Dumb question

Generali

michaels wrote: »

The markets moved from pricing in a possible to brexit to pricing it as an outside bet today: total move less than 2%. I think this gives a better idea of the order of magnitude of any brexit effect on the currency and stock markets.

How much is the FTSE down since the start of the financial year? That might give a clearer picture.

CLAPTON

mwpt wrote: »

Technically it is true that we can print money to repay debts but it is a rather meaningless statement because to external investors, receiving payments in a massively devalued currency looks pretty much the same as a default.

THere is no possibility of a massively devalved currency assuming no WW3
a modest movement down may be on the cards but that has happened numerous times and will happen again whether we are in or out of the EU

Kohoutek

According to George Soros, if we leave the EU, we could 'join the euro'....

... by GBP reaching parity with EUR

https://www.theguardian.com/commentisfree/2016/jun/20/brexit-crash-pound-living-standards-george-soros

To start off, sterling is almost certain to fall steeply and quickly if there is a vote to leave– even more so after yesterday’s rebound as markets reacted to the shift in opinion polls towards remain. I would expect this devaluation to be bigger and more disruptive than the 15% devaluation that occurred in September 1992, when I was fortunate enough to make a substantial profit for my hedge fund investors, at the expense of the Bank of England and the British government.

It is reasonable to assume, given the expectations implied by the market pricing at present, that after a Brexit vote the pound would fall by at least 15% and possibly more than 20%, from its present level of $1.46 to below $1.15 (which would be between 25% and 30% below its pre-referendum trading range of $1.50 to $1.60). If sterling fell to this level, then ironically one pound would be worth about one euro – a method of “joining the euro” that nobody in Britain would want.

Brexiters seem to recognise that a sharp devaluation would be almost inevitable after Brexit, but argue that this would be healthy, despite the big losses of purchasing power for British households. In 1992 the devaluation actually proved very helpful to the British economy, and subsequently I was even praised for my role in helping to bring it about.

But I don’t think the 1992 experience would be repeated. That devaluation was healthy because the government was relieved of its obligation to “defend” an overvalued pound with damagingly high interest rates after the breakdown of the exchange rate mechanism. This time, a large devaluation would be much less benign than in 1992, for at least three reasons.

First, the Bank of England would not cut interest rates after a Brexit devaluation (as it did in 1992 and also after the large devaluation of 2008) because interest rates are already at the lowest level compatible with the stability of British banks. That, incidentally, is another reason to worry about Brexit. For if a fall in house prices and loss of jobs causes a recession after Brexit, as is likely, there will be very little that monetary policy can do to stimulate the economy and counteract the consequent loss of demand.

Second, the UK now has a very large current account deficit – much larger, relatively, than in 1992 or 2008. In fact Britain is more dependent than at any time in history on inflows of foreign capital. As the governor of the Bank of England Mark Carney said, Britain “depends on the kindness of strangers”. The devaluations of 1992 and 2008 encouraged greater capital inflows, especially into residential and commercial property, but also into manufacturing investments. But after Brexit, the capital flows would almost certainly move the other way, especially during the two-year period of uncertainty while Britain negotiates its terms of divorce with a region that has always been – and presumably will remain – its biggest trading and investment partner.

Third, a post-Brexit devaluation is unlikely to produce the improvement in manufacturing exports seen after 1992, because trading conditions would be too uncertain for British businesses to undertake new investments, hire more workers or otherwise add to export capacity.

mwpt

CLAPTON wrote: »

THere is no possibility of a massively devalved currency assuming no WW3
a modest movement down may be on the cards but that has happened numerous times and will happen again whether we are in or out of the EU

There you go again, fighting your imaginary battles.

CLAPTON

Kohoutek wrote: »

According to George Soros, if we leave the EU, we could 'join the euro'....

... by GBP reaching parity with EUR

https://www.theguardian.com/commentisfree/2016/jun/20/brexit-crash-pound-living-standards-george-soros

I have always considered Black Wednesday in September 1992 as a wholey good thing for the UK: it seems strange that Soros seems to say it was a negative.

the pound has been at parity with the euro before now so nothing new here

buglawton

Kohoutek wrote: »

According to George Soros, if we leave the EU, we could 'join the euro'....

... by GBP reaching parity with EUR

https://www.theguardian.com/commentisfree/2016/jun/20/brexit-crash-pound-living-standards-george-soros

On the other hand:
https://www.theguardian.com/business/2016/jun/20/brexit-would-trigger-sterling-fall-worse-than-black-wednesday

"Not all economists agree with Soros’s assertion that a rate cut will not be possible: economists at JP Morgan are among those forecasting a cut to zero in August from the historic low of 0.5%."

michaels

Kohoutek wrote: »

According to George Soros, if we leave the EU, we could 'join the euro'....

... by GBP reaching parity with EUR

https://www.theguardian.com/commentisfree/2016/jun/20/brexit-crash-pound-living-standards-george-soros

Speculator talks up his position shock - of course the arts grads at the BBC treat fianace as some sort of quasi-religious high art and buy a VI as an expert opinion every time.

Generali

buglawton wrote: »

On the other hand:
https://www.theguardian.com/business/2016/jun/20/brexit-would-trigger-sterling-fall-worse-than-black-wednesday

"Not all economists agree with Soros’s assertion that a rate cut will not be possible: economists at JP Morgan are among those forecasting a cut to zero in August from the historic low of 0.5%."

That forecast would be a bit more helpful if the Grauniad in their infinite wisdom had said under what circumstances the BoE would cut.

There are a lot of short-term market unknowns if the UK votes Brexit. Short term volatility doesn't really matter of course unless it is so extreme it sends a bank bust or something. If the pound plummets the MPC is unlikely to feel able to cut rates and may indeed have to increase them. Nobody knows of course.

Generali

michaels wrote: »

Specualtor talks up his postion shock - of course the arts grads at the BBC treat fianace as some sort of quasi-religious high art and buy a VI as an expert opinion every time.

The assumption among the asset managers at work is that anyone in finance that is pro-Brexit has a large open position. I've had half a dozen or more come up to me this week saying something along the lines of, "They're not actually going to leave are they"?

Pincher

There are horrible people around. George Soros attacked sterling once, so what's to say there isn't another gang waiting to pounce. A bunch of people horded the garlic in China, and drive up the price in the whole world. Don't ask me how much was involved, it wasn't just millions.

Perfect plot for a Bond movie. A bunch of Chinese speculators, or Spectre, plans to attack sterling. Panning shots of Shanghai. Red means UP in Chinese stock markets, which could be a little confusing, so somebody needs to say it in the movie.

With the prominence of China, there really should be an agent 008.
Guaranteed market penetration, with Chinese audience assured.