The Sterling (gbp Thread

[chiang mai]

I'm moving my capital from USD to GBP, on the presumption the USD/GBP will be at approx 1.90 end of 2009, which means if the USD/THB remains at 35, then GBP/THB will be 66.5

I'll probably delay buying any substantial assets until the GBP/THB improves towards the end of 2009, and just withdraw month on month living expenses.

Keep an option open on working maybe 6 months UK/Europe each year, then 6 months back in Thailand.

I'm invested in Tulip Trend fund, its a Managed Futures fund, historically its done well in down-turns, its performance can be seen at www.trend.ky

Also, I'm invested in Brandeaux Dollar Fund, but want to switch to their Student Accomodation Fund Sterling, these funds return approx 7 to 10% per anum, you can pull up the performance of these funds on www.bloomberg.com

After the dollar weakens, and you get more baht for your pound, then I may consider large asset purchases.

I've changed 80% of my USD back to GBP.In the long run I feel its the best option.1 year ago everyone was screaming abt 2 USD to the pound now its the other way people are still screaming.

Long term I thing Sterling USD will settle abt 1.70.Thai Baht to USD abt 40,Thai Baht to sterling 66.

Thats my take anyway.

EPG.

This is a refreshing change, People talking positive for once, It may happen it may not but one thing for sure it makes you feel better.

I just finished reading currency forecasts from two different banks and guess what, they forecast GBP/USD to be 1.35 by the end of 1Q09 and by the end 4Q10 it is forecast to be 1.17. As a guide it currently sits at 1.4950 - this seems to support the longer term strategy of some others on this forum and annoyingly means that Britmaveric may yet be right after all.

That's an insane set of predictions. What's the reference?

If you read my subsequent post you will see that I corrected my error.

[pkrv]

UK position I certainly would not transfer to Thailand except in an emergency!

I thought I said

If you are US based and retiring in Thailand are you not looking at the situation with a critical eye? Are you too not thinking about moving money now? From a UK position I certainly would not transfer to Thailand except in an emergency!

Why did you edit my post?

[cocopops]

Oddly you cannot destroy money it simply moves. With the advent of the Euro, DEM= has long gone along with loads of other currencies, there is not much to move into. GBP is one currency that 'should' IMO benefit - though I know this sounds like a strange argument.

Maybe you should read about that fractional reserve thingy you just mentioned again. Of course it is possible to destroy money in such a system. It might even moderate your view of the 'artificial' USD high.

cocopops - I am exploring too BTW . I think the answer to your question is you cannot destroy something that does not exist. That money never existed except as debt. i.e. it never actually existed. though the interest did. The money that does exist will (as it always does) simply moves.

All fiat money is "just" debt. Either debt to a central bank or to a commercial bank.

This Mr. Moore taught in the high school economics class I did poorly at many years ago. So it must be true.

An explanation as to how commercial banks create money quite similar to ol' Moories is here:

http://en.wikipedia.org/wiki/Fractional_re...#Money_creation

See the section on the 'money multiplier' just below the linked section too. This is what 12DrinkMore is referring to when he says a "bank must hold 10% in physical cash (or deposits at the Bank of England). It is then allowed to "create" ten times this in "money".". Now I don't know if he would have done too well at my school either, but if you were to replace the word "allowed" with "possible", he'd do Ok.

Now, what happens if loans are written off or renegotiated but they still have to maintain that 10% reserve? Or banks simply tighten lending standards? Well, the money multiplier decreases I suppose. Less money in the system. Or, if you like, money was destroyed.

The central bank could always relax its lending standards (tasty serving of ZIRP anybody?). But they can only do so much, and if the money multiplier is dropping fast enough then they can't inject enough new central bank money to prevent the amount of money in the system from decreasing. And right now, it looks like that is the case. Hello deflation! Or, if you like the sound of it better, Hello bull market in cash!

[mommysboy]

I'm moving my capital from USD to GBP, on the presumption the USD/GBP will be at approx 1.90 end of 2009, which means if the USD/THB remains at 35, then GBP/THB will be 66.5

I'll probably delay buying any substantial assets until the GBP/THB improves towards the end of 2009, and just withdraw month on month living expenses.

Keep an option open on working maybe 6 months UK/Europe each year, then 6 months back in Thailand.

I'm invested in Tulip Trend fund, its a Managed Futures fund, historically its done well in down-turns, its performance can be seen at www.trend.ky

Also, I'm invested in Brandeaux Dollar Fund, but want to switch to their Student Accomodation Fund Sterling, these funds return approx 7 to 10% per anum, you can pull up the performance of these funds on www.bloomberg.com

After the dollar weakens, and you get more baht for your pound, then I may consider large asset purchases.

I've changed 80% of my USD back to GBP.In the long run I feel its the best option.1 year ago everyone was screaming abt 2 USD to the pound now its the other way people are still screaming.

