Catch 22

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This topic contains 23 replies, has 10 voices, and was last updated by Profile photo of Anonymous Anonymous 3 years, 10 months ago.

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  • #57236
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    Anonymous
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    Most expats in Spain depend to a great extent on the pound/Euro exchange rate, me included. While sounding optimistic about a Spanish recovery this year, linked to a global steadying of nerves about the Eurozone, I had totally forgotten about the pound/Euro until reading this:

    http://www.bbc.co.uk/news/business-21059213

    It’s Catch 22 for UK expats like me. We gain when the Euro weakens and the pound gets stronger, but the values of our houses in Spain go through the floor, if there’s any floor left.

    You can’t even pray, whatever you pray for is hurtful.

  • #114705
    Profile photo of katy
    katy
    Spectator

    Winners and losers. When we sold we did our figures on converting back to sterling at 1.15 by the time the bankers drafts were cleared sterling had fallen and we only had to give 1.09 for a pound, quite a few thousand pounds better off 😀 Won’t make any difference to all those Russians and Chinese who are flocking to buy properties will it 😆 😆

  • #114707
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    Anonymous
    Participant

    Most expats I know don’t want to sell and are happy living in Spain, but even the well-off ones need to monitor the exchange rate if most of their income comes from UK earnings. If the pound falls to third-world levels, then it would be necessary to return to the UK.

    Apart from the unhealthy climate, such a return would not be a big deal for most expats.

    Few would actually benefit from selling their houses in Spain, unless the pound fell to something like well below parity to make up for the 40% loss in property values since 2007.

    The future is getting more difficult to predict, I read today that the UK’s biggest trading partner is now Germany, and just as surprisingly that the latest poll figures show that most of the UK now want to stay in Europe.

    Who could have predicted either only a few months ago?

  • #114716
    Profile photo of Chopera
    Chopera
    Participant

    @Rocker wrote:

    Most expats in Spain depend to a great extent on the pound/Euro exchange rate, me included. While sounding optimistic about a Spanish recovery this year, linked to a global steadying of nerves about the Eurozone, I had totally forgotten about the pound/Euro until reading this:

    http://www.bbc.co.uk/news/business-21059213

    It’s Catch 22 for UK expats like me. We gain when the Euro weakens and the pound gets stronger, but the values of our houses in Spain go through the floor, if there’s any floor left.

    You can’t even pray, whatever you pray for is hurtful.

    Why does a weak euro make the value of houses in Spain go through the floor?

  • #114717
    Profile photo of angie
    angie
    Spectator

    This is my view, that is if Sterling weakens against the Euro as is happening now it will likely dissuade Brits to buy anywhere in the Eurozone as their costs will rise, this could mean that Spanish prices may have to be reduced further to compensate for this to Brits only, but not to residents of EU countries (so what do sellers do?) On the flip side, if any Brits in the Eurozone manage to sell they will benefit with exchange rate giving them more Sterling to return home.

    The main factor is if the Euro rises not only against Sterling but other World currencies such as China’s and Russia’s if those areas are where Spain is pushing it’s properties.

    However, a weak Sterling will mean Brits resident in the Eurozone will have less pension and income to live on if the source is the UK, so it is a conundrum 🙄

  • #114718
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    Chopera
    Participant

    @angie wrote:

    This is my view, that is if Sterling weakens against the Euro as is happening now it will likely dissuade Brits to buy anywhere in the Eurozone as their costs will rise, this could mean that Spanish prices may have to be reduced further to compensate for this to Brits only, but not to residents of EU countries (so what do sellers do?) On the flip side, if any Brits in the Eurozone manage to sell they will benefit with exchange rate giving them more Sterling to return home.

    Ok you’re saying that a strong euro reduces demand from foreign buyers and therefore has a negative effect on house prices

    @angie wrote:

    The main factor is if the Euro rises not only against Sterling but other World currencies such as China’s and Russia’s if those areas are where Spain is pushing it’s properties.

    However, a weak Sterling will mean Brits resident in the Eurozone will have less pension and income to live on if the source is the UK, so it is a conundrum 🙄

    Again you are effectively saying that a strong euro means pensioners’ income is reduced and this may also put people off from buying in Spain.

    I understand both the above points, but I can’t see why a weak euro should make the value of houses in Spain go through the floor. Currency devaluations usually increase nominal asset prices – it’s called inflation.

