The pound dropped to 1.28 against the US dollar yesterday. We cut through the soundbites and analyze the real situation, and why now is the time to invest in the UK big time.
The British pound, the world’s most valuable currency.
Despite the hysteria that has proliferated the airwaves and the written spaces of the world over the last few weeks, the British Pound is still, and for the foreseeable future, will remain the most valuable currency in the world.
Yesterday, the pound dropped in value to 1.28 against the US dollar, which set a new low point which has not been visited since 1985, so long ago that the last time the pound was at this level, the Do It Yourself phenomenon was still sweeping Britain, with home extensions being the order of the day, and the installation of uPVC double glazed windows being a common sight the length and breadth of the land.
Maureen Lipman interspersed television shows, reminding the public that it was ‘Good to Talk’ by using the country’s state-owned telecommunications network.
Indeed, some of the younger executives in the FX industry, and some of today’s successful traders may not even recall that period, and will not have spent their childhood wondering why pieces of interior trim spontaneously fall off as they were driven to school in a mid-80s Rover 3500SE.
If one can liken today’s economic situation to that of 31 years ago, when the pound was at this low level in value against the US dollar, the picket lines and industrial disputes of yesteryear which resulted in the disappointment of said piece of trim falling off contrasted with the admiration of David Bache’s elegant and revolutionary design.
The heart-sinking feeling of inadequate build quality was completely reversed by the accompaniment of the almost musical engine note of the venerable 3528cc General Motors V8 which made that car, a pinnacle of 1980s British industry, so polarizing of opinions as on one hand it was a masterpiece, yet on the other, an example of a troubled business, and ultimately, despite its beauty and performance, finished off the British motor industry once and for all.
Birmingham, once a world center for motor, aviation and technological engineering lost its crown, and its upbeat demeanor gave way to post-industrial social problems and poverty.
Manchester, Liverpool, Huddersfield, Bradford, Leeds, Nottingham, Derby, Leicester, Middlesborough, Halifax, Newcastle, Sunderland and 60 smaller towns and cities followed suit and now, widespread dereliction prevails. New initiatives are being brought in by the younger population and the highly educated from the North’s universities, therefore this is set to change and could well present an investment opportunity for businesses wishing to leverage the Millennial generation of the North for technological development and computer science. Manchester and Nottingham Universities are renowned for having top quality alumni in that subject.
London, however, is a world financial superpower, leading technology, innovating, mapping out the institutional financial world’s future from the ground up, right the way from Tier 1 banking tours de force, through the massive institutional prime brokerages and liquidity providers, right the way to Silicon Roundabout, where Millennials with vast venture capital backers bring forth the landscape of tomorrow’s global financial system.
Britain, once the world’s industrial superpower, that invented almost every item that is in use today, has ditched traditional legacy manufacturing in favor of the ether. The cloud hosted. The ultra-modern, ‘vaporware’ approach to electronic business and because of this, Britain will lead the way in the future, with the gap between Europe’s flagging mainland and Britain’s avantgarde genius widening as time goes on.
During the past month, dissenters and commentators have placed their pessimism across televised and written media. The world is awash with naysayers who think that the pound is done, that British companies will move to the European Union zone (!!!) and that the Brexit will be a shackle around the leg of the UK.
This is absolutely not the case at all.
Mark Carney, who is likely not to remain governor of the Bank of England for very much longer if Britain executes Article 50 and has a clearing-out session of the old guard, has resorted to scaremongering.
The problem is that the derision is being aimed from Europe and the Europhiles toward Britain, when actually things are the other way round. Britain is in the position of fiscal power, not mainland Europe.
Mainland Europe has a debt to GDP ratio of over 257%, is largely non-producing compared to similarly populated continents in other regions of the world such as North America and parts of South East Asia, has not been able to modernize, does not have a developed financial markets economy, is hampered by very strong trade unions, has up to 57% youth unemployment in Spain, Greece, parts of southern Italy and Portugal, and France is now lobbying its government to take the already short 35 hour working week down to 30 hours.
The hyperbole that surrounds any notion of firms moving from London to the European mainland is exactly that – hyperbole. It will never happen. France? 75% tax and zero infrastructure. Germany? Government intervention like nothing else on earth, impositions of latency floors on advanced trading systems to ‘level the playing field’, expensive fees, very high taxes, a failing financial system and no developed financial markets economy to even a 5th of what exists in London, both technologically and in terms of markets. Spain, Italy? ….. Hmmm.
Bailout after bailout from the IMF and the European Central Bank, which is exposed to massive liabilities as Greece, a nation with only 10 million people, owes the European Central Bank 1 third of its entire capitalization.
A lot of olives would have to be grown to ever repay that.
Meanwhile, Germany is still reliant on legacy industry, its motor manufacturing sector terrified of Tesla and hybrid technology from Toyota, General Motors and Ford, to the point that Volkswagen, Germany’s largest heavy engineering company, made false reports about the emissions ratings on its diesel-powered cars which is a clear admission that they cannot compete.
In Britain, Land Rover and Jaguar have been sold to non-European investors and are now producing world-class products, yet Britain is not reliant on such industry – this is by far secondary to its electronic institutional financial sector, yet it is still far superior to that of mainland Europe, in terms of efficiency, modernity and product.
Mr. Carney yesterday said that the Bank of England needs to start lending more, creating panic.
It is nothing to panic about. As I said last week, property in the UK is a good investment now, aside from liquid assets. I found this house in a very good neighborhood in NW London for £550,000 for sale. In two years’ time, this will have risen substantially in value.
FinanceFeeds spoke to several sources in the institutional banking sector in London today, who have said that they are even considering taking the interest rate down to zero percent, which means that it will actually cost the banks to lend money, and the only method of making a profit out of that side of their business would be to start charging other firms to buy the debt, which is an expensive and bureaucratic business.
Mr. Carney stated that the central bank cut the amount of capital it required banks to hold in reserve, which freed up an extra 150 billion pounds (USD 196 billion) for lending.
Rodrigo Catril, a currency strategist at the National Australia Bank, said yesteday that the pound had a small reaction to Mr. Carney’s comments and the sell-off was part of a global flight to safety. “Fears of financial contagion have triggered a demand for safety, dragging core global yields to new historical lows” he said.
This is really a case of ‘nothing to see here.’ Britain’s banks are well capitalized, Canary Wharf handles 49% of all global FX electronic order flow at Tier 1 level, providing the prime brokerages of the entire world with liquidity.
Equinix’s LD4 server and data center is the world’s largest hosting venue for the entire electronic trading industry, followed by Equinix’s New York and Tokyo locations. Where is Germany, Europe’s largest economic region, on this list? …. Can I hear the tumbleweed blowing across the grasslands?
What is not being mentioned is that Deutsche Bank, which is one of the world’s largest FX dealers, announced last week that it was to close 188 retail branches and cut 3,000 jobs, just months after Wolfgang Schaeuble, Germany’s Minister of Finance, announced that there was ‘nothing to worry about’ in terms of the bank’s stability after it reported crippling losses during 2015.
Deutsche Bank may well be Germany’s largest financial institution, however it conducts its entire interbank electronic trading business from London, not Frankfurt.
The trading desks of the major banks are the most profitable elements of their entire business, and in Deutsche Bank’s case, as with most other banks, London takes care of this, whilst the domestic German arm struggles with traditional lending and retail banking.
Absolutely no other city offers a complete package in the way London does, the FCA being the most recognized regulatory authority outside of the United States, the entire institutional and interbank sector dominating the skyline of London’s City and the capitalization of such institutions being in very good shape indeed.
Now is the time to buy Pounds, in their droves, as the only way is up.