Long term I thing Sterling USD will settle abt 1.70.Thai Baht to USD abt 40,Thai Baht to sterling 66.

Thats my take anyway.

EPG.

This is a refreshing change, People talking positive for once, It may happen it may not but one thing for sure it makes you feel better.

I just finished reading currency forecasts from two different banks and guess what, they forecast GBP/USD to be 1.35 by the end of 1Q09 and by the end 4Q10 it is forecast to be 1.17. As a guide it currently sits at 1.4950 - this seems to support the longer term strategy of some others on this forum and annoyingly means that Britmaveric may yet be right after all.

That's an insane set of predictions. What's the reference?

If you read my subsequent post you will see that I corrected my error.

yes due apologies. I just noticed that. Still what a blunder!!!

[12DrinkMore]

UK position I certainly would not transfer to Thailand except in an emergency!

I thought I said

If you are US based and retiring in Thailand are you not looking at the situation with a critical eye? Are you too not thinking about moving money now? From a UK position I certainly would not transfer to Thailand except in an emergency!

Why did you edit my post?

I was referring to the transferring money to Thailand bit. I have done this recently from the UK for my own peace of mind, and it is something I would not have considered six months ago. The situation, at least for me, is entering, maybe not an emergency, but a "severely uncomfortable" position, not knowing where Brown and the market are taking the GBP.

Having sufficient funds in the country where I live is now paramount to living in doubt.

I am also gradually moving a further substantial part of my capital out of GBP, as I have simply no faith in the ability of either Labour nor the Conservatives to come up with a solution. I have resigned myself to taking a hit, and also another possible hit if the GBP strengthens. But to continue to sit on the fence and watch a further continual slide would be far worse. I would be kicking myself until I die.

But I am not sure why you are taking issue about cutting out a few words to reduce the general clutter. I don't think I changed your meaning or took it out of context?

[pkrv]

UK position I certainly would not transfer to Thailand except in an emergency!

I thought I said

If you are US based and retiring in Thailand are you not looking at the situation with a critical eye? Are you too not thinking about moving money now? From a UK position I certainly would not transfer to Thailand except in an emergency!

Why did you edit my post?

I was referring to the transferring money to Thailand bit. I have done this recently from the UK for my own peace of mind, and it is something I would not have considered six months ago. The situation, at least for me, is entering, maybe not an emergency, but a "severely uncomfortable" position, not knowing where Brown and the market are taking the GBP.

Having sufficient funds in the country where I live is now paramount to living in doubt.

I am also gradually moving a further substantial part of my capital out of GBP, as I have simply no faith in the ability of either Labour nor the Conservatives to come up with a solution. I have resigned myself to taking a hit, and also another possible hit if the GBP strengthens. But to continue to sit on the fence and watch a further continual slide would be far worse. I would be kicking myself until I die.

But I am not sure why you are taking issue about cutting out a few words to reduce the general clutter. I don't think I changed your meaning or took it out of context?

Hi 12DrinkMore - we are strangers in a strange land, and you know, your post was on the spot, well in certain respects ];-) In a way you have explained the difficulties of FX in a nutsell. There have been quite a few of us on this thread pooing our pants as we bought off the plan condos, The years it took to achieve this really put us at the mercy of this stuff.

I don't know how old you are, or if you will drop dead tomorrow but I think peace of mind also comes into the equation - BIG TIME - PKRV

[HardenedSoul]

Binned sterling, bought Canadian bucks on prospects for higher oil prices and mining.

[Kharzi]

Making possibly unnecessary decisions for the future based on developments now as we negotiate unchartered waters strikes me as somewhat foolish but then sentiment does confuse matters and certainly the £'s fall seems to have generated more than its fair share of that ' x ' factor.

Manufacturing in Britain has charted its own decline but to dismiss it as an engine for growth is to ignore facts. It still contributes 20% of the economy and 60 % of that is trade with our Eurozone partners who have their own woes yet to filter down. The £'s devaluation can only increase competitiveness to the detriment of the EU which has a currency locked into basket cases of economies exampled by Italy, Spain and Portugal.The Euro is flattered to deceive and the £ will soon recover.

Sometimes, it really is best to do nothing ........

[chiang mai]

I think that if you haven't done anything with your Sterling by now, then to do something, just anything, at this late stage is to risk missing the upside and will only further compound losses.

[cmsally]

I think that if you haven't done anything with your Sterling by now, then to do something, just anything, at this late stage is to risk missing the upside and will only further compound losses.

I think I am with you on this one. I don't think joining the Euro is an option and although I don't follow the Russian economy, I am wondering how far the GBP follows the Russian fortunes.

Doesn't the fall of the GBP to a certain extent seem to follow the path of the Ruble.

