Tuesday, November 25, 2008

Britain’s going bankrupt – keep selling sterling

Britain's going bankrupt - keep selling sterling

"...we can't expect any soul-searching from the Government. Gordon Brown doesn't do mistakes. He won't admit he's wrong on his path for the economy. And that's why we haven't actually seen any massive change in direction here – it's just more of the same. We'll carry on as we were before - more borrowing, more public spending, and more taxes. And judging by previous experience, the current forecasts will be ludicrously optimistic. So who knows how deep the debt hole will really be next year. £130bn? £150bn? £200bn? Where does it end? Bankruptcy."

Posted by damien @ 10:55 AM (2221 views)
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39 thoughts on “Britain’s going bankrupt – keep selling sterling

  • planning4acrash says:

    What happens next? We get a loan from the FUC$ING IMF, and they put all kinds of Marxist & Fascist conditions on our economy. We become a part of the global governance that has DESTROYED so many other countries.

    When what really should have happened is bankruptcy and the local installation of sound currency.

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  • last_days_of_disco says:

    All I can say is we did this to ourselves. Until the full horror of what has happened gets ground into the faces of the complacent English, nothing will change (see Iceland as an example). Then national identity is going to come bouncing back with all kinds of horrible consequences.

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  • last_days_of_disco says:

    National identity is fine, but its going to overshoot is what I mean.

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  • Hang about…
    The amount of debt out there needs to be reduced.
    We expect deflation (as correctly pointed out in the article, and reflected strongly in the market) – which gives the MPC more reason to cut rates and gives the treasury more reason to hand out money (bank bail outs, car firms, …)
    They are attempting to inflate their way out of the debt burden in the guise of combating expected deflation.
    So I think, unlike the rest of the market, we will find inflation next year, not deflation.

    I also have the feeling [yes, just a feeling!] it is somehow being pushed into food and consumer energy prices (no cut in fuel duty, eh Darling) and out of raw commodities, but once the herd realise the truth it will could back with a vengeance!

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  • Why didn’t Brown wait until things got slightly worse for a few people then run to the rescue and be seen as even more of a saviour, I don’t think 1 lot of Christmas sales figures is that important to him.

    The whole thing is just too rushed, this has to be a bribe before an election, as well as an assurance to those that are reliant on the Labour party that “we will look after you no matter what happens so don’t worry, but we will slowly shaft everyone else”, I think Labour is returning to it’s communist roots.

    I think the number of people planning to leave the UK has just shot up.

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  • Deflation if the government takes its hands off the wheel, inflation if it doesn’t. More borrowing – weaker £ – more difficult to sell government debt (borrow) – even weaker £ – higher cost of borrowing – higher long-term interest rates. Plus inflation, plus an increase in UK banks’ foreign currency liabilities – weaker bank balance sheets – more govt borrowing to shore them up, er….iceberg (Iceland?) ahead.

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  • Come on this is getting lame. If you don’t like Sterling get out of it. Apart from P4AC obsessing gold I’m seeing very little by way of actual ideas on the site. Maybe this is always the bears predicament, good at finding the faul but frozen into inaction.

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  • last_days_of_disco says:

    @bellwether

    My strategy is play both sides just in case:

    1. Reduce debt to almost nothing.
    2. Except hold a small manageable mortgage on a long term fixed rate. This is stress free, because you know what you are going to pay for the next ten years.

    Deflation, you end up holding an irritating debt but you can pay it.
    Inflation, you score on the debt removal service as your income rises relative to your debt repayments.

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  • I think we can all be worried about our currency at the moment, we have never had economic mismanagement on this scale before.

    Here’s an idea, open a swiss bank account, the interest can be up to 6% not great but not bad, you don’t pay any tax on the 6% and the chances are that you will actually gain over Sterling, at worst your money is safe.

    Anybody on here know of any Swiss Bank branches in London ?

