There’s been a lot of interest in our pound-euro play. Frank Hemsley has more on this below, where he takes a technical look at the currency market…
Now, as part of my job I’m required to undertake a set number of hours Continuing Professional Development each year. That’s why I’ve spent the last three days on a course in the heart of the Square Mile.
I met a diverse range of financial characters. There were investment bankers, brokers, analysts, a bond trader, a chap from the London Stock Exchange, a guy who works for the Takeover Panel…
In between sessions we would discuss the current state of the markets. It was an interesting dynamic. The LSE and Takeover guys are, you would imagine, relatively secure in their jobs. And the bloke trading bonds is really busy right now!
It was most interesting chatting to those at the ‘money-making’ end of the spectrum. The hedge fund guy, the brokers and the bankers. What was abundantly clear is that everyone’s finding it really difficult to make money right now.
Of course, I didn’t need to go on a course or make new friends to find that out. But nonetheless, it’s a sign of the times that people, who two years ago were the embodiment of financial confidence, will now freely admit they’re all out of ideas.
One thing I keep reading is that it’s extremely hard right now to find returns that will beat inflation. Unfortunately, that will probably be the case for at least another year. Let me show you why by looking at two hypothetical – but very plausible – scenarios.
Sucking Money From The System – The Deflation Scenario
Disinflation – that’s prices still rising, but at a slower rate – seems a near certainty for the first part of next year. But some commentators fear the crisis could go further. They fear deflation, where the overall consumer price level actually falls.
Deflation, as any student of economic history will tell you, is not a pretty sight. But you could be forgiven for thinking it would at least make it simpler to make inflation-beating returns. After all, any positive return is ahead of inflation if prices are coming down.
Maybe. But falling prices will also hit nominal earnings. Some investors right now see value in almost any stock they look at. Price-earnings (P/E) ratios are down…stocks look cheap. However, if the denominator (earnings) falls as a result of inflation, well, that’ll make them less cheap. Unless, of course, the price comes down too… and then you’re sitting on a loss.
This is one way the crisis could play out. But it’s not the only one…
Money, Money, Money – The Inflation Scenario
Next year could actually have a more inflationary bent than people expect, at least in the second half of the year. Governments are desperate to get their economies going again, and are resorting to public spending. This will continue.
Not only that, central bankers are slashing rates, and arm-twisting commercial banks to pass the cuts on (here in Britain, of course, the banks still aren’t… yet). The whole thing can be summed up in fours words: cheap and easy money.
If the new money makes consumers feel richer again – and they keep spending – we’ll get inflation. That will raise the level of return investors will need to achieve to genuinely grow their wealth.
But if consumers and businesses hang onto the fresh cash – perhaps to improve their solvency – well, then we’re back in the Land of Deflation.
It’s a case of pick your mechanism, really. Either investors will make some positive returns, but see them stripped away by inflation. Or they simply won’t make those returns in the first place.
As for making any real money – well, that’s a very tall order. That’s why I’m glad I know Theo Casey. He’s found an investment that has actually delivered returns this year, during one of the most volatile periods in all financial history.
This is a separate investment to the highly popular pound-euro play I mentioned above – which hedges you against the crash in sterling.
This second investment works because it can go short as well as long. Fleet Street Letter readers have already heard about this investment, which now forms part of the FSL portfolio. I’ll bring you more information on this very soon.
Until next time,
Ben Traynor
Editor
Fleet Street Daily
A picture speaks a thousand words, but 3 will do: Sterling is toast!
BY FRANK HEMSLEY In Fleet Street Daily we have been unambiguous about our thoughts on sterling. We’ve said it’s going down and we have recommended taking steps to protect your wealth from this fall.
Now the mainstream press is catching on. The fundamental arguments for sterling falling are no longer in question.
But it’s worth seeing sterling’s performance in pictures too. You get a better idea of what’s happened so far… and how bad this could get.
Here is a chart of the pound versus the euro (GBP/EUR) over the past year. Note the big crash yesterday as the pound finally broke through the final support level.
The pound has NEVER been below this level. We are in uncharted territory and there is no more technical “support” (i.e. where buyers are likely to come in) below the red line. That means the pound could easily be savaged more.
There is no reason – given the dire fundamentals of the UK economy – why sterling could not fall all the way to parity with the euro… where one pound buys only one euro.
A fall of this magnitude – some 15% from the current level – will be devastating for Britain. That’s why we continue to urge our friends to take a simple action to protect themselves – to safeguard their wealth.
Colleagues at The Fleet Street Letter first recommended this “hedge” investment back in August. Since then, as the following chart shows, it has continued to make money in the face on falling stock markets and a crashing pound…
(NB Past performance is not a reliable indicator of future results)
If the pound does continue to fall – as we believe it surely will – then this canny investment should continue to protect and reward smart investors.
I urge you to consider this investment now.
Find out more by following this link
The Daily Reckoning – Want the good times to come back? You could be waiting 20 years…
BY BILL BONNER
O! Bama! Where is thy bounce!
Yesterday, stocks got whacked again – the Dow was down 411 points, bringing the loss for the year to more than 4,000 points.
Oil fell to $56 a barrel; investors feared that the world’s drivers would leave their cars in the garage and the world’s teenagers would begin turning off the lights when they left their rooms.
And they seem to be right. You can read the Daily Reckoning in full here
P.S. If you enjoyed this article you can find out more about our free email, The Right Side by clicking here.