With the Russians willing to shore up their currency and with large reserves of gold and foreign currency, are they simply playing a waiting game with the Brits riding piggyback.

In which case when the tide turns with oil & gas going up, we should see Ruble & GBP up and Euro & US$ down.

It's just a hunch but needs some further reading.

Looking at this article of latest devalue of the Ruble, a day or two later led to big dip in the GBP

Russian Ruble slides to new low

[neil324]

I think that if you haven't done anything with your Sterling by now, then to do something, just anything, at this late stage is to risk missing the upside and will only further compound losses.

I agree, horse, stable door and bolting come to mind.

[chiang mai]

I've never been someone who dabbled in equities although I have followed some stocks over time. Some months ago I saw a couple of stocks hit what I thought was bottom and sure enough that has proved to be the case - in looking at the broader spectrum of equities I now see that most stocks have increased in value over six months ago. In looking forward to the end of 1Q09 and beyond I reckon most Brits will find it difficult to find an investment home for their savings and this will almost certainly fuel the equities market further. I don't believe that the average UK investors will opt for Gold or other Commodities because they carry with them an aura of mystique that translates into high risk - the other traditional option is real estate but there is sufficient bad press out there currently to suggest that UK property prices will continue to drop for all of 2009 and this will likely deter most folks. Whilst 2009 will certainly bring bucket loads of more bad news I think increasingly that it will be a good year for equities as long as you pick your stocks carefully.

[12DrinkMore]

well, so far the only two comments that are supportive about the UK economy/GBP are:

1. Hold on to sterling because its, er, too late.

"Sometimes, it really is best to do nothing" and "I think that if you haven't done anything with your Sterling by now, then to do something, just anything, at this late stage is to risk missing the upside and will only further compound losses"

I don't think anybody knows whether this is the early, middle or late stage. all I can see are the projections for a recovery continually being pushed out quicker than the elapsed time between the projections, if you get my drift. Late 2007 the projections were early 2009, then, for most of 2008 Brown was on about 3Q 2009, now in the space of just a month I have seen projections heading out to 2010, 2011 and 2012....

2. "Manufacturing in Britain has charted its own decline but to dismiss it as an engine for growth is to ignore facts. It still contributes 20% of the economy and 60 % of that is trade with our Eurozone partners who have their own woes yet to filter down. The £'s devaluation can only increase competitiveness to the detriment of the EU which has a currency locked into basket cases of economies exampled by Italy, Spain and Portugal.The Euro is flattered to deceive and the £ will soon recover"

Don't know where you got the figures, but basically your optimism is based on a declining manufacturing industrial output, of which the 60% of 20%, ie 12% contribution to the economy is exported goods sold to the Eurozone who, by your own admission, will be struggling to afford them....

And further blows to the GBP are already in the pipeline

http://www.telegraph.co.uk/finance/persona...o-interest.html

As the strength of the GBP has, to a large part been because it was a high yield currency, this is being unwound and the cash disappearing into the USD and JPY.

http://business.timesonline.co.uk/tol/busi...icle5434660.ece

Here we go again. Brown about to issue a few more billions so the banks can afford to pay the bonuses.

...

So come on, give me some reason to be optimistic. The UK economy over the last decade has been based on a consumer debt driven boom due to house prices and vapour wealth "created" and now "destroyed" by the Casino of London. What is going to replace them?

[12DrinkMore]

I've never been someone who dabbled in equities although I have followed some stocks over time. Some months ago I saw a couple of stocks hit what I thought was bottom and sure enough that has proved to be the case - in looking at the broader spectrum of equities I now see that most stocks have increased in value over six months ago. In looking forward to the end of 1Q09 and beyond I reckon most Brits will find it difficult to find an investment home for their savings and this will almost certainly fuel the equities market further. I don't believe that the average UK investors will opt for Gold or other Commodities because they carry with them an aura of mystique that translates into high risk - the other traditional option is real estate but there is sufficient bad press out there currently to suggest that UK property prices will continue to drop for all of 2009 and this will likely deter most folks. Whilst 2009 will certainly bring bucket loads of more bad news I think increasingly that it will be a good year for equities as long as you pick your stocks carefully.

Blimey, are we on the same planet?

Six month performance over a very broad spectrum of equities...

FTSE 5500 DOWN TO 4500

DOW 11,200 DOWN TO 9,000

HANG SENG 22,000 DOWN TO 14,000

DAX 6,400 DOWN TO 4,500

That's enough indices.

Just because there may be a bit of spare cash in the remaining UK saver's accounts, somehow I don't think that after the performance of the stock markets they will be rushing back to put their last few GBPs on the roulette wheel.

I think increasingly that it will be a good year for equities as long as you pick your stocks carefull

Sage advice, so we have the solution.... We'll all just pick the right stocks, it'll be as easy as shooting goldfish in a bowl.