  • #114719
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    angie
    Spectator

    Chopera I agree with you on that point, I don’t see why Spanish house prices would go through the floor. A weak Euro I think would make more demand for them and keep prices up 🙄

    My points were just about exchange rates and the effects on British buyers and sellers.

    I haven’t done my homework on this yet but has the Euro strengthened against other currencies apart from Sterling, or is it purely down to Sterling weakness? 🙄

  • #114720
    Profile photo of Anonymous
    Anonymous
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    The crisis in the Eurozone which continued for several years until last summer made Spain and other weak Eurozone countries less attractive, if not downright dangerous for investors. They stopped lending those countries money and the house buyers stopped coming, leading to price falls for the past four years.

    I called it a Catch 22 situation, Angie a conundrum, when considering the pound’s weakness; us expats get less on selling but more on repatriating our Sterling.

    I doubt if there are figures out there, but most of the expats I know have some kind of income from the UK, ordinary pensions, occupational pensions, rental income or investments, all of which suffer if the pound weakens and they stay in Spain. I’m discounting the expats earning money in Spain, they are too few in number and most have gone home years ago.

    The obvious (only) remedy if the pound crashes altogether is to return home, something we all fight against because we prefer blue skies to grey ones, but we’ve lived with the latter before and can again.

  • #114721
    Profile photo of logan
    logan
    Participant

    The softer than expected reports regarding the UK economy makes it even more likely that it shrank during the final quarter of 2012 and reduces the likelihood that the struggling UK economy will return to growth in Q1. With a triple-dip recession on the cards currency traders saw fit to throw in the Sterling towel, which led to it falling to multi-month lows against the Euro and the US Dollar. I expect the Sterling/Euro rate to decline close to historical lows soon and stay there for a while.

    Yesterday Mario Draghi’s continued talking up the currency with a speech themed “positive contagion”. That sentiment continued with ECB Council Member Christian Noyer commenting: “I think we can say that nobody doubts any more that the Euro will last” 😯 as the Pound to Euro exchange rate hit a fresh 10-month low, declining by around a third of a cent.

    These positive talk up tactics are working despite the news yesterday that German consumer prices shrunk by -3% and the economy is likely to return to recession this year.

    Market sentiment has returned to bullish on the Euro which is completely unjustified in my view. It’s a symptom of the current schizophrenia in financial markets. They want to believe it so shall it be. A bit like Spanish estate agents and their friends.

  • #114725
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    Anonymous
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    When Harold Wilson made his speech about the ‘pound in your pocket’, it made me laugh; when Margaret Thatcher said that she ‘liked a strong pound’, I applauded; and when that fat Tory chancellor sang in his bath while the country went down the pan, I felt sad.

    I didn’t know what to make of Blair at first, but liked him sharing a platform with Clarks and Heseltine advocating Britain’s place at the centre of Europe. And then he appointed that idiotic Brown as his chancellor, who didn’t just take us out of the centre of Europe, he took us out of it completely with his five daft requirements for joining the Euro, it made the whole continent laugh.

    Nobody seems to know where the pound is going now, nobody seems to know where the UK is going now, into a first triple dip recession? Has Cameron listened to the rest of the world telling him not to hold a referendum on Europe? We would probably stay in on a simple In/Out vote according to the latest polls.

    If it naturally follows that a strong Euro means a weak pound (I think there’s more to it), then we should have joined the Eurozone many years ago, and I suspect it’s far too late now, our debts are far too high to qualify for membership.

  • #114726
    Profile photo of katy
    katy
    Spectator

    The UK Government is quite happy to have a weak pound right now. A lot of eurozone problems are caused by a too high euro, especially for the club med countries. Most of the fruit and veg in UK shops isn’t from the eurozone any more….tomatoes from Morocco, beans from kenya…bring it on, tastes just as good, if not better and it’s cheaper.

  • #114727
    Profile photo of logan
    logan
    Participant

    Yes a weak currency helps any country out of the merde. Spain needs it but cannot have it and you could also apply that to every other Eurozone country.
    Germany likes a strong currency for historical reasons and they have the mindset that their standing in the world is reduced if their currency is weak.
    Weak currencies creates inflation and in these evil times that’s no bad thing if it’s controlled. Asset values rise and debt reduces.

