Pippy.
"Why try squeezing a few more short pips out of the GBP when there's potentially thousands to be made going long with a little oomph to boot?"
Simple answer to that is it is still going down. Although I agree completely that the pound will climb back up, there is no way I am jumping the gun. After all, a 'few pips' are a few pips. If it starts climbing on Monday I'll go with it, If it falls further, I'll go that way. Well, actually cable has been going sideways for a little while now, until it makes its mind up which way to go.
None of us know if there is any ulterior motive attached to the recent so called crash and credit crunch. (How much money would that information have been worth to you?)
If your memory isn't that old yet, you only have to look back at history to know. The market always runs in up an down cycles. It always has and it always will. What amazes me is it always happens the same way. Nothing ever seems to have been learnt from the last lesson, (although you can bet your bottom dollar that a few people have made fortunes out of this).
The memory of the masses seems to cover a short attention span, possibly fuelled by greed of everyone around from the financial institutions and governments to the person in the street 'buying' his house with his dole money, knowing full well (or he should) that he can't even afford to keep up the repayments should interest rates take a turn for the worse, or the cost of living head upward a few pence, as it always does, and the bang for your buck becomes a whimper.
My own view, and this is based on nothing at all, is that we are headed towards another crack at having the Euro as our part (and then all) of the English monetary system.
I believe the pound will be pushed under the euro and the 'powers that be' will very loudly 'rescue' us amid much fanfare and newspapers headlines by adopting the Euro.
I hope it doesn't happen. It will mean one less currency to trade. Trading the 'cable' will become trading the 'fibre optic Euro'. (Doesn't have the same ring does it?)
When these different, yet strikingly similar circumstances happened last time, a certain man with a Greek sounding name who was actually born on August 12th 1930 in Budapest, Hungary made his name and a fortune alongside to boot, on the rejection of our self imposed expulsion from the ERM. The European Exchange Rate Mechanism. (Why they never called it the 'EERM' I don't know. Maybe it would have given the impression that they didn't know what they were doing?) The so called 'Black Wednesday' in 1992.
One of the only differences then and now is that Britain along with Germany at the time had high interest rates. I will post something taken from Wikipedia because they have it laid out for posterity and is something that is worth a read for the young uns. Us old gits on here lived through it and know the pain too well. (Trying to get trades on (or off) that day were impossible, There were problems getting in or out of trades. Brokers would not answer phones. Even me carrier pidgeon came back with the message strapped to its leg saying, "We are not here... Please don't post another pidgeon.")
It is a lesson in history that any aspiring currency trader should know and take heed from.
If the pound continues its fall. How long before interest rates rise dramatically? Interest rates were dropped to prop the economy (ies) back up, and get people buying again. The only thing that holds economies up is production of goods for sale. It is what any country sells to have money coming in to underpin the economy and industry and grow the cycle once more.
This time it
may just
be different. Because Industry, builders and producers have not invested for the future. They have cut back on people investment programs to the point that few exist. It has turned into an investment culture of the internet. BUT it does not produce anything of worth that can be sold. There are thriving internet businesses out there that produce absolutly nothing, They have 'nothing' to sell. They are only selling to other people. Once the eager recruits dry up the 'company' will vanish because it cannot be sustained. I once watched a 'presentation' a few years back from a 'new' company, and all it entailed was getting other people to join up. It was over 60 mins worth of cleverly disguised nothing!
The schools program, or lack of it is producing 'idiots' for want of a better word. These boards are testament to the calibre of people that will be 'our' future. They canot even spell or string a basic English sentance together. The teachers say it's okay as long as your meaning is understood!
It isn't their fault.
You now need to be of 'graduate calibe' to be something like a recruitment consultant.
"What was your last job?"
"Printer"
"Oh, I have just the job for you. It says 'printer required.' Can you do that?
"Errm."
To make money out of this next phase, look to countries that are heavily investing in building and enginering. That are producing something of 'worth'. Invest in these by buying their currency. It may even be Britain.
Here is the article that made Georgie boys name.
In
British politics and
economics,
Black Wednesday refers to the events of
16 September 1992 when the
Conservative government was forced to withdraw the
pound from the
European Exchange Rate Mechanism (ERM) after they were unable to keep Sterling above its agreed lower limit. The most high profile of the currency market investors,
George Soros, made over
US$1 billion profit by shorting the sterling. In 1997 the UK Treasury estimated the cost of Black Wednesday at £3.4 billion.
The trading losses in August and September were estimated at £800m, but the main loss to taxpayers arose because the
devaluation could have made them a profit. The papers show that if the government had maintained $24bn foreign currency reserves and the pound had fallen by the same amount, the UK would have made a £2.4bn profit on sterling's devaluation.
[1] Newspapers also revealed that the Treasury spent £27bn of reserves in propping up the pound; the Treasury calculates the ultimate loss was only £3.4bn.
Contents
[hide]
[edit] Prelude
When the ERM was set up in 1979, Britain declined to join. This was a controversial decision as the
Chancellor of the Exchequer Geoffrey Howe, despite his economically
dry credentials, was a convinced pro-European. His successor
Nigel Lawson was also a believer in a fixed exchange rate, and although he was a mild
Eurosceptic he admired the low inflationary record of
West Germany, attributing it to the strength of the
Deutsche Mark and the management of the
Bundesbank. Thus although Britain had not joined the ERM, from early 1987 to March 1988 the Treasury followed a semi-official policy of 'shadowing' the Deutsche Mark.
