Lost all confidence in the pound.

Chomeur

Supposing I decide that I have no confidence in the pound any longer, given the government's and Bank of England's seeming complete indifference to its decline (Kwarteng's only reaction to the fall of the pound yesterday seems to have been to say that he doesn't comment on market movements). That doesn't mean I want to emigrate, because I'm well set up here. I will probably always be able to earn some hard currency online somehow. What is the most logical thing to do with my savings? At the moment they earn about 1.5%pa. If I had converted them to dollars at the beginning of the year and converted them back now I would have earnt about 25% on them. So that 1.5% is pretty insignificant really.

If I have £10,000 I can convert it to dollars to keep in a dollar bank account. Probably I don't get interest on it. There will be fees. Or I can put £500 in a spreadbetting company and sell a £1 bet against GBPUSD. Then keep earning 1.5% on the £9500. Each way, if the pound falls another cent, I earn about £100. I might have to put more money in as margin if the pound goes up, but I can't see the pound going up over the next few years. My suspicion is that the spreadbetting option is more logical. I haven't done the maths, but does anyone have any opinions?

NedS

If you believe the pound is destined to keep falling, invest in US equities, or equities that make most of their profits in $US. For every 1% the pound falls against the dollar, US equities rise by the equivalent. Just look at the performance of global equity funds on Friday. US markets dropped around 1.7-1.8% yet UK MSCI world tracker fund investors saw a 1% rise due to the fall in the pound.

masonic

Spreadbetting is an option, but could be expensive if the dollar weakens for some reason. Another option is to open an investment account and buy short dated US treasuries fund or other cash-like USD investment.

Albermarle

This would be pure currency speculation, so rather risky..........

snowqueen555

A few years ago I had a Monese account. It lets you keep your money in Euros and dollars. Might be something worth considering.

jimjames

Chomeur said:

Supposing I decide that I have no confidence in the pound any longer, given the government's and Bank of England's seeming complete indifference to its decline (Kwarteng's only reaction to the fall of the pound yesterday seems to have been to say that he doesn't comment on market movements). That doesn't mean I want to emigrate, because I'm well set up here.

If you need money to spend here then you don't have much option but to use pounds. As above you can have assets overseas that will give a level of currency protection but will also add risk. What happens if the dollar returns to 1.4 to the pound and all your money is in dollars?

MA260

Unless the Pound completly loses it, then there is the risk that any actions now are after the horse as bolted. Although, if for instants  you have pension funds it is maybe best to look at what you have and assess the currency risks of them all. For Example how much more will USD strengthen, or is it near peak. IF you think it is near peak then it is an opportunity to move some USD equity to EUR / or GBP if you have a lot of USD equity in portfolio. although as with everything there is a risk in whatever you do. 

bd10

Alternative to spread bet would ETF on short dated US bonds/t-bills, ideally floating rate debt. The ETF issuer would offer a GBP version, hence one effectively has a USD money market account. Available in ISA/SIPP wrappers as opposed to a spread-bet.

Which way GBP/USD will go in the weeks and months, that's a good question. Initial reaction of bond and FX markets was not excactly a vote of confidence. The odds are this momentum will stay with us for a bit. At the same time, the comparison to the Dollar is a bit unfair, I would look at the trade weighted basked of currencies to the Pound. The picture is still bleak but not this bleak.

If I had spare cash flying around I'd go long USD, straight bet on continued strength with Fed taking the lead in the hiking cycle, global slowdown in growth/recession. That bull run will come to an end, don't think we're there yet. This is not investment advice, just my personal opinion. Even if I were to put that trade on, it'd be a small position in the corner, not my core holding or anything significant.

levdon01

Chomeur said:

Supposing I decide that I have no confidence in the pound any longer, given the government's and Bank of England's seeming complete indifference to its decline (Kwarteng's only reaction to the fall of the pound yesterday seems to have been to say that he doesn't comment on market movements). That doesn't mean I want to emigrate, because I'm well set up here. I will probably always be able to earn some hard currency online somehow. What is the most logical thing to do with my savings? At the moment they earn about 1.5%pa. If I had converted them to dollars at the beginning of the year and converted them back now I would have earnt about 25% on them. So that 1.5% is pretty insignificant really.

If I have £10,000 I can convert it to dollars to keep in a dollar bank account. Probably I don't get interest on it. There will be fees. Or I can put £500 in a spreadbetting company and sell a £1 bet against GBPUSD. Then keep earning 1.5% on the £9500. Each way, if the pound falls another cent, I earn about £100. I might have to put more money in as margin if the pound goes up, but I can't see the pound going up over the next few years. My suspicion is that the spreadbetting option is more logical. I haven't done the maths, but does anyone have any opinions?

I would not recommend spread betting because it is a leveraged product and with contract for difference trading (CFD) you are charged a small interest payment for leaving positions open overnight. I actually think your logic is completely wrong, the US Dollar index is at multidecade highs and the pound is just off record lows against the US Dollar. You need to buy low sell high, not the other way around.

If I was an international investor I would sell dollars and buy the pound. However, I do not see the US Dollar strength lasting, you will see big losses in the dollar when the Federal Reserve stop rising interest rates, the amount of debt in the US is huge. The higher the Federal Reserve funds rate goes, the higher the cost of servicing debt. They will drop their interest rates at some point and that will cause capital to flow back out of the US Dollar. 

I much prefer the prospects of gold. Investors that buy and sell gold sovereigns will be insulated from further losses in the pound or us dollar. Usually when an investment theme such as ditching a weak pound or buying a strong dollar becomes obvious to everyone, it is a good signal that the market is near its top or bottom. No one is talking about gold at the moment in the mainstream media. I think the prospects are good, especially for British investors. 

I recommend buying and selling from online bullion companies such as Auronum rather than buying at your local jewellers because they charge massive premiums on gold sovereigns and pay well below intrinsic value when you come to sell. Bullion companies have live prices online for all to see and need to be competitive on their prices to attract business as their business models rely on a lot of transactions.  

MEM62

Chomeur said:

If I had converted them to dollars at the beginning of the year and converted them back now I would have earnt about 25% on them. 

But you didn't because you don't have a crystal ball.  Betting on exchange rate fluctuations is a sure way to loose money fast - no matter what clever system people think that they have discovered.  

Albermarle

MEM62 said:

Chomeur said:

If I had converted them to dollars at the beginning of the year and converted them back now I would have earnt about 25% on them. 

But you didn't because you don't have a crystal ball.  Betting on exchange rate fluctuations is a sure way to loose money fast - no matter what clever system people think that they have discovered.  

I agree with this point. You could just as well say if you had sold all your investments on Jan 1st and rebought them today, you would also be a lot better off. However you can only know that for sure after the event.