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  • planning4acrash says:

    “If you don’t like Sterling get out of it” – All the fiat currencies are under pressure, and, I can legally work in Europe, but don’t have a language. I can’t really avoid the sterling economy. Now, re gold? I’m not really obsessing about it, we talk about Sterling every minute. The real obsession is over sterling. I just reported over a $50 intraday rise in response to bad economic news!! Like, we are unhappy about houseprices that they are still too high, but, houseprices have fallen well over 50% priced in gold, and, priced in gold, house prices have fallen consistently since the year 2000. So, we have done nothing but obsess about sterling, our entire perception is tied to it. Tied to propaganda and a false reality.

    Gold is clearly a hedge against government manipulation, thus, a key element of liberty. For us, its an endgame vs their endgame of an overtly global fiat currency. In terms of what we have seen and wanted to occur, it HAS happened, under our eyes if we look at real currency like gold. The economy of liberty has always been there, gold has always been right under our noses, Liberty is here, but, I mention it once every few days, and its like “oh, look he mentioned gold again, that one word cliche, oh, he mentioned it, therefore it must be untrue” – Like, total denial and nonsense, like mainstream media stating that a housepricecrash was a conspiracy theory. Total collective mental illness.

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  • andrew youre a bit late mate… Swissy 2:50 down to 1.81

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  • Andrew I’d sooner hold Sterling than the Swiss Franc. There are some major issues with the Swiss ecomony. In terms of currecny I hold USD and Yen at present but a bit short of ideas where to go next currencyy wise – if moving is even a good idea.

    I have a little gold although without underlying earnings it is always going to be volatile. I’ll increase holdings if prices look like they will climb steeply but the peak in 1980 shows how quickly it might turn. Also there seems to be some downside potential there especially if stock markets rally which they might over the next couple of months.

    I am actually anticipating a stock rally but it hasn’t happned but every historical precedent suggests it must. It did and repeatedly even in the 1929 – 1932 crash. I got into the market a couple of weeks ago thinking that the money being fed into the system must start to show up somewhere. Increased holdings today but its been turning so fast over the past couple of months that will bail rather than risk capital if downside risk appears at all. Tend to focus on stocks which would not mind holding if it there was a really sudden crash. Own mostly US equities at present because of outlook for UK. That said like Tesco alot and its been trading at a P/E of 10 recently.

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  • Bellwether, if you are a long term investor wait for historic dividend yields to exceed forward P/E multiples like in the 70s. It’s going to happen…

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  • 10. andrew – the idea of holding a swiss bank account is that the authorities of other governments don’t know you have deposits there. If you open an account at a swiss bank in the UK, they have to follow UK rules, that means tax and declaring your interest to the state.

    Swiss banks are no safer than anywhere else unless you are going through divorce or bankruptcy in the UK and want to hide your assets.

    NB. I am not inciting anyone to break the law – you never know if BB is watching

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  • Ideas

    Yes sterling is trash but what to do. I have split 3 ways between cash, precious metals and agri-foods.

    I am useless at market timing so it is important to look long term. I am looking to buy a house at some point with my savings. My thoughts are that stocks will bottom and recover before housing does. So although stocks may go down further in the short term, as long as the company doesn’t go bust those stocks will be back up when it is time to buy my house. I am thinking 2010-2012 for this. So between now and then if my precious metals peak I will gradually sell them and might buy a FTSE tracker with the money.

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  • Where does it end? One word. Slavery.

    I’ll explain. Two years ago, I worked in a telecommunications company as a designer. They unexpectedly got a large order for Wimax/Obsai masthead telecommunications equipment. Target? North America. Place of deployment? The Canadian border.

    Two projects are currently underway in the UK involving this type of technology, which is not the same as the 3G variants used for domestic mobile phones. Both involve the creation of a specialist layer of infrastructure for use with the security services. I had little to do with the transactions and applications layers, but it was made very clear that in no way was this for a conventional cellular coverage system and would be supplied from quite separate online databases and call routing hardware.

    If you examine the costings for Her Majesties Customs and Excise, with regard to matters of this sort, you would be shocked indeed.

    Lord of the Rings. The Silent Watchers.

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  • 16. mountain goat – why do you want to buy a house?

