Pound above 1.2 Euros for first time since November 2008

LoadingFavourite

This topic contains 63 replies, has 15 voices, and was last updated by Profile photo of katy katy 6 years, 4 months ago.

  • Author
    Posts
  • #55655
    Profile photo of Anonymous
    Anonymous
    Participant

    Pound has appreciated by about 8% against the Euro since March (and by 6.5% since start of year). That means Spanish property is getting cheaper for British buyers.
    [attachment=0:1l46jfat]gbp-eur-040610.jpg[/attachment:1l46jfat]

  • #98894
    Profile photo of angie
    angie
    Spectator

    But still well down on the 1.5-1.64 rates we had when we bought.

    It’s too early for Brits to start buying at these rates, and most Brits are cash-strapped too!

  • #98895
    Profile photo of Anonymous
    Anonymous
    Participant

    Projecting ahead on such a graph is probably meaningless, or is it? I make it that by the time of the Olympics, I will be 40% better off. They can’t shoot you for dreaming, can they?

  • #98896
    Profile photo of rt21
    rt21
    Participant

    I doubt whether any uplift in the pound or for that matter any reduction in house prices will have a significant impact on British demand for Spanish property.

    In times of economic uncertainty people tend to be more cautious with their spending. On top of that people would have to be particularly brave or perhaps naive to invest in a property market that has gained such a bad reputation in recent years.

    Richard

    I should add that over the last 12 months many friends, work colleagues and acquaintances continually ask me whether I am affected by the property scandals in Spain. It seems to me that the whole of the UK has heard or read about these scandals.

  • #98897
    Profile photo of katy
    katy
    Spectator

    @rt21 wrote:

    I doubt whether any uplift in the pound or for that matter any reduction in house prices will have a significant impact on British demand for Spanish property.

    In times of economic uncertainty people tend to be more cautious with their spending. On top of that people would have to be particularly brave or perhaps naive to invest in a property market that has gained such a bad reputation in recent years.

    Richard

    I should add that over the last 12 months many friends, work colleagues and acquaintances continually ask me whether I am affected by the property scandals in Spain. It seems to me that the whole of the UK has heard or read about these scandals.

    I think you are absolutely correct on all points. It is catch 22 anyway as the British who are selling will not be as willing to do a lower deal if they are transfering into sterling. Also the slight increase would be wiped away by the IVA rise on 1st July.

    I feel one of those posts coming one such as
    “The phone has never stopped ringing all week”
    “Last month I sold 5 properties, this month 10”

    How long will it take 😆

  • #98898
    Profile photo of Anonymous
    Anonymous
    Participant

    Dunno, if the coalition budget is as austere as predicted, and seen to be serious about reducing the deficit, then foreign investors might be tempted to pile out of euros and back into sterling.

    The ECB is straining reserves to sort Greece, meanwhile the other PIIS banks and governments are needing serious attention too, could be the euro will tank further while sterling strengthens. Not completely unrealistic to think 1.50 exchange rate could be on the horizon, post budget.

    Spain is not a place for speculation perhaps, but with the property overhang and likely depressed prices for quite some time yet, I know where I’d rather see out these newly austere times!

  • #98900
    Profile photo of rt21
    rt21
    Participant

    Whilst I have felt that sterling would appreciate in value it is very difficult to predict by how much and over what period.

    My gut feeling is that the pound will not return to the dizzy heights of 1.50. The reason for this is that the economies of the UK and the Eurozone are closely intertwined. If the rate of growth in the eurozone remains stagnant then this would have a negative impact on the UK and its rate of growth (that doesn’t mean to say that the UK couldn’t exploit other markets to achieve growth – it just takes time to do so). The rate of growth is one of those variables that affect the value of the pound. Also I feel that the government would probably not wish to see the pound significantly appreciate against the euro because that would make imports from that trading bloc cheaper and ours more expensive. This again would affect our rate of growth.

    Richard

  • #98902
    Profile photo of adiep
    adiep
    Participant
  • #98905
    Profile photo of petej
    petej
    Participant

    I also think the days of 1.50 to the pound are gone, as to Spanish property this increase is sterling’s value over the Euro will bring more buyers in, not a flood but more, you are in effect giving them more money to spend, it will also bring some relief (all be it small) to British expats in Spain on a fixed income from the UK which can only be good

    I can see the Euro getting weaker still so maybe 1.30 may be on its way, we will see

  • #98911
    Profile photo of angie
    angie
    Spectator

    Let’s say some Brits read the headliner here and acted because of it by buying Spanish property at 1.20 euros per pound.

    Then because of Eurozone problems in the PIGS etc spreading too, the Euro plummets even against sterling to 1.50 or worse (who can really predict?), those buyers are going to be pretty miffed that their properties have fallen in sterling terms by 25% or more.