Edited January 3, 2009 by 12DrinkMore

[chiang mai]

I've never been someone who dabbled in equities although I have followed some stocks over time. Some months ago I saw a couple of stocks hit what I thought was bottom and sure enough that has proved to be the case - in looking at the broader spectrum of equities I now see that most stocks have increased in value over six months ago. In looking forward to the end of 1Q09 and beyond I reckon most Brits will find it difficult to find an investment home for their savings and this will almost certainly fuel the equities market further. I don't believe that the average UK investors will opt for Gold or other Commodities because they carry with them an aura of mystique that translates into high risk - the other traditional option is real estate but there is sufficient bad press out there currently to suggest that UK property prices will continue to drop for all of 2009 and this will likely deter most folks. Whilst 2009 will certainly bring bucket loads of more bad news I think increasingly that it will be a good year for equities as long as you pick your stocks carefully.

Blimey, are we on the same planet?

Six month performance over a very broad spectrum of equities...

FTSE 5500 DOWN TO 4500

DOW 11,200 DOWN TO 9,000

HANG SENG 22,000 DOWN TO 14,000

DAX 6,400 DOWN TO 4,500

That's enough indices.

Just because there may be a bit of spare cash in the remaining UK saver's accounts, somehow I don't think that after the performance of the stock markets they will be rushing back to put their last few GBPs on the roulette wheel.

I think increasingly that it will be a good year for equities as long as you pick your stocks carefull

Sage advice, so we have the solution.... We'll all just pick the right stocks, it'll be as easy as shooting goldfish in a bowl.

The value of your investment, as the IFA's like to say, may go up as well as down, it's not just a one way street and very few people will spot the bottom of the market at the time. True all the indicies have fallen and individual shares have lost a lot of value. But there are some very well capitalized companies in the FTSE who have decent P/E ratio's that run a good business and have a sound future. To be clear, I am not suggesting the day trading option, what I am suggesting is that it will be possible to identify good companies, to sit on the stock past the medium term and to take decent dividends in the meantime. Some examples: Aviva, Tesco, BAT, National Grid, all well run low risk stocks and now looking very cheap. Not an option for everyone but for those who want a decently balanced investment portfolio I reckon the time will soon be right if for no other reason than the fact is that there are so few other choices.

[ArranP]

well, so far the only two comments that are supportive about the UK economy/GBP are:

1. Hold on to sterling because its, er, too late.

"Sometimes, it really is best to do nothing" and "I think that if you haven't done anything with your Sterling by now, then to do something, just anything, at this late stage is to risk missing the upside and will only further compound losses"

I don't think anybody knows whether this is the early, middle or late stage. all I can see are the projections for a recovery continually being pushed out quicker than the elapsed time between the projections, if you get my drift. Late 2007 the projections were early 2009, then, for most of 2008 Brown was on about 3Q 2009, now in the space of just a month I have seen projections heading out to 2010, 2011 and 2012....

2. "Manufacturing in Britain has charted its own decline but to dismiss it as an engine for growth is to ignore facts. It still contributes 20% of the economy and 60 % of that is trade with our Eurozone partners who have their own woes yet to filter down. The £'s devaluation can only increase competitiveness to the detriment of the EU which has a currency locked into basket cases of economies exampled by Italy, Spain and Portugal.The Euro is flattered to deceive and the £ will soon recover"

Don't know where you got the figures, but basically your optimism is based on a declining manufacturing industrial output, of which the 60% of 20%, ie 12% contribution to the economy is exported goods sold to the Eurozone who, by your own admission, will be struggling to afford them....

And further blows to the GBP are already in the pipeline

http://www.telegraph.co.uk/finance/persona...o-interest.html

As the strength of the GBP has, to a large part been because it was a high yield currency, this is being unwound and the cash disappearing into the USD and JPY.

http://business.timesonline.co.uk/tol/busi...icle5434660.ece

Here we go again. Brown about to issue a few more billions so the banks can afford to pay the bonuses.

...

So come on, give me some reason to be optimistic. The UK economy over the last decade has been based on a consumer debt driven boom due to house prices and vapour wealth "created" and now "destroyed" by the Casino of London. What is going to replace them?

Most of the USD strength has been caused by forced selling of assets and equities, as a consequence the GBP amongst others have weakened.

When commodities and equities rise again, which at some point they will, not much return can be gained from almost 0% cash, the USD will weaken, and the GBP (amongst others) will strengthen. The THB is paired with the USD more baht for your pound!

Its not much to do about GBP, its macro or its interest rates. The macro and interest rates are dire everywhere, ie more or less it balances out, we are in a global economy, and its ALL in recession...

When equities/commodities go up the USD goes down, when equities/comodities go down the USD goes up, look at the historical charts they show it, this time its largley due to do with money-flow.