  • #114728
    Profile photo of GarySFBCN
    GarySFBCN
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    Weak currencies creates inflation and in these evil times that’s no bad thing if it’s controlled. Asset values rise and debt reduces.

    But…interest on variable mortgages also rise, creating a problem for those who have them, and suppressing property prices by people seeking mortgages (fewer people qualifying for higher payments, reducing the pool of those who can purchase properties at a specific pricepoint).

  • #114735
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    Anonymous
    Participant

    A the joy of debating what FIAT-currency is the least bad.

  • #114737
    Profile photo of Chopera
    Chopera
    Participant

    @garysfbcn wrote:

    Weak currencies creates inflation and in these evil times that’s no bad thing if it’s controlled. Asset values rise and debt reduces.

    But…interest on variable mortgages also rise, creating a problem for those who have them, and suppressing property prices by people seeking mortgages (fewer people qualifying for higher payments, reducing the pool of those who can purchase properties at a specific pricepoint).

    True, but the idea is that with inflation more money moves around the economy, people’s wages increase, as well as interest rates on savings, so the increase in interest payments is manageable, and offset by the devaluation of their debt. I remember inflation in the UK being around 8% and, while not ideal, it was manageable. For countries with their own currency it’s an option, for Spain it isn’t.

  • #114750
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    Anonymous
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    The entire world has rejected any form of manageable inflation, or interest rate rises for the foreseeable future, and rightly so. Austerity is the new buzzword, cuts, cuts and more cuts.

    In a few minutes time Cameron is going to announce an in/out referendum in five years time, if he wins the next election.

    That must be the hardest kick of the can ever.

  • #114787
    Profile photo of DBMarcos99
    DBMarcos99
    Participant

    Some grim predictions from Max Keiser here on the Beeb

    http://www.bbc.co.uk/news/uk-politics-21199252

    He does tend to emphssize facts in this piece, so it’s hard to ignore what he’s saying. He also says we’re going to see sterling slip further (and it’s already coming down).
    Problem is, where do you put your money? I know I’ve pointed out that the Ibex stock exchange has risen substantially over the last 6 months (the UK FTSE is doing well too), but that may soon come to an end, and is risky in the short term. Property? I’ve yet to be convinced that buying is better than renting, and still think further falls are to come. Gold? Isn’t it at its peak yet?

  • #114788
    Profile photo of Anonymous
    Anonymous
    Participant

    Marcos personally I have chosen UBS (Lux) Str. Sicav – Rogers Int Commodity Index (EUR) to hedge against monetary inflation. It uses Jim Rogers global resource fund primarly as it’s base. It took quite a plunge in 2008 and has gone sideways since that. With that I have chosen some resource heavy based china funds. My idea is that monetary inflation starts to set in people will want more money for anything basicly. Oil, corn, minerals etc. This also has the advantage that if the economy picks up the demand for resources will climb. Win win as I see it. The china funds are more mixed but I chose it because the chinese currency is manipulated by their government and as soon as this is lifted you have a guaranteed “profit” of around 10-30% because of that. I don’t want to miss that train.

    Wouldn’t advice buying that UBS fund without any hefty rebate since it has high buying/selling costs. I have none of that thats why I picked it. All of them are quite expensive.

    I like gold but picking one resource is extremly risky so why not pick all kinds of resource there is?

    My small portfolio 50k euros.
    23% East Capital Turkey “should sell this one but I’m keeping it for nostalgia”
    41% Granit China
    36% UBS (Lux) Str. Sicav – Rogers Int Commodity Index (EUR)

    14% up each year in average since 2002 but I have been gambling a lot.

  • #114789
    Profile photo of DBMarcos99
    DBMarcos99
    Participant

    @Ardun wrote:

    Marcos personally I have chosen UBS (Lux) Str. Sicav – Rogers Int Commodity Index (EUR) to hedge against monetary inflation. It uses Jim Rogers global resource fund primarly as it’s base. It took quite a plunge in 2008 and has gone sideways since that. With that I have chosen some resource heavy based china funds. My idea is that monetary inflation starts to set in people will want more money for anything basicly. Oil, corn, minerals etc. This also has the advantage that if the economy picks up the demand for resources will climb. Win win as I see it. The china funds are more mixed but I chose it because the chinese currency is manipulated by their government and as soon as this is lifted you have a guaranteed “profit” of around 10-30% because of that. I don’t want to miss that train.

