Is The Pound Undervalued

[thaimate]

I know that the BOE keep trying to talk down the pound ,but inflation is very high in the UK (certainly higher than 4%) exports are up and the economy is getting better ,so will we be seeing a stronger pound ,its now up to 1.6330 to the dollar and does seem to be creeping up ,if only slowely.

[jdinasia]

Measuring against the USD only isn't very sound.

[cardholder]

Pah !

Naamwill be along shortly.

[jdinasia]

Pah !

Naamwill be along shortly.

LOL

I'd add the space in your post but it would be against forum rules

[ESB7]

Until that freaking idjit Mervyn king is out the way, it probably wont go anywhere........the BOE just arnt doing the job they are supposed to...........inflation is rampant as the UK imports almost everything and low Sterling makes purchases more expensive....his thinking was OK 30 years ago but in a country that is basically a service industry it dosnt work and he just dosnt get that.....latest figures put inflation at 4% but everyone knows its really in double figures already, its just the way that sucessive UK governments have had years of expeiencing massaging the figures to suit their needs, even with a few rate raises Sterling probably wont rise that much, Merv has seen to that, he has just left it too late.....

[Naam]

Measuring against the USD only isn't very sound.

that's correct. nevertheless i think a modest share of GBP bonds (max 5%) should be held in a diversified portfolio but only if the risk/reward ratio is satisfactory (LT2 subordinate, yield >7.5%, change from fix to floater within 5 years, interest cumulative, debtor rating high A or better), id est something like:

[wordchild]

Measuring against the USD only isn't very sound.

that's correct. nevertheless i think a modest share of GBP bonds (max 5%) should be held in a diversified portfolio but only if the risk/reward ratio is satisfactory (LT2 subordinate, yield >7.5%, change from fix to floater within 5 years, interest cumulative, debtor rating high A or better), id est something like:

FWIW ,I would be somewhat more bullish than Naam and i have found myself recently switching TB/USD/SGD back into Sterling having been negative on it for a number of years.

Would very much agree with Naam on his suggestion to look at some of the UK bank high yield paper and i have been buying similar stuff myself. UK banks have reasonable capital positions (now!) and the growing pressure on them to improve their core/equity capital position even further is good news for holders of UK bank debt. For those who are prepared to be more adventerous you can still get a 10% + yield on certain lloyds perpetual preference shares, BUT this is subject to them restarting payments on these when they can next year.

Edited April 16, 2011 by wordchild

[thaimate]

Measuring against the USD only isn't very sound.

that's correct. nevertheless i think a modest share of GBP bonds (max 5%) should be held in a diversified portfolio but only if the risk/reward ratio is satisfactory (LT2 subordinate, yield >7.5%, change from fix to floater within 5 years, interest cumulative, debtor rating high A or better), id est something like:

Being not as savy as you Naam ,could you please repeat this in English

[nong38]

Maybe when the BOE has the guts to contain inflation and raise interest rates the pound will rise a bit quicker, but dont hold your breath, these people are getting dam_n well paid to do nothing. To be fair they are probably under pressure from some quarters not to do anything, but the question is a simple one do they want to fix the country or not? They will find it difficult to ignore the ECB for too long.

Edited April 16, 2011 by nong38

[Chivas]

Measuring against the USD only isn't very sound.

But it's the only currency that matters as its the benchmark for exchange rates which I suspect is what the OP is getting at.

[Naam]

Measuring against the USD only isn't very sound.

that's correct. nevertheless i think a modest share of GBP bonds (max 5%) should be held in a diversified portfolio but only if the risk/reward ratio is satisfactory (LT2 subordinate, yield >7.5%, change from fix to floater within 5 years, interest cumulative, debtor rating high A or better), id est something like:

Being not as savy as you Naam ,could you please repeat this in English

i'll give it a try.

an LT2 (Lower Tier 2) is a subordinated bond. subordinated means that interest is paid only if the corporation makes profit. cumulative means if there's no profit in any given year but a profit in following year(s) the unpaid interest of the year(s) without profit is due and payable. a floater is a bond which pays according to prevailing interest rates. the example i mentioned (Bloomie screenshot) will pay from may31, 2016 onwards interest of (at that time) 5 year UK gilt plus 3.645%. in my view very important as we will definitely face inflation and higher interest rates in future.

questions? please ask.