Edited January 3, 2009 by ArranP

[chiang mai]

This article from the FT says much about history and equities, interesting:

Everyone became an expert on the deeper reaches of financial history last year. With almost any relationship on which market traders had come to rely in the past three decades breaking down, they had to delve deeper for precedents.

Early in the year, we were looking at the Long-Term Capital Management disaster of 1998 and the savings and loan scandal of the early 1990s. Once it became obvious that the new crisis was deeper than these and oil prices started to surge, comparisons with 1973 and 1974 grew fashionable. Now the oil price has dropped by more than $100 a barrel and we fear the first great deflation since the Depression, attention has turned to the 1930s. Some have disinterred long-forgotten incidents such as the panic of 1907 (which led to the creation of the Federal Reserve), or the panic of 1873, which followed a boom in investing in railroads.

No historical parallel can be perfect. But perhaps two years offer the best point of reference. What if last year was 1931? If so, this year could be 1932. In some ways this is good news. It was when the US stock market finally began its recovery. At one point the Dow Jones Industrial Average more than doubled in barely two months. But it still saw equity indices end the year worth less than when they had started. Intriguingly this is almost exactly in line with the apparently self-contradictory consensus of wisdom about the stock market this year: that it has not yet hit bottom but should do so this year and that at some point there will be an explosive rally.

There are differences. The bear market was already more than a year old when 1931 started, while 2008 started only shortly after equities had reached a final peak. And the point in the political cycle was different, as President Franklin Roosevelt was not elected until November 1932, some months after the stock market bottom. Policymakers took far longer to embrace monetary or fiscal easing.

But in the markets, 2008 looks a lot like 1931. It was the worst year of the 1930s for stock markets, with the S&P 500 falling 47 per cent, driven by fears for the banking system and by seismic shifts in foreign exchange rates.

As 1931 turned to 1932, the extra spread that investors required to buy the bonds of investment-grade companies, rather than US Treasury bonds, reached an all-time high – closely approached in the past few weeks. Then, as now, the Fed was about to buy back Treasury bonds, in a bid to push up their prices and push down their yields – a drastic way to lower interest rates payable in the broader economy, now known as “quantitative easing”.

So 1931 is a better comparison for the year just gone than most.

A look at how 1932 unfolded shows how the conventional wisdom about 2009 may yet come true. The year started with a rally as optimism took hold that the financial sector’s problems were over. That took the S&P 500 up almost 20 per cent by early March. Compare this with the current rally since the rescue of Citigroup in November.

But in spring 1932 gold started flowing out of the US, as foreign investors were convinced the dollar would be devalued, and this sparked a devastating sell-off in US stocks. By midsummer (at what turned out to be the bottom of the bear market), the S&P was down 50 per cent from its high for the year.

For 2009, a renewed run on the dollar is quite conceivable. Another fear is that investors grasp the scale of the damage to corporate profits only in the next few weeks, and this sparks another sell-off. Brokers’ forecasts suggest the scope for serious disappointment is real – and conceivably even enough to drive a sell-off like the one of early 1932.

In July 1932, optimism suddenly took hold that the economy was improving. This, according to Russell Napier’s definitive book Anatomy of the Bear, was based largely on evidence that deflation was coming to an end. The result: stocks gained 111 per cent in two months. Then in September they staged another sell-off as it became clear the economy was not out of the woods, and fell 25 per cent from there to the end of the year. Overall the index was down almost 15 per cent for the year but it never went back to its July 1932 lows.

How could this be repeated in 2009? An explosive rally at some point is possible, simply because record amounts of money are sitting in bonds and cash. And, as in 1932, what might move that money in a hurry would be a clear sign that inflation was returning. At present the risk is deflation and governments are actively trying to engineer a return to inflation: if that were to happen, bonds and cash would become horrible assets to be in, and so the chance of a race at the first sign of inflationary pressure is real.

As in 1932, when economic hope proved illusory, it is possible that could be a false alarm. But in these conditions, even a false alarm could spark a big rally. As for fundamental valuations, long-run indicators that have signalled market turning-points most successfully in the past, such as the multiple of stocks to long-term average earnings, suggest stocks are fairly valued, whereas they already looked cheap in early 1932. A drastic sell-off like the one in early 1932 would help address this.

The precondition for a sustainable rally is that share prices fall to a level where investors are widely convinced they are cheap. As 1932 demonstrated, getting there could yet involve a lot more pain. But it is fair to hope that we get there this year.

[mommysboy]

This article from the FT says much about history and equities, interesting:

Everyone became an expert on the deeper reaches of financial history last year. With almost any relationship on which market traders had come to rely in the past three decades breaking down, they had to delve deeper for precedents.