    Wouldn’t advice buying that UBS fund without any hefty rebate since it has high buying/selling costs. I have none of that thats why I picked it.

    I like gold but picking one resource is extremly risky so why not pick all kinds of resource there is?

    My small portfolio 50k euros.
    23% East Capital Turkey “should sell this one but I’m keeping it for nostalgia”
    41% Granit China
    36% UBS (Lux) Str. Sicav – Rogers Int Commodity Index (EUR)

    14% up each year in average since 2002 but I have been gambling a lot.

    Interesting – thanks for sharing. That average of 14% per year is very impressive.

  • #114791
    Profile photo of Anonymous
    Anonymous
    Participant

    @Ardun wrote:

    My small portfolio 50k euros.
    23% East Capital Turkey “should sell this one but I’m keeping it for nostalgia”
    41% Granit China
    36% UBS (Lux) Str. Sicav – Rogers Int Commodity Index (EUR)

    14% up each year in average since 2002 but I have been gambling a lot.

    During the period from 2002 upto 2012, i.e. after 10 complete years, you increased the initial capital (1.14)**10 = 3.707 times.
    This means that the Initial Amount (IA) in 2002 was about IA = 50k / 3.707 = 13.5k euros.

    Am I wrong?

    Regards,
    Tim

  • #114793
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    Anonymous
    Participant

    @tim_grig wrote:

    @Ardun wrote:
    My small portfolio 50k euros.
    23% East Capital Turkey “should sell this one but I’m keeping it for nostalgia”
    41% Granit China
    36% UBS (Lux) Str. Sicav – Rogers Int Commodity Index (EUR)

    14% up each year in average since 2002 but I have been gambling a lot.

    During the period from 2002 upto 2012, i.e. after 10 complete years, you increased the initial capital (1.14)**10 = 3.707 times.
    This means that the Initial Amount (IA) in 2002 was about IA = 50k / 3.707 = 13.5k euros.

    Am I wrong?

    Regards,
    Tim

    Just going by what my fund account is telling me is the average gain per year. I’m depositing a certain percent of my salary every month so I started out with a very small number and the first few years I only worked during the breaks from school. As I said I wish I could take credit for it but it’s just plain old luck.

  • #114794
    Profile photo of GarySFBCN
    GarySFBCN
    Participant

    Problem is, where do you put your money?

    Marcos, I’ve witnessed so many claims of very near fiscal calamity that I am immune to them. In the 1980s, it was Dr. Ravi Bhatra. In the 1990s, somebody else. There are still those who feel that the dumping the ‘gold standard’ was going to bring economic doom 5 minutes after it happened, decades ago.

    In my opinion, the important thing is not to over-react. It is also important to understand that the so-called experts are only guessing. People panic and sell low when things are bad, and then they turn around buy high, trying to take advantage of the next big thing, usually when it is too late to make any money.

    And sorry Ardun, any investment in China is such a gamble. I have a small investment in a Chinese fund, but given the environmental issues and the civil strife they’re having with their newly emerging and rapidly growing middle class, it is probably much safer leaving one’s money in the UK or US.

    Anyone who has an expectation of a return of greater than 3-5% is setting themselves up to lose everything. If you are young enough or you have money to burn, that type of gamble is acceptable. If you are nearing retirement age, you should not be takings risks.

  • #114795
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    Anonymous
    Participant

    I’ve invested in all sorts of weird things over the years and probably came out level, having wasted my time, not that I minded because at the end of the day it was a form of entertainment.

    Bricks and mortar was always considered safe, but I came unstuck a couple of times both in the UK and Spain during the inevitable recessions.

    You win some and lose some, and then you die. I’m not being morose, it’s not in my nature, but you can go all round the houses and the conclusion is much the same. Bill Gates is trying his best to give it all away – it won’t make him happy; Warren Buffet might be an investment guru but he looks a miserable sod and the happiest people I know plant things in their garden and watch them grow.

    I planted some roses bought at Lidl, but they all died – it broke my heart.

  • #114797
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    Anonymous
    Participant

    i’m with gary on not taking to much of a risk i have a small amount invested in a 3year bond where the capital is secure if at the end of feb the ftse is above 5300 i get 20% interest if its below i just get my capital back.so a return of just over 6.5% per year if it stays where it is

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