Edited April 16, 2011 by Naam

[thaimate]

Measuring against the USD only isn't very sound.

that's correct. nevertheless i think a modest share of GBP bonds (max 5%) should be held in a diversified portfolio but only if the risk/reward ratio is satisfactory (LT2 subordinate, yield >7.5%, change from fix to floater within 5 years, interest cumulative, debtor rating high A or better), id est something like:

Being not as savy as you Naam ,could you please repeat this in English

i'll give it a try.

an LT2 (Lower Tier 2) is a subordinated bond. subordinated means that interest is paid only if the corporation makes profit. cumulative means if there's no profit in any given year but a profit in following year(s) the unpaid interest of the year(s) without profit is due and payable. a floater is a bond which pays according to prevailing interest rates. the example i mentioned (Bloomie screenshot) will pay from may31, 2016 onwards interest of (at that time) 5 year UK gilt plus 3.645%. in my view very important as we will definitely face inflation and higher interest rates in future.

questions? please ask.

Does that mean the pound will go up or down?

[chiang mai]

Measuring against the USD only isn't very sound.

that's correct. nevertheless i think a modest share of GBP bonds (max 5%) should be held in a diversified portfolio but only if the risk/reward ratio is satisfactory (LT2 subordinate, yield >7.5%, change from fix to floater within 5 years, interest cumulative, debtor rating high A or better), id est something like:

FWIW ,I would be somewhat more bullish than Naam and i have found myself recently switching TB/USD/SGD back into Sterling having been negative on it for a number of years.

Would very much agree with Naam on his suggestion to look at some of the UK bank high yield paper and i have been buying similar stuff myself. UK banks have reasonable capital positions (now!) and the growing pressure on them to improve their core/equity capital position even further is good news for holders of UK bank debt. For those who are prepared to be more adventerous you can still get a 10% + yield on certain lloyds perpetual preference shares, BUT this is subject to them restarting payments on these when they can next year.

I was tempted recently to switch out of SGD but now as the Euro comes under pressure I see mileage in hanging on to it, 0.494 currently, some brokers are suggesting 0.520 is very dooable.

[Naam]

Does that mean the pound will go up or down?

yes, it does... based of course on the assumption that the nights are much colder than outside

[12DrinkMore]

Until that freaking idjit Mervyn king is out the way, it probably wont go anywhere........the BOE just arnt doing the job they are supposed to...........inflation is rampant as the UK imports almost everything and low Sterling makes purchases more expensive....his thinking was OK 30 years ago but in a country that is basically a service industry it dosnt work and he just dosnt get that.....latest figures put inflation at 4% but everyone knows its really in double figures already, its just the way that sucessive UK governments have had years of expeiencing massaging the figures to suit their needs, even with a few rate raises Sterling probably wont rise that much, Merv has seen to that, he has just left it too late.....

Just because Merv doesn't do what you want him to doesn't make him an idiot. He has two main mandates, one to control the rate of inflation and second to ensure the UK finance industry is stable. It is clear that he wants to keep the banking industry afloat by reducing the interest rates to nothing and bunging 'em a load of cash at zero interest too.

The UK, as opposed to say Germany, has made the decision that the service industry is more important than manufacturing stuff. Bad call. May have worked for a while, but the whining bastards in the finance industry threaten "we will leave these shores" as soon as any regulation is mentioned. What a bunch of cun_ts. Compare that to Germany, where "we will produce the best in the world" and spend loads in research, development and optimising manufacturing. The UK lost the plot a long time ago.

Now, maybe if Merv starts to aggressively raise the interest rates it will pump up the UK Squib somewhat as the vast amount of money sloshing around internationally will find a better home, but long term, unless the UK starts exporting stuff that people want to buy, or has some attraction to encourage people to convert their currency to Squibs, the Squib has only one way to go.

The issue I see is that there are no commodities coming out of the UK, no major industries manufacturing world class goods, just some bunch of banks screwing up the rest of the world and, for some reason I cannot understand, London, where rich people like to go and live.