Early in the year, we were looking at the Long-Term Capital Management disaster of 1998 and the savings and loan scandal of the early 1990s. Once it became obvious that the new crisis was deeper than these and oil prices started to surge, comparisons with 1973 and 1974 grew fashionable. Now the oil price has dropped by more than $100 a barrel and we fear the first great deflation since the Depression, attention has turned to the 1930s. Some have disinterred long-forgotten incidents such as the panic of 1907 (which led to the creation of the Federal Reserve), or the panic of 1873, which followed a boom in investing in railroads.

No historical parallel can be perfect. But perhaps two years offer the best point of reference. What if last year was 1931? If so, this year could be 1932. In some ways this is good news. It was when the US stock market finally began its recovery. At one point the Dow Jones Industrial Average more than doubled in barely two months. But it still saw equity indices end the year worth less than when they had started. Intriguingly this is almost exactly in line with the apparently self-contradictory consensus of wisdom about the stock market this year: that it has not yet hit bottom but should do so this year and that at some point there will be an explosive rally.

There are differences. The bear market was already more than a year old when 1931 started, while 2008 started only shortly after equities had reached a final peak. And the point in the political cycle was different, as President Franklin Roosevelt was not elected until November 1932, some months after the stock market bottom. Policymakers took far longer to embrace monetary or fiscal easing.

But in the markets, 2008 looks a lot like 1931. It was the worst year of the 1930s for stock markets, with the S&P 500 falling 47 per cent, driven by fears for the banking system and by seismic shifts in foreign exchange rates.

As 1931 turned to 1932, the extra spread that investors required to buy the bonds of investment-grade companies, rather than US Treasury bonds, reached an all-time high – closely approached in the past few weeks. Then, as now, the Fed was about to buy back Treasury bonds, in a bid to push up their prices and push down their yields – a drastic way to lower interest rates payable in the broader economy, now known as "quantitative easing".

So 1931 is a better comparison for the year just gone than most.

A look at how 1932 unfolded shows how the conventional wisdom about 2009 may yet come true. The year started with a rally as optimism took hold that the financial sector's problems were over. That took the S&P 500 up almost 20 per cent by early March. Compare this with the current rally since the rescue of Citigroup in November.

But in spring 1932 gold started flowing out of the US, as foreign investors were convinced the dollar would be devalued, and this sparked a devastating sell-off in US stocks. By midsummer (at what turned out to be the bottom of the bear market), the S&P was down 50 per cent from its high for the year.

For 2009, a renewed run on the dollar is quite conceivable. Another fear is that investors grasp the scale of the damage to corporate profits only in the next few weeks, and this sparks another sell-off. Brokers' forecasts suggest the scope for serious disappointment is real – and conceivably even enough to drive a sell-off like the one of early 1932.

In July 1932, optimism suddenly took hold that the economy was improving. This, according to Russell Napier's definitive book Anatomy of the Bear, was based largely on evidence that deflation was coming to an end. The result: stocks gained 111 per cent in two months. Then in September they staged another sell-off as it became clear the economy was not out of the woods, and fell 25 per cent from there to the end of the year. Overall the index was down almost 15 per cent for the year but it never went back to its July 1932 lows.

How could this be repeated in 2009? An explosive rally at some point is possible, simply because record amounts of money are sitting in bonds and cash. And, as in 1932, what might move that money in a hurry would be a clear sign that inflation was returning. At present the risk is deflation and governments are actively trying to engineer a return to inflation: if that were to happen, bonds and cash would become horrible assets to be in, and so the chance of a race at the first sign of inflationary pressure is real.

As in 1932, when economic hope proved illusory, it is possible that could be a false alarm. But in these conditions, even a false alarm could spark a big rally. As for fundamental valuations, long-run indicators that have signalled market turning-points most successfully in the past, such as the multiple of stocks to long-term average earnings, suggest stocks are fairly valued, whereas they already looked cheap in early 1932. A drastic sell-off like the one in early 1932 would help address this.

The precondition for a sustainable rally is that share prices fall to a level where investors are widely convinced they are cheap. As 1932 demonstrated, getting there could yet involve a lot more pain. But it is fair to hope that we get there this year.

I guess I've already had too many beers, but added no clarity whatsoever to what might happen to the pound.

[chiang mai]

This article from the FT says much about history and equities, interesting:

Everyone became an expert on the deeper reaches of financial history last year. With almost any relationship on which market traders had come to rely in the past three decades breaking down, they had to delve deeper for precedents.

Early in the year, we were looking at the Long-Term Capital Management disaster of 1998 and the savings and loan scandal of the early 1990s. Once it became obvious that the new crisis was deeper than these and oil prices started to surge, comparisons with 1973 and 1974 grew fashionable. Now the oil price has dropped by more than $100 a barrel and we fear the first great deflation since the Depression, attention has turned to the 1930s. Some have disinterred long-forgotten incidents such as the panic of 1907 (which led to the creation of the Federal Reserve), or the panic of 1873, which followed a boom in investing in railroads.

