Preserving your assets against a falling £

[LeTim]

Some commentators are predicting as much as a 25% slide in the £ versus it's main trading currencies the $, Yen, Euro and Canadian $.

I'm certainly willing to believe that the £ is overvalued.....and if it falls I'd like to preserve the spending power of my assets...since we have de-industrialised it seems that we import everything ( unlike at the time of the 70's devaluation where we still actually made stuff ) in order to maintain my standard of living.

To my mind the choices are

1 ) buy US/European/Japanese stocks ; denominated in local currencies
2 ) buy US/European/Japanese Bonds ( corporate and government )
3 ) buy FTSE stocks that are export orientated or earn most of their income overseas
4 ) place spread bets where I sell the $ against the $, Euro and Yen
5 ) open a multi-currency bank account and simply deposit cash in Yen, Euro and $ at todays FX rates.

These are my thoughts so far, and I'd welcome comment upon them? If possible I'd like to keep this a discussion of how to protect against a falling £ ( on the assumption that this will happen ) as opposed to a discussion about whether the £ will fall in the first place.

http://www.bloomberg.com/apps/news?pid=20601087&am...

[Simpo Two]

Traveller's cheques?

[LeTim]

Simpo Two said:

Traveller's cheques?

There's always one isn't there.

[griffgrog]

Is it that the GBP is strong, or that the US Dollar in particular is weak at the moment. I can't see the pound falling unless interest rates plummet. My guess is that over 2008 and 2009, interest rates will be 5.25 +- .5%

The bank offered us options on US Dollars, but at about 1.5% for 12 months, it didn't seem worthwhile. You could speak to your banks treasury department. It gave me a great insight into how banks think.

[LeTim]

LeTim said:

If possible I'd like to keep this a discussion of how to protect against a falling £ ( on the assumption that this will happen ) as opposed to a discussion about whether the £ will fall in the first place.

http://www.bloomberg.com/apps/news?pid=20601087&am...

griffgrog said:

Is it that the GBP is strong, or that the US Dollar in particular is weak at the moment. I can't see the pound falling unless interest rates plummet. My guess is that over 2008 and 2009, interest rates will be 5.25 +- .5%

Sorry mate as said. Whether or not the £ will fall is a different, and rather emotive issue, I'm more interested in trying to work out what courses of action are best for a given scenario....debating whether or not it will happen will just result in the usual PH stalemate/slanging match/clash of egos.

I need/was hoping for something a little more productive if possible.

In terms of treasury and how banks think.....well I've been working in banking for 15 years and I'm a corporate treasurer, to be honest though I'm farily sure what actions will make sense, but I know there are some PHers who come on here who might know a few things I've missed.

Also if possible I'd like to look at things from the perpective of looking after ones SIPPS or ISA assets, so more retail products.....there doesn't seem to be a personal finance/money section on PH....so I guess it belongs in here.

Oh ps......re the £ falling, you might like to read the article I've provided a link to.

[NoelWatson]

All my/company investments are in stocks traded on FTSE. I am sector diversified, but am aware that I am too U.K. focused. I intend to invest in U.S. for my SIPP at some point - I subscribe to this site

http://www.validea.com/home/home.asp

but don't know enough about Asia to give it a go and refuse to invest in a managed fund.

[thewave xmas ed']

coyft said:

LeTim said:

Some commentators are predicting as much as a 25% slide in the £ versus it's main trading currencies the $, Yen, Euro and Canadian $.

I'm certainly willing to believe that the £ is overvalued.....and if it falls I'd like to preserve the spending power of my assets...since we have de-industrialised it seems that we import everything ( unlike at the time of the 70's devaluation where we still actually made stuff ) in order to maintain my standard of living.

To my mind the choices are

1 ) buy US/European/Japanese stocks ; denominated in local currencies
2 ) buy US/European/Japanese Bonds ( corporate and government )
3 ) buy FTSE stocks that are export orientated or earn most of their income overseas
4 ) place spread bets where I sell the $ against the $, Euro and Yen
5 ) open a multi-currency bank account and simply deposit cash in Yen, Euro and $ at todays FX rates.

These are my thoughts so far, and I'd welcome comment upon them? If possible I'd like to keep this a discussion of how to protect against a falling £ ( on the assumption that this will happen ) as opposed to a discussion about whether the £ will fall in the first place.

http://www.bloomberg.com/apps/news?pid=20601087&am...

Buy gold.

Buy steel

[houlbt]

as said... buying gold is a good way to shift your cash out of sterling for now, makes sense on several fronts.