Short term there might be some mileage in buying into GBP. But long term the value of the GBP surely depends on

1. how many international investors want to own it

2. the return on capital it gives

3. the trade balance of of the UK with the rest of the world

and probably a few more reasons too.

Against Asia I can only see downwards and more downwards....

[ESB7]

Until that freaking idjit Mervyn king is out the way, it probably wont go anywhere........the BOE just arnt doing the job they are supposed to...........inflation is rampant as the UK imports almost everything and low Sterling makes purchases more expensive....his thinking was OK 30 years ago but in a country that is basically a service industry it dosnt work and he just dosnt get that.....latest figures put inflation at 4% but everyone knows its really in double figures already, its just the way that sucessive UK governments have had years of expeiencing massaging the figures to suit their needs, even with a few rate raises Sterling probably wont rise that much, Merv has seen to that, he has just left it too late.....

Just because Merv doesn't do what you want him to doesn't make him an idiot. He has two main mandates, one to control the rate of inflation and second to ensure the UK finance industry is stable. It is clear that he wants to keep the banking industry afloat by reducing the interest rates to nothing and bunging 'em a load of cash at zero interest too.

The UK, as opposed to say Germany, has made the decision that the service industry is more important than manufacturing stuff. Bad call. May have worked for a while, but the whining bastards in the finance industry threaten "we will leave these shores" as soon as any regulation is mentioned. What a bunch of cun_ts. Compare that to Germany, where "we will produce the best in the world" and spend loads in research, development and optimising manufacturing. The UK lost the plot a long time ago.

Now, maybe if Merv starts to aggressively raise the interest rates it will pump up the UK Squib somewhat as the vast amount of money sloshing around internationally will find a better home, but long term, unless the UK starts exporting stuff that people want to buy, or has some attraction to encourage people to convert their currency to Squibs, the Squib has only one way to go.

The issue I see is that there are no commodities coming out of the UK, no major industries manufacturing world class goods, just some bunch of banks screwing up the rest of the world and, for some reason I cannot understand, London, where rich people like to go and live.

Short term there might be some mileage in buying into GBP. But long term the value of the GBP surely depends on

1. how many international investors want to own it

2. the return on capital it gives

3. the trade balance of of the UK with the rest of the world

and probably a few more reasons too.

Against Asia I can only see downwards and more downwards....

Quote from BOE

'Monetary stability means stable prices - low inflation - and confidence in the currency. Stable prices are defined by the Government's inflation target, which the Bank seeks to meet through the decisions taken by the Monetary Policy Committee.'

That overpaid idjit King isnt doing his job !!!

[chiang mai]

For no other reason than it's worth keeping in mind over the next twelve months: BOE has always said that inflation would spike during 1Q11 and then fall back, and secondly, food cost inflation is not structural hence the need to increase rates is simply not there.

[Darrel]

I have some questions.

I would like to know where to find the sort of information included in the Bloomberg screen grab without actually subscribing to such a service? I've hunted around but cant find very much at all. And the little I have found often seems to read like a Bangkok boiler shop press release. (Buy these Greek bonds now because it will triple in value within x months/weeks/days/hours. Yeah, where do I sign?) I dont do enough buying and selling to warrant having a paid subscription to Bloomberg etc., and surely never will.

Also, having decided which bonds to buy (for me that would surely be Euro denominated bonds issued by pretty secure entities such as the German or French central banks, or some very big banks/companies, and probably some GBP bonds of similar standing) where to actually buy them? My big UK broker doesnt seem to do these, though it does do ETFs based on these sorts of bonds. Or maybe I just dont know the right code to tap in (see question one).

I'm only interested in the most secure bonds as I dont need to increase the capital I have, just to keep it safe and get a decent return (ie any positive return after inflation ).

TIA

[wordchild]

I have some questions.

I would like to know where to find the sort of information included in the Bloomberg screen grab without actually subscribing to such a service? I've hunted around but cant find very much at all. And the little I have found often seems to read like a Bangkok boiler shop press release. (Buy these Greek bonds now because it will triple in value within x months/weeks/days/hours. Yeah, where do I sign?) I dont do enough buying and selling to warrant having a paid subscription to Bloomberg etc., and surely never will.