No historical parallel can be perfect. But perhaps two years offer the best point of reference. What if last year was 1931? If so, this year could be 1932. In some ways this is good news. It was when the US stock market finally began its recovery. At one point the Dow Jones Industrial Average more than doubled in barely two months. But it still saw equity indices end the year worth less than when they had started. Intriguingly this is almost exactly in line with the apparently self-contradictory consensus of wisdom about the stock market this year: that it has not yet hit bottom but should do so this year and that at some point there will be an explosive rally.

There are differences. The bear market was already more than a year old when 1931 started, while 2008 started only shortly after equities had reached a final peak. And the point in the political cycle was different, as President Franklin Roosevelt was not elected until November 1932, some months after the stock market bottom. Policymakers took far longer to embrace monetary or fiscal easing.

But in the markets, 2008 looks a lot like 1931. It was the worst year of the 1930s for stock markets, with the S&P 500 falling 47 per cent, driven by fears for the banking system and by seismic shifts in foreign exchange rates.

As 1931 turned to 1932, the extra spread that investors required to buy the bonds of investment-grade companies, rather than US Treasury bonds, reached an all-time high – closely approached in the past few weeks. Then, as now, the Fed was about to buy back Treasury bonds, in a bid to push up their prices and push down their yields – a drastic way to lower interest rates payable in the broader economy, now known as "quantitative easing".

So 1931 is a better comparison for the year just gone than most.

A look at how 1932 unfolded shows how the conventional wisdom about 2009 may yet come true. The year started with a rally as optimism took hold that the financial sector's problems were over. That took the S&P 500 up almost 20 per cent by early March. Compare this with the current rally since the rescue of Citigroup in November.

But in spring 1932 gold started flowing out of the US, as foreign investors were convinced the dollar would be devalued, and this sparked a devastating sell-off in US stocks. By midsummer (at what turned out to be the bottom of the bear market), the S&P was down 50 per cent from its high for the year.

For 2009, a renewed run on the dollar is quite conceivable. Another fear is that investors grasp the scale of the damage to corporate profits only in the next few weeks, and this sparks another sell-off. Brokers' forecasts suggest the scope for serious disappointment is real – and conceivably even enough to drive a sell-off like the one of early 1932.

In July 1932, optimism suddenly took hold that the economy was improving. This, according to Russell Napier's definitive book Anatomy of the Bear, was based largely on evidence that deflation was coming to an end. The result: stocks gained 111 per cent in two months. Then in September they staged another sell-off as it became clear the economy was not out of the woods, and fell 25 per cent from there to the end of the year. Overall the index was down almost 15 per cent for the year but it never went back to its July 1932 lows.

How could this be repeated in 2009? An explosive rally at some point is possible, simply because record amounts of money are sitting in bonds and cash. And, as in 1932, what might move that money in a hurry would be a clear sign that inflation was returning. At present the risk is deflation and governments are actively trying to engineer a return to inflation: if that were to happen, bonds and cash would become horrible assets to be in, and so the chance of a race at the first sign of inflationary pressure is real.

As in 1932, when economic hope proved illusory, it is possible that could be a false alarm. But in these conditions, even a false alarm could spark a big rally. As for fundamental valuations, long-run indicators that have signalled market turning-points most successfully in the past, such as the multiple of stocks to long-term average earnings, suggest stocks are fairly valued, whereas they already looked cheap in early 1932. A drastic sell-off like the one in early 1932 would help address this.

The precondition for a sustainable rally is that share prices fall to a level where investors are widely convinced they are cheap. As 1932 demonstrated, getting there could yet involve a lot more pain. But it is fair to hope that we get there this year.

I guess I've already had too many beers, but added no clarity whatsoever to what might happen to the pound.

Nobody knows what's going to happen to the Pound so take a deep breath and hope! The previous post was intended to help you decide what to do with your Pounds, no mater what shape they, or you, may be in at the moment you do decide.

Edited January 3, 2009 by chiang mai

[pkrv]

I think that if you haven't done anything with your Sterling by now, then to do something, just anything, at this late stage is to risk missing the upside and will only further compound losses.

I think I am with you on this one. I don't think joining the Euro is an option and although I don't follow the Russian economy, I am wondering how far the GBP follows the Russian fortunes.

Doesn't the fall of the GBP to a certain extent seem to follow the path of the Ruble.

With the Russians willing to shore up their currency and with large reserves of gold and foreign currency, are they simply playing a waiting game with the Brits riding piggyback.

In which case when the tide turns with oil & gas going up, we should see Ruble & GBP up and Euro & US$ down.

It's just a hunch but needs some further reading.

