Monday 16th September 2019
Not the sports results – but not so very different….
The pound is bouncing around day-to-day – reacting to each new twist and turn in every developing news story….
Brexit (or lack of it); Donald Trump’s on-off trade war with China; renewed tensions in the Middle East – all these issues and many more have an effect on the present value and future outlook of pound sterling….
Every official pronouncement, every fresh unfounded rumor and every new element of media speculation adds yet another variable to the simmering pot – leading to another revised market calculation of what the pound is worth against other currencies….
Who knows what the pound might be worth tomorrow morning?
All I can tell you is that this morning the pound was down 15% against the dollar, 13.7% against the euro and 12% against the Japanese yen since the eve of the European Union membership referendum in June 2016….
To put at least one of those figures into its proper context – the pound recently hit a 34-year low against the dollar….
- A writing down of values….
Back in the day when I was a young fool (as opposed to an older one) they had a short segment towards the end of News at Ten when Sandy Gall or Alastair Burnett would report what the pound was worth against the dollar….
To me, it wasn’t much different than the sports results….
I would take some strange pride in the fact that one British pound would buy quite a bit more than one American dollar….
And if the pound happened to be down against the dollar that day, it would be a bit like my football team had lost at home – only not quite so important….
Of course, nowadays I know a little more and I realize that my youthful take on these matters wasn’t so wide of the mark….
A falling pound is a form of defeat. It means that we the British people are getting poorer in terms of how much stuff our time, national output and money will buy on the global market….
And from the point of view of our international competitors, a falling pound is the same thing as a price cut. It is a writing down of all our values….
- Bargain hunt….
A falling pound means that there are potential bargains to be had in Britain right now for foreign investors playing in currencies that are (based on historical values) sitting pretty against the pound….
It isn’t quite a fire sale. But quality British corporate items can currently be bought at a generous discount….
And such opportunities rarely sit gathering dust waiting for someone to come along and take advantage….
Just last month Hong Kong’s multi-billionaire Li Ka-Shing pounced and bought 220-year old pub and brewing firm Greene King for £2.7 billion….
He paid 50% more than the stock price of the firm at the time to make the acquisition….
But thanks to the value of the pound it was a cheaper purchase than it would have been under more favorable economic circumstances in the UK….
If the pound continues to struggle to get to its feet, you can expect more foreign acquisitions of this nature in the months ahead….
- The devaluation game….
Of course, in such a climate, it can feel like the good ship Britain and all who sail in her are falling behind…. losing the game…. ceding control of their economic future…. disappearing under the waves of change….
But it is all a matter of perspective and which seat at the poker table you happen to occupy at any given moment in time….
Right now, leaders of other nations and trading blocs appear to regard Britain’s falling pound with envious eyes….
They consider the diminishing value of Britain’s currency to be a competitive advantage….
Some are taking steps to devalue their own currency via inflation of the money supply – like Europe….
Last week the European Central Bank cut interest rates and rebooted its quantitative easing programme….
Others publicly fantasize about devaluation – like president Donald Trump….
He wants an unwilling Federal Reserve to lower interest rates to the bone enabling his administration to borrow more money for longer periods at lower costs to finance increased government spending ahead of the next presidential election….
In other words, he wants to inflate the money supply through ‘stimulus’ – and devalue the dollar in the process….
- Making best of the way the world works….
It’s all fun and games. It fills airtime and newspapers. Where it will lead, nobody knows. Least of all me….
We must let the men with the big brains, the big ideas and the power get on with it – and then suffer the consequences….
That’s the way the world works. It always has….
Here at Money Truths we only worry about the things we can affect or control. Devaluating domestic currencies does not fall into that category….
Instead we turn our attention to how we can make the best of the way the world works for our own ends….
The pound is losing value. It buys less in America, in Europe and in Japan than it once did. But there is a flip side to the coin….
There are still places in the world where the pound is comparatively strong and where bargains might be sought out by adventurous investors….
That’s the truth of it as we see it….
And we’ll take a closer look at that next time….
All the best,