Also, having decided which bonds to buy (for me that would surely be Euro denominated bonds issued by pretty secure entities such as the German or French central banks, or some very big banks/companies, and probably some GBP bonds of similar standing) where to actually buy them? My big UK broker doesnt seem to do these, though it does do ETFs based on these sorts of bonds. Or maybe I just dont know the right code to tap in (see question one).

I'm only interested in the most secure bonds as I dont need to increase the capital I have, just to keep it safe and get a decent return (ie any positive return after inflation ).

TIA

there is quite alot of info available for free, (or at least not as expensive as Bloomberg Professional) eg try motley fool (brilliant website with loads of info incl for a beginner) ; reuters; ft.com; cnbc; bloomberg.com (non professional service) etc.

Are you sure you have a full service UK broker or just an ETF specialist ? none of this stuff is that complicated to trade, in any event ,sounds like you may need a new UK broker,

Edited April 17, 2011 by wordchild

[Darrel]

Are you sure you have a full service UK broker or just an ETF specialist ? none of this stuff is that complicated to trade, in any event ,sounds like you may need a new UK broker,

My broker definitely does all stocks and shares, including all major foreign markets, and also ETFs and various other bits and pieces. However they are execution only and whilst they do have a large "research" section online, if you dont know the code/name of the security you cant really research it. Much of it just redirects to another site anyway, where they have some sort of corporate login arrangement. (Can't say that I enjoy looking at this sort of information though: I would rather look at the innards of a PC anyday. Far more logical and orderly.)

I was just thinking that there may be some other online (UK) broker that specialises in that sort of trading, and so maybe makes the information more readily available.

I will study those other links (as soon I can work up some enthusiasm for the subject!). Thanks.

[Naam]

I would like to know where to find the sort of information included in the Bloomberg screen grab without actually subscribing to such a service?

most of the information contained in the screenshot i posted is available via internet, however only in bits and pieces. "Bloomie" is available in different package segment but even these are overkill for the average private investor who executes less than a dozen bond trades per month.

having decided which bonds to buy (for me that would surely be Euro denominated bonds issued by pretty secure entities such as the German or French central banks, or some very big banks/companies, and probably some GBP bonds of similar standing)

for that kind of investing each and everything is available in dedicated sites on the internet but with the caveat that you get used to the syntax. internet Bloomberg and Yahoo do not use ISIN codes (International Securities Identifying Numbers) for their searches and they do not provide full detailed bond descriptions (as "Bloomberg Pro") does. but for a beginner these are anyway irrelevant.

My big UK broker doesnt seem to do these

brokers want you to trade share, ETFs, etc. and hardly ever provide OTC ex exchange trading possibilities. in other words "using a broker for bond trading is as efficient as using your housemaid to change the worn out pistons of your car's engine".

I'm only interested in the most secure bonds as I dont need to increase the capital I have, just to keep it safe and get a decent return (ie any positive return after inflation ).

unfortunately that is not possible in the prevailing economic environment

[remiss]

These are some difficult questions!

I think both USD and GBP is cheap, but I don't think THB is expensive.. Doesn't necessarily mean they are over or underpriced.. A few years ago, GBP was at 12 to NOK and USD was 8 or something (which was what I considered normal at that time), now they are at 9 and 5.. NOK has stayed stable enough to EUR though.. The same with THB (but swinging a little bit forth and back)..

Is USD and GBP going up? Don't know, they should, probably, maybe, maybe not. I hope so, I have some equity in those currencies.. But if they wait until I get to put some more money there that's even better.. If the US keeps printing money, that won't happen.

I have faith in growth in SEA, but that depends on how the currencies evolve and where i need the money.. China and US I don't think will grow too much. Actually I think China will grow, but not in actual value, looks a bit overpriced.

If you are afraid of inflation, it is imho better to keep your values in equity. If you are afraid of equities, keep your money in short term bonds or bank accounts in the currency you need them and make sure the interest rate beats the inflation.. Or diversify. Or real estate that's not overpriced.

[thaimate]

It does seem to be rising a bit lately ,wonder if it will continue to do so?