    Agree with katy too, Spanish IVA on property was increased recently which cancels out some of the exchange rate benefit of late. 😉

  • #98914
    Profile photo of Chris McCarthy
    Chris McCarthy
    Participant

    @angie wrote:

    But still well down on the 1.5-1.64 rates we had when we bought.

    It’s too early for Brits to start buying at these rates, and most Brits are cash-strapped too!

    But it is WAY UP on the lowest rate I was once quoted, which I think was early ’09 which was 1.03, it is now touching 1.21 so let us enjoy and indeed celebrate that fact at least, before we refer or bemoan this as now being a low to rates from so long ago.

    And remember, people are always buying, and there will certainly be more activity over 1.20 yet the balanced scenario for everyone would be somewhere between 1.25 -1.30

    Come on guys, this is good news for the visitors to this forum.

  • #98917
    Profile photo of petej
    petej
    Participant

    @angie wrote:

    Let’s say some Brits read the headliner here and acted because of it by buying Spanish property at 1.20 euros per pound.

    Then because of Eurozone problems in the PIGS etc spreading too, the Euro plummets even against sterling to 1.50 or worse (who can really predict?), those buyers are going to be pretty miffed that their properties have fallen in sterling terms by 25% or more.

    Agree with katy too, Spanish IVA on property was increased recently which cancels out some of the exchange rate benefit of late. 😉

    Your right no one can predict, all we can do is take a educated guess, we may see 1.50 in a year, maybe two years or maybe five years?, the point is how long will/do people wait, most if not all UK buyers looking at Spain will be buying because they want too not for investment. Sure they can wait but we don’t get any younger and if you give people a little more money that will be enough to trigger some to buy

    As far as i know (someone please correct me if i am wrong) I.V.A is going up on new property purchases on the 1st July 2010 by 1% from 7% to 8% for residential , this is nothing compared to the 7-8% increase in sterling we have seen is the last few months, as far as i am aware the ITP (Conveyance Tax) is to remain at 7%

  • #98918
    Profile photo of angie
    angie
    Spectator

    I agree it’s good news compared to where it was a short while ago, especially for those retired Brits and others in Euroland whose UK pensions and earnings were causing them to struggle financially.

    If I was buying, I’d prefer buying at these rates than when it was 1.05-1.10, but now might be too soon. It’s hard to predict what will happen, but the next few months might reveal more. IMO these rates might seem paltry later this year.

    So celebrate now, and buy now if it suits, but keep alert for more rate changes!

  • #98924
    Profile photo of peterhun
    peterhun
    Participant

    @Chris McCarthy wrote:

    Come on guys, this is good news for the visitors to this forum.

    Well, it is if you ignore the reason for the fall of the Euro; the possible demise of the currency (or the exit of certain members such as Spain or Germany). The latest fall is down to Hungarian declaration that it will possibly default on its debt which will take out EU banks. A financial Armageddon in banks isn’t domething to be cheering about if you are hoping for property sales to increase.

    http://business.timesonline.co.uk/tol/business/markets/article7144365.ece

  • #98930
    Profile photo of rt21
    rt21
    Participant

    Well according to the Telegraph it seems that a number of UK economists feel that the euro will be dead in 5 years time.

    http://www.telegraph.co.uk/finance/financetopics/budget/7806064/Euro-will-be-dead-in-five-years.html

    Not quite sure what that will mean to property owners in Spain nor those with a eurozone mortage. We live in interesting times

    Richard

  • #98931
    Profile photo of petej
    petej
    Participant

    If the Euro does collapse the countries will just revert to there original currency at the exchange rate they entered, then the markets will decide there value, I know the stores around me in Spain have the price in both Peseta and Euro so they are ready 😕 . As has been said before it’s always worth checking the letter on your Euro notes!

    Thinking about the change back for mortgages etc, if you have a Euro debt to a bank and the Spanish drop the euro then that will be converted to pesetas at the 166pts to Euro that Spain joined on, then if the value of the peseta dropped against the pound (as i am sure it would) that would mean you debt would be less if paying with Sterling with the knock on effect for the Spanish banks

    Interesting times indeed

    More Doom on the Euro http://www.thisislondon.co.uk/news/article-882779-countries-face-euro-disaster.do

  • #98933
    Profile photo of Anonymous
    Anonymous
    Participant

    “I know the stores around me in Spain have the price in both Peseta and Euro so they are ready”

    This has always been the case from day one of the entry that prices and I recall even bank statements shown the € as well as its equivalent in Pesetas.

  • #98934
    Profile photo of Anonymous
    Anonymous
    Participant

    “I know the stores around me in Spain have the price in both Peseta and Euro so they are ready”

    This has always been the case from day one of the entry that prices and I recall even bank statements shown the € as well as its equivalent in Pesetas.

