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The Pound takes a hammering ..... again!

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Re: The Pound takes a hammering ..... again!

Postby Paphitis » Wed Oct 05, 2016 8:11 am

At the end of the day, it was obvious that the Sterling and FTSE were going to get a hit from BREXIT. The yes vote was unexpected and hence also a double shock. The markets (people rather) react to uncertainty and can easily get spooked. Doom and Gloom reporting only exacerbates the volatility.

Investors prefer the EU, because it makes life easier. Much like non EU countries like the USA and Australia preferring to deal with the EU rather than individual countries. Doesn't mean Britain will be overlooked because that is not true. FTAs will be made with Britain as well and I believe these countries are already working on it in anticipation of BREXIT.

What the markets don't like is uncertainty and instability. Once Britain has a road-map towards BREXIT, then the market will adapt and there will be a soft landing. Theresa May has already divulged that Article 50 will be invoked by March next year. This is a good move. The market has time to adjust.

So of course between now and then, expect some additional volatility on the FTSE and with the Sterling. It will be short lived. Once all the uncertainties are eliminated, then its business as usual.

Worst case scenario is that BREXIT takes another 2 years to complete from the date Article 50 is invoked. which means it will take up to about 2.5 years before we see the Sterling back up to normal levels (and that in itself is speculation). in the meantime, its not all bad especially for exporters who are now better placed to sell products and services overseas. Someone always ends up making money, and that means more exports, more jobs, and more money coming into the UK.

Whenever there is a fluctuation like this, there are always some winners and losers, and the same when the Sterling increases in value, you again get winners and losers.
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Re: The Pound takes a hammering ..... again!

Postby miltiades » Wed Oct 05, 2016 9:24 am

The FTSE has not been hit Paphitis, it has risen since the referendum result, the reason is simple, the almost collapse of STG has made stocks cheaper for overseas investors.
" BRITAIN'S top stock index has surged to its highest level since June 2015 after Theresa May revealed article 50 would be triggered by the end of March next year."
http://www.express.co.uk/finance/city/7 ... pound-fall

Sterling in the meantime, this morning, is hovering at just over 1.13 Euros and just over 1.27 US$
The fall might of course be helping our exports but since we import far more than we export , around 15 billion more in imports ,surely inflation will rise.
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Re: The Pound takes a hammering ..... again!

Postby Maximus » Wed Oct 05, 2016 9:31 am

Yes it will Milti - i dont think the FTSE is trading at advantageous prices for a buy either.

Either way, stocks or currencies, I would not go steaming in just yet or bet against a central bank.

The bank of England recently reduced their interest rates and is also expected to start a stimulus program to revive an ailing economy. Its still weak so we can expect further devaluations and this could take years to find a solid floor to bottom out.
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Re: The Pound takes a hammering ..... again!

Postby Londonrake » Wed Oct 05, 2016 10:29 am

"Ailing"? The IMF has just revealed that the UK is currently the fastest growing major economy in the world. :?
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Re: The Pound takes a hammering ..... again!

Postby Maximus » Wed Oct 05, 2016 10:32 am

Yes, it is growing so fast that the pound has become so weak that Governer Carney from the bank of England has to intervene to save it.
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Re: The Pound takes a hammering ..... again!

Postby Paphitis » Wed Oct 05, 2016 10:57 am

miltiades wrote:The FTSE has not been hit Paphitis, it has risen since the referendum result, the reason is simple, the almost collapse of STG has made stocks cheaper for overseas investors.
" BRITAIN'S top stock index has surged to its highest level since June 2015 after Theresa May revealed article 50 would be triggered by the end of March next year."
http://www.express.co.uk/finance/city/7 ... pound-fall

Sterling in the meantime, this morning, is hovering at just over 1.13 Euros and just over 1.27 US$
The fall might of course be helping our exports but since we import far more than we export , around 15 billion more in imports ,surely inflation will rise.


Yes it did! It got hit hard immediately after the BREXIT vote and collapsed by 12% in 2 days of trading. I was watching it closely and quite worried because I was exposed and still am exposed to it. I was biting my nails watching it like a hawk.

But as always it recovered a lot of ground on day 3 of trading and just 2 weeks later was breaking 2 year records.

Every single time there has been a crash throughout history, people over-react and the doomsayers come out. But immediately after, the markets regain lost ground almost immediately in most cases. Maybe the crashes we have seen haven't been real crashes like the one that led to the depression but I still don't think there is much point worrying about it. No one can control it. Humans control the markets with the way they interact with it and humans are emotional beings that don't always have the best of judgement when emotions are high. The trick is to walk away and not make emotional decisions but that is a lot easier said than done for most people when their hard earned is taking a pounding.