[Horse_Apple]

LeTim said:

Some commentators are predicting as much as a 25% slide in the £ versus it's main trading currencies the $, Yen, Euro and Canadian $.

I'm certainly willing to believe that the £ is overvalued.....and if it falls I'd like to preserve the spending power of my assets...since we have de-industrialised it seems that we import everything ( unlike at the time of the 70's devaluation where we still actually made stuff ) in order to maintain my standard of living.

To my mind the choices are

1 ) buy US/European/Japanese stocks ; denominated in local currencies
2 ) buy US/European/Japanese Bonds ( corporate and government )
3 ) buy FTSE stocks that are export orientated or earn most of their income overseas
4 ) place spread bets where I sell the $ against the $, Euro and Yen
5 ) open a multi-currency bank account and simply deposit cash in Yen, Euro and $ at todays FX rates.

These are my thoughts so far, and I'd welcome comment upon them? If possible I'd like to keep this a discussion of how to protect against a falling £ ( on the assumption that this will happen ) as opposed to a discussion about whether the £ will fall in the first place.

http://www.bloomberg.com/apps/news?pid=20601087&am...

Hi Tim,

I suspect that any fall in £ will come through quickly into the equity market. As you say, we are importers nowadays and so most businesses will be hit hard on the bottom line in a long term trending decline.

As such, buying Puts on the index could be an option, as could shorting ETFs. The latter would recieve income but expose you to a rising market, but the former would be an initial sunk cost and your done, but needing renewal every 6 months.

The only other way I can think of would be to simply hedge out your cash against the E and the $ to some extent.

Would any of this be worth it?

[LeTim]

Horse_Apple said:

Hi Tim,

I suspect that any fall in £ will come through quickly into the equity market. As you say, we are importers nowadays and so most businesses will be hit hard on the bottom line in a long term trending decline.

As such, buying Puts on the index could be an option, as could shorting ETFs. The latter would recieve income but expose you to a rising market, but the former would be an initial sunk cost and your done, but needing renewal every 6 months.

The only other way I can think of would be to simply hedge out your cash against the E and the $ to some extent.

Would any of this be worth it?

Hello mate.

I reckon coyft is right about gold, well physical gold at least, even if gold got stuck at $800 a move back to $1.75 ( as HSBC are calling it ) would turn a nice profit on gold bought today in £ terms.

In terms of spread betting I guess I can just buy the $/£ contract at 0.49, the Euro contract at 0.72 and let the bet roll ( having bought enough to hedge my portfolio ).

Then I might also buy FTSE stocks that would benefit from a falling £....big drug firms and oil majors come to mind, and those European stocks that are defensive and pay a nice euro dividend.

Having said that falling rates and a falling £ could light a nice fire under the FTSE large caps next year so alot of the play I'm thinking of may already be structured into them.

One thing I will happily buy is a beer if you're about over xmas

[Horse_Apple]

LeTim said:

Horse_Apple said:

Hi Tim,

I suspect that any fall in £ will come through quickly into the equity market. As you say, we are importers nowadays and so most businesses will be hit hard on the bottom line in a long term trending decline.

As such, buying Puts on the index could be an option, as could shorting ETFs. The latter would recieve income but expose you to a rising market, but the former would be an initial sunk cost and your done, but needing renewal every 6 months.

The only other way I can think of would be to simply hedge out your cash against the E and the $ to some extent.

Would any of this be worth it?

Hello mate.

I reckon coyft is right about gold, well physical gold at least, even if gold got stuck at $800 a move back to $1.75 ( as HSBC are calling it ) would turn a nice profit on gold bought today in £ terms.

In terms of spread betting I guess I can just buy the $/£ contract at 0.49, the Euro contract at 0.72 and let the bet roll ( having bought enough to hedge my portfolio ).

Then I might also buy FTSE stocks that would benefit from a falling £....big drug firms and oil majors come to mind, and those European stocks that are defensive and pay a nice euro dividend.

Having said that falling rates and a falling £ could light a nice fire under the FTSE large caps next year so alot of the play I'm thinking of may already be structured into them.

One thing I will happily buy is a beer if you're about over xmas

Completely beered out!!!!!

Spent the last month travelling Europe ensuring that all cleints are fully watered and fed and now I'm half dead.

Going to be hiding off road in the Cotswolds and Italy this Christmas and not looking to surface until early Jan, hopefully with my sanity re-asserted.

[LeTim]

Horse_Apple said:

Spent the last month travelling Europe ensuring that all cleints are fully watered and fed and now I'm half dead.