  • #98935
    Profile photo of petej
    petej
    Participant

    Has been the case in some stores but seams to be more wide spread than it used to be, never seen it on my bank statements, or any bills

  • #98936
    Profile photo of katy
    katy
    Spectator

    The euro/peseta rate has always been give on all utility bills and many other companies bills too. Our gardener would add up his monthly bill in pesetas and then convert it to euro 🙄

    I don’t see the euro collapsing in the near future although I am suprised it lasted so long. It was never viable with cheating, lying, fudging club-med countries.

  • #98937
    Profile photo of petej
    petej
    Participant

    Maybe its an option, just had a look at my (i know its getting sad now!) Suma, Iberdrola, Repsol, Axa and Telefonica bills and no Peseta anywhere 🙄

    Was reading today, think it was the times and one economist said the Euro may only last a week, cant see that but things can happen fast

  • #98938
    Profile photo of Anonymous
    Anonymous
    Participant

    From a personal perspective, I would benefit from a weak Euro, and possibly even if it crashed altogether and Spain reverted to Pesetas.

    Taking a more difficult, wider view, if the UK, the second biggest economy in the EU and one of the fittest ten years ago had joined the Euro (which Brown prevented), and if every EU country had done likewise, the Euro might have presented a viable alternative to the mighty US Dollar and every EU country would be a lot richer now.

    We didn’t and totally became the US’s underdog, thus sabotaging Europe from within.

    I was reminded of it when I watched the news the other day. American protesters over the oil spill in the Gulf were waving placards saying ‘Take over BP’ while trampling on the Union Jack flag.

    If they did take over BP, to whom could we turn for help? Obama hates us because we tortured his Kenyan grandfather back in the days of the Mau Mau. France has always hated us and the Germans won’t take to Cameron and Osbourne.

  • #98939
    Profile photo of katy
    katy
    Spectator

    I think you are spouting a lot of rubbish here. Obama doesn’t give a shit about his “Kenyan” ancestors. If the UK had joined the euro a few years ago they would be in bigger brown stuff than they are now. The USA is by no means perfect but compared with the EU it looks good. sabotaging Europe from within….I wish :mrgreen:

  • #98940
    Profile photo of Anonymous
    Anonymous
    Participant

    @katy wrote:

    I think you are spouting a lot of rubbish here. Obama doesn’t give a shit about his “Kenyan” ancestors. If the UK had joined the euro a few years ago they would be in bigger brown stuff than they are now. The USA is by no means perfect but compared with the EU it looks good. sabotaging Europe from within….I wish :mrgreen:

    The book is called Dreams From My Father, a bestseller written by Barack Obama. Published by Canongate, it’s 442 pages long, brilliantly written, and to suggest that Obama doesn’t care about his Kenyan ancestry is ludicrous.

    He doesn’t care much about the UK, and continues to make it obvious.

  • #98942
    Profile photo of rt21
    rt21
    Participant

    Rocker there are a lot of interesting points that you have raised in your recent posts that would take a morning to respond to. As time is short I shall just focus on the euro.

    There is an assumption in your post that the current weakness in the euro can be linked to the non participation of some E.U. nations. This is not the case. The weakness in the euro has more to do with the Eurozone not having a common fiscal policy that has allowed profligate countries such as Spain, Greece and Portugal to borrow and spend money way beyond their means. The participating countries also had different economic cycles which wasn’t recognised or even worse ignored when the ECB was setting monetary policy for its members. So at a time when Spain was going through a boom period, instead of increasing interest rates to choke off the property bubble, it could only watch the ECB maintain a low interest rate policy. As a result Spanish banks just let the money flow into the country and lent recklessy against inflated property prices. By remaining outside the eurozone the UK has been able to retain many of the economic tools that a country needs to redress its economic problems. Devaluation of sterling just being one of them. Spain unfortunately no longer has this range of economic tools and is forced to act within the straight jacket of eurozone policy. What might be good economic policy for the eurozone is not necessarily good for Spain.

    Another assumption is that a strong euro to counterbalance a strong dollar is good for all participating countries. (This assumption has more roots in political aspirations than economic ones.) For some of the reasons that I have mentioned in the preceding paragraph this is clearly not the case. The last thing that Spain and Greece need at the moment is a strong euro. They are struggling to compete in the world and for them a weak euro would be attractive. One also needs to look towards the far east where China has deliberately kept their currency at an artificially low level in order to capture export markets.

    Richard

  • #98950
    Profile photo of rt21
    rt21
    Participant

    read an interesting article over the weekend in the New York Times, which provides an insight into the scale of the problems facing the Club Med Countries.

