “That is why the responsible course is to borrow now to maintain growth and output.” – Bloomberg

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  • He’s an addict – you cant have continual growth f**kwit, without periods of contraction / destruction! Actually i thik he is/will rapidly lose any credibility people think he still has.

    Re the pound am looking for a short squeeze soon. MG what do you think?

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  • mountain goat says:

    TM – I think 1.60-1.50 is about right for the £ v $ at the moment. However, these are historic times and the $ rally driven by repatriation could hit the £ very hard in the next months. Long term it is obvious the $ rally has to end, but not while there is this deflation going on. This may take months and $ could go much higher still.

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  • TM MG
    Is it just a best of all evils situation with a flight to the $.
    Given the dreadful state the US is in I’m frankly surprised.
    And how come the ‘flight to safety’ has missed out the obvious choice of Gold.

    Or is it that alot of Gold is having to be sold and the $ is the chosen currency for those funds above all others ?

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  • The only silver lining with what GB has anounced today is that this has to be his last throw of the dice. Maybe now we’ll see and hear even less of him, he really doesn’t know how disliked he is.

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  • Many UK retailers face massive difficulties if the pound continues to deteriorate at such an alarming rate.

    For example, I was recently examining the accounts of Home retail where £1.8 billion worth of goods are sourced from Asian economies and most notably China, and where dollars are principally the currency of use. Every 1 cent rise in the currency increases buying costs by 5m.

    Many UK retailers who typically purchase from dollar-linked counties face a two way squeeze on profits – the top line or sales are under pressure, alongside the bottom line were costs threaten to increase dramatically. Major casualties may be seen if the pound continues to fall at some pace. The business models of many UK retailers will simply become unworkable.

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  • Gold is being liquidated by hedge funds, the pound will go lower whether UK cut rates or not, it is already priced in the UK economy is going down the toilet. I am soon waiting for the run on banks.

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  • To me this (FTSE 100) is starting to look like a diagional triangle. See figure 9 – http://www.elliottwave.net/educational/basictenets/basics2.htm. That makes sense – choppy, but with a downward bias for a while. It needs some more action to confirm this (and for me to go long) but if correct there should be a sharp upward move soon. The divergences are shouting short term bottom, when they are screaming it…… very dangerous and volatile even for the boyz.

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  • japanese uncle says:

    andrew could be right

    Maybe unelected ‘leaders’ may well play larger part in the public scene. R’s name is much more often printed these days.

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  • techieman

    Thanks for the link. Always appreciate the lessons (especially in English !).

    Judging by what you’re saying best to keep clear unless you can still afford to loose (or have the time to constantly monitor).

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  • mountain goat says:

    Str 2007

    I don’t think it is a flight to quality. It is the $ reserve currency status causing the dollar move. It is deleveraging, the destruction of debt. Loans being called in. These have to be paid in $ whether you live in New York or Nigeria. So there is a shortage of $, especially if you live in the developing world which does not have the unlimited currency swaps setup with the Fed. So there may be a shortage of physical gold but compared to the shortage of $, no where close. Once most of this has played itself out then the $ just becomes another currency again and will obey rules we expect it to, like, US in recession, Fed hyper-inflating, terrible interest rate of 1.5%.

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  • mountain goat says:

    This deleveraging is also why factories are closing through China. The debts are being called in. Lenders are saying “The party is over, give me my money back”. At the end of this I doubt whether the $ will maintain its reserve status. So maybe a role for gold? Although for gold to take on the worlds GDP it has to be price at about $30,000 an ounce.

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  • MG
    Thanks for the info and link
    £30k per ounce, S2R1 will be happy.

    Is there any sort of half way measure using Gold to back currencies that could be conceivable ?

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  • 15. str 2007

    Sure there is keep the money supply constant – can’t see that being too popular though

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  • str2007 – well np – the pattern isnt well formed to date so im really hesitant but of course there could be a really sharp rally. On balance i am looking for some upside, the downside to me could be overdone. Really though i personally am on the sidelines. If i miss the rally? Then i will look to short higher up, or i will just stay out and look at other markets. Really targets have been made as far as im concerned, and unlike lots of folks i ended up making smaller realised gains than not making any gains or turning realised gains to losses. Very hairy stuff, I wouldnt recommend folks punting around here, but you pays yr money and takes yr choice.

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  • mountain goat says:

    Str 2007

    S2R has lately been saying gold can’t be a currency because it is too highly valued, which I agree with. If we go to a gold standard then most gold will be housed in Central Banks and not used directly. The currencies will still be paper but based on gold. But as I said it would have to be at about $30,000 an ounce to cover the GDP of the world at the moment. I can’t see it being based on something useful like silver or platinum either because those PMs are needed in industry. Gold is fairly useless at least and has a long history, so the obvious choice. The Chinese yen?- maybe in 25 years. Maybe the $ is not as scr*wed as I think it is and can still be rescued as the worlds reserve currency. You can be sure that the world leaders meeting called by George Bush in November won’t be discussing replacing the dollar. Roubini, who has been right so far, says this is still only the start of the unwind.

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  • mountain goat says:

    matt_the_hat – you can still have inflation with a gold based currency. It just means you directly debase your currency against an internationally recognised and agreed standard. You cant lie and cheat as much, so Wall Street and Cityboys will lose some jobs.

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  • mountain goat says:

    TM – “Very hairy stuff, I wouldnt recommend folks punting around here, ”

    Completely agree on that. I think going long will be good at some point because stocks will recover before the housing market. So sell stocks and buy a house with the money may be an option. But still tin hat time.

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  • mountain goat says:

    TM – just looking at the link you had. Is gold in a bull market failure pattern figure 6? I am hoping it goes below $600 or much lower myself so I can afford some more!

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  • MG – believe it or not since i sold out a fair amount of gold i havent really taken much notice of it. I have not wanted to try to trade around it and infact the only time i did i lost $15 an ounce in the blink of an eye, i traded the equivalent of a one lot on that so no real harm done. That was a punt but i thought then this is getting too volatile. I dont want to say yes or no unless ive done the work. I will basically hold onto what i bought on the “just in case” therory but after the highs i really (as you know) didnt really have much faith in it kicking on.

    Sorry so to answer your question i dont know and would need to spend some time on the charts to see the best count. What i would say is a fifth wave failure is very rare and is normally a bit of a get out. (Ibve done a quick look and you need to look at the weeklies really and that doesnt have a failure in my book).

    You might want to read http://www.elliottwave.com/freeupdates/archives/2008/10/24/(Update)-Will-GOLD-Provide-Shelter-From-The-Storm.aspx. Finally the weekly closed below the 100 week moving average for the first time since 2005, generally that then becomes resistance.

    Weird isnt it ive been bearish for quite a while and yet i still hold a fair bit of the yellow stuff, albeit at the lower levels. In any case yes i have rolled over futures rather than the physical stuff, so i cant use the old “its making money in £” argument :-).

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  • mountain goat says:

    thanks TM good link. Their prediction “This outcome happens only at rare times in history, when a society-wide credit expansion reaches its zenith and social psychology changes from expansive to defensive. The resolution of all of this is likely to be a credit contraction followed by a drop in most asset classes.” was spot on, at least in $ terms.

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