Looking at this article of latest devalue of the Ruble, a day or two later led to big dip in the GBP

Russian Ruble slides to new low

I too am in wait mode. Though I do understand that this puts a strain on things.

[syd barrett]

I am sure that the US$ will fall soon. This will give a 60 baht to 1 GBP.

[mssabai]

I have been reading all these posts with interest, as well as the thread before it on the same topic. I am in the UK at the moment earning money to take back to Thailand. Once back in Thailand I will be earning THB - enough to keep me ticking over, but will use these savings for extras and perhaps investment in Thailand. Now we are really not talking about huge amounts of money here, but as I have been watching the pound drop daily I have decided that there must be something that I could do to protect myself from losing more money unneccasarily.

Of course if the dollar drops between now and my return in April, I will be laughing, but I don't think that will happen.

So my question is, bearing in mind commission rates, would I be better off tranferring my cash that i have already saved in euro or dollar, or should I just keep it as pounds and suck up the losses.

[russianrobert]

I'm in Euros at the moment having sold US$ to buy them a couple of weeks ago. I didn't buy sterling straight away as i think it has further to fall against the Euro and i don't trust the dollar.

I'm hoping that (as widely reported) the bank of England will slash rates again later this month therefore widening the interest differential between UK and Euroland. That SHOULD force sterling lower against the Euro.

That's the plan but no one can foretell exactly what will happen for sure. Do some research on the web and make your own mind up which way to play.

Good luck

Edited January 4, 2009 by russianrobert

[Naam]

I am sure that the US$ will fall soon. This will give a 60 baht to 1 GBP.

the only thing i am sure about is that my wife is not pregnant

[ArranP]

I'm in Euros at the moment having sold US$ to buy them a couple of weeks ago. I didn't buy sterling straight away as i think it has further to fall against the Euro and i don't trust the dollar.

I'm hoping that (as widely reported) the bank of England will slash rates again later this month therefore widening the interest differential between UK and Euroland. That SHOULD force sterling lower against the Euro.

That's the plan but no one can foretell exactly what will happen for sure. Do some research on the web and make your own mind up which way to play.

Good luck

EUR is forecast to weaken, they are behind in cutting rates, therefore have further to cut. Also they are believed to have a more difficult job in putting policy through to combat recession as it involves the co-ordination and agreement of many countries.

Stratigists on Bloomberg are expecting an increase in bad news from europe shortly.

USD is forecast to weaken as the cause of its strength, re-patriation of money to USD from de-leveraging ie forced selling of assets, nears an end. (same for JPY).

Next; at some point inventories will drop sufficiently so it will cause manufacturing to re-start and purchase commodities. Speculaters will have little excuse to remain in almost 0% cash, instead can use almost 0% currencies USD and JPY to re-open equity/commodity positions. Thus rising commodities and equities....

Historically as equity indices (DJI S&P FTSE) and commodities have risen, the USD has weakened. With THB paired with the USD, more baht for the pound.

Edited January 4, 2009 by ArranP

[russianrobert]

EUR is forecast to weaken, they are behind in cutting rates, therefore have further to cut. Also they are believed to have a more difficult job in putting policy through to combat recession as it involves the co-ordination and agreement of many countries.

Stratigists on Bloomberg are expecting an increase in bad news from europe shortly...................................

I agree but i'm hoping in the near term, later this month when BOE cuts rates again, that sterling will fall further against the euro.

Britain is putting into place the pieces for recovery at the moment. Lower interest rates and a low pound. Europe will have to follow suit but i think that will take place a little later than in the UK.

[russianrobert]

................The Monetary Policy Committee (MPC) are set to meet this week so could well be some further movement on sterling sooner rather than later.

[Ricardo]

Russian Ruble slides to new low.

Perhaps it might be re-named the 'Rubble' ?

[ArranP]

................The Monetary Policy Committee (MPC) are set to meet this week so could well be some further movement on sterling sooner rather than later.

Yes, maybe another 50 to 75 basis piont cut.

[mommysboy]

I have been reading all these posts with interest, as well as the thread before it on the same topic. I am in the UK at the moment earning money to take back to Thailand. Once back in Thailand I will be earning THB - enough to keep me ticking over, but will use these savings for extras and perhaps investment in Thailand. Now we are really not talking about huge amounts of money here, but as I have been watching the pound drop daily I have decided that there must be something that I could do to protect myself from losing more money unneccasarily.

Of course if the dollar drops between now and my return in April, I will be laughing, but I don't think that will happen.

So my question is, bearing in mind commission rates, would I be better off tranferring my cash that i have already saved in euro or dollar, or should I just keep it as pounds and suck up the losses.

I'm no expert. I researched forecasts from now to middle of June. The trend is downward until January thereafter predictions range from 1.50-1.60.

If I were you I wouldn't exchange at all. But if you do then do it in stages so you mitigate any losses and get a share in any gains.