[2]
UK fiscal policy at the time was lax[
citation needed]
[3]. Yet interest rates were set at relatively low rates and the risk of future inflation only appeared to be a secondary consideration in retrospect.
Matters came to a head in a clash between
Margaret Thatcher's economic advisor
Alan Walters and Nigel Lawson, when Walters claimed that the Exchange Rate Mechanism was "half baked". This led to Lawson resigning as chancellor to be replaced by his old
protégé John Major, who, with
Douglas Hurd, the then
Foreign Secretary, pressured Margaret Thatcher to sign Britain up to the ERM in October 1990, effectively guaranteeing that the British Government would follow an economic
[4] and
monetary policy that would prevent the
exchange rate between the pound and other member currencies from fluctuating by more than 6%. The pound entered the mechanism at
DM 2.95 to the pound. Hence, if the exchange rate ever neared the bottom of its permitted range, DM 2.778, the government would be obliged to intervene. With UK inflation at three times the rate of Germany's, interest rates at 15% and the "
Lawson Boom" about to bust, the conditions for joining the ERM were not favourable at that time.
From the beginning of the 1990s, high German
interest rates, set by the
Bundesbank to counteract inflationary effects related to excess expenditure on
German reunification, caused significant stress across the whole of the ERM. The UK and Italy had additional difficulties with their
double deficits, while the UK was also hurt by the rapid depreciation of the US Dollar - a currency in which many British exports were priced - that summer. Issues of national prestige and the commitment to a doctrine that the fixing of exchange rates within the ERM was a pathway to a single European currency inhibited the adjustment of exchange rates. In the wake of the rejection of the
Maastricht Treaty by the Danish electorate in a referendum in the spring of 1992, and announcement that there would be a referendum in France as well, those ERM currencies that were trading close to the bottom of their ERM bands came under pressure from foreign exchange traders.
[edit] Currency traders act
The UK's prime minister and cabinet members tried all day to prop up a sinking pound and withdrawal from the monetary system the country had joined two years prior was the last resort. Prime Minister Major raised interest rates from 10 to 12 percent, then to 15, and he authorised the spending of billions of pounds to buy up the sterling being frantically sold on the currency markets.
But the measures failed to prevent the pound falling lower than its minimum level in the ERM.
The Treasury took the decision to defend Sterling's position, believing that to
devalue would be to promote
inflation.
[5] On
16 September the British government announced a rise in the
base interest rate from an already high 10 to 12 percent in order to tempt speculators to buy pounds. Despite this and a promise later the same day to raise base rates again to 15 percent, dealers kept selling pounds, convinced that the government would not stick with its promise. By 19:00 that evening,
Norman Lamont, then Chancellor, announced Britain would leave the ERM and rates would remain at the new level of 12 percent. It was later revealed that the decision to withdraw had been agreed at an emergency meeting during the day between
Norman Lamont, Prime Minister
John Major, Foreign Secretary
Douglas Hurd, President of the Board of Trade
Michael Heseltine and Home Secretary
Kenneth Clarke (the latter three all being strong pro-Europeans as well as senior Cabinet Ministers), and that the interest rate hike to 15 percent had only been a temporary measure to prevent a rout in the pound that afternoon.
[edit] Aftermath
Other ERM countries such as
Italy, whose currencies had breached their bands during the day, returned to the system with broadened bands or with adjusted central parities. Even in this relaxed form, ERM-I proved vulnerable, and ten months later the rules were relaxed further to the point of imposing very little constraint on the domestic monetary policies of member states.
The effect of the high German interest rates, and high British interest rates, had been arguably to put Britain into recession as large numbers of businesses failed and the housing market crashed. In his memoirs, John Major claimed that ERM membership had had the beneficial effect of wringing inflation out of Britain's system.
The shadow chancellor,
Gordon Brown, said colossal errors of judgement by the prime minister and chancellor had betrayed the British people. Liberal Democrat leader Paddy Ashdown said the government's policy had failed.
Indeed the performance of the UK economy subsequent to the events of Black Wednesday has been significantly stronger than that of the
Eurozone[
citation needed]and, despite the damage caused to the economy in the short term, many economists[
who?] now use the term 'White Wednesday' to describe the day[
citation needed](a term originally coined by
Euro-sceptics happy at the stalling of further
European integration). Ironically, sterling subsequently rallied strongly during the autumn of 1996 and early 1997 back to the levels which had prevailed before Black Wednesday[
citation needed], and sterling's trade-weighted index remained stable at these levels until late 2006[
citation needed].
However, the
reputation of
the Conservatives for competent handling of the economy was shattered. The Conservatives had recently won the
1992 General Election, and the
Gallup poll for September showed a 2.5% Conservative lead. By the October poll, following Black Wednesday, they had plunged from 43% voting intention to 29%,
[6] while Labour jumped into a lead which they held more-or-less unbroken (except for several brief periods such as during the
2000 Fuel Protests) until
David Cameron became leader of the Conservative Party. It took 15 years for the Conservatives to regain the 42%+ popularity that is considered the minimum necessary for a Conservative general election victory. David Cameron, then just short of 26 years old and unknown to the public, was political advisor to Norman Lamont, the Chancellor of the Exchequer, during the problems of Black Wednesday, and can be spotted at Lamont's side in news film of Lamont's announcement of British withdrawal from the ERM that evening.
[7] [8]
EU economists'[
who?] analysis of this event concluded that stable exchange rates are the result, not the cause, of a common approach to economic management, resulting in the
Stability and Growth Pact that underpins ERM II and subsequently the
euro single currency.[
citation needed]