I've lost money on the markets, significant amounts too. But I've never made a Net Loss from when I first entered. Always been out miles in front and now I don't care that much because I know that markets are volatile. Over the long term though, there is only one trajectory.

Currencies are also the same. The Australian Dollar is down too because commodity prices are down. But for how long? Probably not very long at all. It will inevitable go back to parity with the USD when commodities and oil prices recover.

The Sterling will recover quicker. It has nothing to do with BREXIT, just uncertainty. Once that is gone, then it's back where it was. In the meantime, there are advantages. Maybe not for your business but for others. It's all swings and roundabouts.

The country that is in trouble and pretty much unviable in its current state is EU member Greece. Look at how Greece was treated and then try to understand the simple fact that most countries may find themselves in difficult circumstances one day. Now imagine you are at the ECBs mercy like Greece. Much better not to be as it turns out.
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Re: The Pound takes a hammering ..... again!

Postby Paphitis » Wed Oct 05, 2016 11:09 am

You got to remember that the Sterling is a commodity, just like any other currency and just like oil, gold, silver, gas, wheat, rye, meat, shares and not only.

People buy traded currencies and even trade it much like buying shares and other commodities like Gold and Silver.

You can buy barrels of oil and all you get is a piece of paper telling you you own x number of barrels. They don't actually deliver the barrels to you but you can trade that piece of paper.

The Sterling is taking a hit because it's too risky and why hold onto Sterling when you can opt for safer currencies like the USD or buy low AUD? You won't unless you were buying something and now is the time to do that.
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Re: The Pound takes a hammering ..... again!

Postby Maximus » Wed Oct 05, 2016 11:25 am

The Sterling will recover quicker. It has nothing to do with BREXIT, just uncertainty. Once that is gone, then it's back where it was. In the meantime, there are advantages. Maybe not for your business but for others. It's all swings and roundabouts.


How quick is quickly?

I would not bet on a quick recovery.
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Re: The Pound takes a hammering ..... again!

Postby Paphitis » Wed Oct 05, 2016 11:55 am

Maximus wrote:
The Sterling will recover quicker. It has nothing to do with BREXIT, just uncertainty. Once that is gone, then it's back where it was. In the meantime, there are advantages. Maybe not for your business but for others. It's all swings and roundabouts.


How quick is quickly?

I would not bet on a quick recovery.


I would. Remember, this is nothing new. The Sterling had a more serious meltdown in 2008 and it recovered. This meltdown which isn't really a meltdown at all is BREXIT induced. In other words, it's just investors being spooked away from the Sterling.

Personally, I forecast a recovery within 6 months as the details of the BREXIT road-map are unveiled.

I doubt it will last for 2.5 years.

There is a cost to BREXIT but in the longer term there are huge advantages for Britain as it is still able to enter into FTAs with other countries without the baggage of having to abide by laws made in Brussels in a one size fits all way. A FTA with the USA alone almost replaces all of the EU, then chuck in Canada, Australia, NZ, South Korea and Japan and Britain is in a much stronger position. A FTA with India and China is also advantageous.

You need to see what will be the realities in 10 years time and all I see is positives compared to poor Greece and Cyprus which do not have the same fiscal freedom that Britain does and will have even less in the future.

This BREXIT is now a test case so you better hope it goes ahead without any glitch otherwise EU member countries are in a world of hurt, and nowhere to go. If Britain does this well, then EU countries have an alternative to EU entrapment. They can simply pull the trigger like Britain did and take charge of their own destiny.

This is another Churchill V Day!
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Re: The Pound takes a hammering ..... again!

Postby Londonrake » Wed Oct 05, 2016 12:03 pm

Whilst Brexit is flavour-of-the-month and clearly a factor, there are other forces at work in what's currently happening to Sterling:

"Sterling Overvalued by 10-15%’: Vince Cable"

http://www.foremostcurrencygroup.co.uk/ ... nce-cable/

"UK Exports to Enjoy Brexit Boost as a Severely Overvalued British Pound Starts to Correct Lower"

https://www.poundsterlinglive.com/gbp-l ... tish-pound

"Sterling: over-bought, over-valued and over here"

http://www.investorschronicle.co.uk/201 ... ticle.html

"There's a conspiracy of silence about our over-valued pound"

https://www.theguardian.com/comment/sto ... 04,00.html

"Pound is 'most overvalued currency in the world', analysts claim"

http://www.telegraph.co.uk/finance/curr ... claim.html

"Pound Sterling Overvalued vs GBP, EUR say Morgan Stanley and Capital Economics Eyeing Out the Current Account Deficit Once More"

https://www.poundsterlinglive.com/gbp-l ... d-euro-334

A correction was inevitable at some point and in fact seems to have been delayed/masked by all the referendum hoo-haa.
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