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  • @bellweather – how about zupa?

    I really like the idea.

    Lets face it. The core problem here is that bankers have highly competitive jobs where only the short term matters.
    That’s why they don’t pay any attention to structural risk any more. Its also why they will happily accept a model, even though common sense indicates that the model is flawed.

    For instance; technical analysis works as long as everyone else is a fundamentalist. As long as everyone is a fundamentalist they are correctly pricing the value of the stock, so therefore the stock price includes all available information.

    Problem is if everyone is a technician, the whole thing just goes where it wants.

    I think its time to leave the bankers out of it. Loan to real people. This should inspire them to sense.

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  • Cheers MG. I think the management team are excellent turning the outfit from the 3rd largest in the UK to the 3rd largest in the World in a decade. The debt legacy in doing this is relatively modest assuming earnings don’t drop off a cliff which I don’t see. There is always a level of risk but I think the market is overpricing it valuing Tesco along with say Morisons where i picture it operationally far closer to say Wal Mart.

    For all that I’m not convinced their shares might not drop to £2.50 so tend to trade them at present rather than hold.

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  • Matt – if it was only up to me I wouldn’t buy a house since I like renting. However, my future wife does want to buy a house, luckily she is in no rush and recognised the bubble. Also I think there will be a bargain to be had when the bubble crashes and over-corrects, as bubble always do. I would like to own land though to grow stuff, I currently have an allotment and would like a house with lots of land to grow my chickens and crops and a field for my goat….

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  • MG I think agri- foods is a good long term play although prefer oil and gas because the market looks tighter.

    I couldn’t put a third into precious metals because I struggle to really understand them and figure if I have a problem so might other people. That said I keep hearing how cheap precious metal mining stocks are and keep meaning to look into them.

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  • Sounds nice and I wish you well, but buying a house is potentially locking you into a country that is changing rapidly (probably not for the better) just a thought.

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  • bellwether @8 – lame? no ideas? Are you talking about ideas for the economy/govt or ideas for investing? For the economy – hands off, deflation, self-correction. Investing? My investments are too far removed from the subject matter of this site to discuss them, because I don’t like betting on anything which can be influenced by governments and central banks (though you could argue that I’m doing just that by keeping assets/cash in GBP).

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  • mark wadsworth says:

    As Techie says, it’s a bit late to get out of sterling.

    The only two major currencies that are possibly undervalued at the moment, and hence worth buying, are Sterling and Australian dollar (and possibly NZ dollar but I don’t track that one).

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  • Mark I’m not so sure about that. I don’t think a Sterling swap for the Euro is great but even now would swap for Sterling for USD.

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  • Icarus think ideas about how the Govt/financial system might operate are a bit remote/futile. We don’t create the rules and never will. I guess I’m just interested in working out how to best play the game set – as long as the rules don’t change too abruptly.

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  • A Spring election. It’s simple really. We all know The Big Bet won’t work so call the election before it becomes so obvious even those at the BBC will not be able to ignore it.

    I am I the only one ashamed of the nu labour bias at the BBC? Even the once excellent “Daily politics Show” has now dumbed down to the “Daily Five Live Politics Show”. The proposition that criticism of The Big Bet is invalid unless you can describe another plan is foolish. But the BBC cannot help themselves. On a radio programme this morning the BBC were keen to keep referring to the early 80’s and the Tories’ role in the high levels of unemployment. No mention of fat boy Healey running back from the airport to arrange an IMF overdraft because Labour had bankrupted the economy, no mention of the high levels of inflation, ingrained by Labour, in the economy which took years to remove, no mention of the structural fault lines throughout many industries with employees indirectly on the payroll of government producing things they could not sell.

    Nu Labour keep referring to the governments investment in this, that, and the other. This is incorrect. Government expenditure is consumption. It has always been so and will always be so. We all know investment sounds better than spending but Mandy Pandy and the nu Labour spin machine does not fool everyone. For example, after all this “investment”, hands up all those who believe the UK will manufacture its way out of this debt crisis. Thought not.