Going to be hiding off road in the Cotswolds and Italy this Christmas and not looking to surface until early Jan, hopefully with my sanity re-asserted.

oh well if you run low of fois gras you can always volunteer a slice of you liver.

coyft....yep I have an account with BullionVault, the PHAU ETF is quite good too, as are Perth Mint Certs ( esp good for Silver ).

[2something]

Currency markets are notoriously hard to predict. Also what kind of time horizon are you thinking of - look at gbp/jpy, on shorter term charts it's done nothing but go up, on longer term charts it still looks very low.

Personally, if I had to protect myself against a £ I was expecting to fall, I'd be selling gbp calls against a variety of currencies. But this is not for the unsophisticated investor, you have to work out what maturities, face amounts, do you keep any positions you get assigned on etc. Also keep in mind that the multi year bear market in currency vols looks to be over.

[LeTim]

2something said:

Currency markets are notoriously hard to predict.

Really?

I always thought that the trends were much easier to spot/trade in FX than for example in equities.

Don't most FX rates move along a path determined by inflation and interest rates, which are ( at least compared to company results/events ) relatively non-volatile.

For example broad money supply in the UK is running at double digit rates, yet the economy is slowing and consumers are in dire need of rate cuts to save the housing market, and the countries main export is financial services.

A lower return on a currency in which there is too much supply implies a fall.

Or am I missing something?

[Fittster]

coyft said:

Buy gold.

That my line!!

[LeTim]

Fittster said:

coyft said:

Buy gold.

That my line!!

How about buy £ denominated gold ETFs or physical gold in sterling!

Or is that too much of a mouthful?

[Fittster]

LeTim said:

Fittster said:

coyft said:

Buy gold.

That my line!!

How about buy £ denominated gold ETFs or physical gold in sterling!

Or is that too much of a mouthful?

You are actually considering buy physical gold? Surely the hassle of storage make that a non-starter unless you have access to a secure vault?

I'm not sure I'm following here.

[LeTim]

Fittster said:

LeTim said:

Fittster said:

coyft said:

Buy gold.

That my line!!

How about buy £ denominated gold ETFs or physical gold in sterling!

Or is that too much of a mouthful?

You are actually considering buy physical gold? Surely the hassle of storage make that a non-starter unless you have access to a secure vault?

I'm not sure I'm following here.

BullionVault both gives you an actual lump of metal. IIRC.

Buying gold in £ is a play on the price of Gold rising, AND the £ weakening simultaneously.

If you think the UK is a smaller, more f*cked version of the US economy the strength of the £ doesn't make sense.

I can see gold at $950 and the £/$ rate at 1.76 within a year.

Course that's not to say it will happen, we pays our money and takes our choice though.

Edited by LeTim on Wednesday 19th December 18:22

[2something]

LeTim said:

2something said:

Currency markets are notoriously hard to predict.

Really?

I always thought that the trends were much easier to spot/trade in FX than for example in equities.

Don't most FX rates move along a path determined by inflation and interest rates, which are ( at least compared to company results/events ) relatively non-volatile.

For example broad money supply in the UK is running at double digit rates, yet the economy is slowing and consumers are in dire need of rate cuts to save the housing market, and the countries main export is financial services.

A lower return on a currency in which there is too much supply implies a fall.

Or am I missing something?

It is a fair point about the trending and the reason a lot of economists trying to predict fx rates using fundamentals find them so hard to predict.

The trend is upwards in GBP (say against the USD and the JPY), if it's so easy, why bet against it. You make the money on a trend, by buying on the dips, like the current dip, or is it a dip?

The UK was in the same position you describe a couple of years ago. I too think it will be different this time though, as it seems does most of the country.

FX rates are affected by interest rates but in both directions i.e. they sometimes move in the direction of the forward curve (stronger lower yielding currency) and sometimes they move like carry trades (stronger higher yielding currency). The reasons for which one are usually clear with hindsight.

[LeTim]

2something said:

The trend is upwards in GBP (say against the USD and the JPY), if it's so easy, why bet against it. You make the money on a trend, by buying on the dips, like the current dip, or is it a dip?

The UK was in the same position you describe a couple of years ago. I too think it will be different this time though, as it seems does most of the country.

FX rates are affected by interest rates but in both directions i.e. they sometimes move in the direction of the forward curve (stronger lower yielding currency) and sometimes they move like carry trades (stronger higher yielding currency). The reasons for which one are usually clear with hindsight.

Well the $/£ rate has fallen from a peak of $2.11 earlier this year to $1.98 now, so I'd argue that the upward trend is well and truly over for the £.

For that matter the Euro/£ rate has gone from 0.67 at the beginning of the year to around 0.72 at present.