    The fact is every Labour government has wrecked the economy before leaving office. Tax and spend, a fat public sector payroll, a distorted property sector and that illegal war in Iraq, is Labours legacy this time. It will take many, many years to recover, if, ever.

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  • MTH. Agree – a 25yr mortgage seriously impairs your mobility. Only to be considered if a) you are absolutely sure you can keep up repayments for 25yrs, b) are committed to remaining in this country for 25yrs or more whatever the weather (I really can’t think of a reason why this would be the case), and c) are absolutely sure the equation will favour buying over renting for the next 25yrs. The property-buying process is SO expensive, with so many parasites, I really think it will never be a fashionable thing to do again once this has all played out. Relatively, mass property ownership is a very recent phenomenon remember.

    MG. Small-holding/self-sufficiency is my pipedream too. Guess you’ll need a mountain too for your goat, which could be hard to come by. Have watched with frustration as agricultural land prices have shot up over the last two years, thinking I’d missed the boat. Pleased to read yesterday that they are predicted to fall next year, at least in the US. When white-collar investors are buying farming land from farmers, it’s a sure signal that the tide is about to turn.

    BW. I spread across multiple currencies and commodities. Can’t hope that my crystal ball is better than the pros with, so I settle for spreading risk and only changing my position occasionally.

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  • bellwether – agreed, govts can never keep their hands off anyway.

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  • @26. Mark Wadsworth

    So are you saying Sterling is undervalued and therefore worth buying? Surely not?

    I agree about AUD though am thinking of buying that myself.

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  • Speaking of currencies, the americans woke up today and the dollar swooned

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  • @NAC/MW/BW/etc. Current currency conversion rates are the concensus estimate of thousands of professional currency traders spending every working hour trading, with access to more up-to-date market information, better models, and better spreads than us. We cannot possibly hope to win in this market by currency trading! IMHO.

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  • Mark Wadsworth says:

    @ 31 N-A-C. Yes, sterling is quite possibly undervalued. That doesn’t mean that it can’t fall further and stay undervalued for months or years.

    @ 33 D&G. OK, so why did JPY go up by over 30% on a trade weighted basis in the space of a few months? What did those thousands of experts not know in April that they knew in October? Similarly, GBP shot up by twenty five per cent between 1996 and 1998. Why?

    IHMO currencies overshoot in both directions, and there is a herd instinct, just like any other market. People talk of CHF as a ‘safe haven’, what does this have to do with underlying value? Switzerland has a population of 7 million or something, we can’t all buy CHF, can we?

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  • AUD – although we have a lot of natural resources and are down heavily…one also has to take into consideration the HUGE debt burden that Australia has. Much higher per capita than the UK or US.

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  • mark wadsworth says:

    @ d’oh. Don’t worry about ‘fundamentals’, as D&G says, other people know alll this stuff better than you.

    Agreed, household debt high, but I thought gummint debt had been more or less paid off?

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  • MW. I don’t pretend to be an expert, but I assume currency pricing is a combination of yield and expected future market movements. JPY was oversold due to low interest rates as it could be invested in Iceland/UK/Aus/etc with higher rates of return. The market knew on balance that JPY was likely to appreciate eventually but there was still money to be made, so it was just a question of timing.

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  • D&G I’ve made quite a decent packet this year currency trading…the thing is currencies are short term…at the beginning of this year, it was clear where they were going…

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  • D’oh – I’ve done OK from currency movements, but only by taking two positions in Jan/Feb 1) Belief in theory that world economy would deleverage and that carry trade unwinding would increase value of yen, so buying yen. 2) Belief that UK would fare badly this year and that getting out of sterling would be better than staying in, so buying Euro/yen. In fact, that’s one position really – moving from high-yielding to low-yielding currencies!

    Where I lost out was making a few gut-feeling switches then switching back so losing on the spreads. I’m sure you and many others have done much better! I’m on the lookout for what might happen now, so I can take a new position. So far this month I’ve just bottled it on currencies completely and started moving into gold!

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