    Apparently Spain and its private sector have borrowed 1.5 trillion euros compared to Greece, which has borrowed 338 billion euros. Although I don’t have a comparative figure for the UK, Spain’s debt seems mind boggling. What I do know is that something has to give at some point.

    the article can be viewed on the following link

    http://dealbook.blogs.nytimes.com/2010/06/06/debtors-prism-who-has-europes-loans/?scp=4&sq=european%20economy&st=cse

    Richard

  • #98956
    Profile photo of Anonymous
    Anonymous
    Participant

    Also an interesting NYT article on the Cajas and their quasi-political control.

    http://www.nytimes.com/2010/06/04/business/global/04caja.html?pagewanted=1

  • #98963
    Profile photo of Anonymous
    Anonymous
    Participant

    Just two slides how the U.K. is “improving” it´s debts:

    It took them just 12 weeks 🙁

  • #98964
    Profile photo of Anonymous
    Anonymous
    Participant

    Overall view

  • #99358
    Profile photo of Anonymous
    Anonymous
    Participant

    The pound touches its best against the Euro since November 2008 at 1.2216.

    There’s a lot of talk going on re. a double dip for Europe, I wonder if the UK can keep doggy-paddling without going under the water and joining them.

  • #99535
    Profile photo of Anonymous
    Anonymous
    Participant

    @charlie wrote:

    The pound touches its best against the Euro since November 2008 at 1.2216.

    There’s a lot of talk going on re. a double dip for Europe, I wonder if the UK can keep doggy-paddling without going under the water and joining them.

    ….. and it´s back to 1,19 today

  • #99536
    Profile photo of Chris McCarthy
    Chris McCarthy
    Participant

    @iano wrote:

    Not completely unrealistic to think 1.50 exchange rate could be on the horizon, post budget.

    Who knows hey?

    Could also be back at 1.10 in a month.

    Who really knows?

    I am for living live post the whole great economic collapse and exchange rates and all the other analysis out there, I think we spend just too much time on it all really.

    We don’t know, it is fun and interesting and debating it all, but we just don’t have a clue where all of this goes really.

    I am hoping for Mark’s galloping inflation possibility though, anything that makes property a good place to invest.

  • #99538
    Profile photo of Anonymous
    Anonymous
    Participant

    @Chris McCarthy wrote:

    I am hoping for Mark’s galloping inflation possibility though, anything that makes property a good place to invest.

    Be careful what you wish for Chris. High inflation punishes savers (the vast majority), rewards the imprudent, distorts price signals, and generally plays havoc with our economic lives. It’s also a stealth tax on savings. There is nothing good about it except that it eats away at debt, and that’s why it’s on its way. With public borrowing exploding, nobody has a bigger interest than our own government – the people who can print money – in stoking inflation. They have the motive, and the means. It will come, mark my words.

    Then people have to buy hard assets like property and gold, even if they don’t want them.

    What a mess.

  • #99539
    Profile photo of Anonymous
    Anonymous
    Participant

    @Chris McCarthy wrote:

    Who knows hey?

    I was thinking ‘horizon’ as you’d find on the Meseta. 🙂

    You’re right though Chris, it’s a bit silly and pointless guesstimating currency movement.

  • #99541
    Profile photo of rt21
    rt21
    Participant

    Mark I am quite intrigued by your views on “galloping inflation”

    Whilst I agree that such a strategy has been used by countries in the past to alleviate debt problems and is still one that cannot be entirely discounted, I just cannot comprehend it happening in todays climate. Germany is haunted by memories of hyper inflation during Weimar Republic and its economic policies since then, which have also shaped ECB economic policy, are geared towards controlling inflation. I think it would be a huge change of mind set for Germany to tolerate “galloping inflation” in the eurozone. Unless of course there is big rupture in the eurozone and either Spain or Germany left. If that happened then anything is possible.

    Under what scenario can you see the ECB allowing galloping inflation to occur in the eurozone ?

    Richard

    P.S when you referred to “our government” I assume you are referring to the one in Spain

  • #99544
    Profile photo of peterhun
    peterhun
    Participant

    @Chris McCarthy wrote:

    @iano wrote:
    Not completely unrealistic to think 1.50 exchange rate could be on the horizon, post budget.

    Who knows hey?

    Could also be back at 1.10 in a month.

    Who really knows?

    I am for living live post the whole great economic collapse and exchange rates and all the other analysis out there, I think we spend just too much time on it all really.

    A lot of people understand and can generally predict the trends that the economies and currency conversion rate will go through in the near future. It is not guesswork.

    There are lots of methods used to analyse the economy to determine where imbalances are and what how they will force a trend towards a particular exchange or inflation rate.

    For instance the 18year house price crash/boom cycle has occurred at least six times that can be documented in the UK. So we know for a fact that the bottom of the UK housing market is years away and the next crash will occur around 2025.

    Currency imbalances are more short term, but they still take several years to pan out. The devaluation in the pound is going to take several years (3+) for the balance of trade to catch up which requires UK manufactures to beleive that the lower pound is here long enough to make investment worthwhile.

    A lot of things are opinions, but it is certainly not guesswork or ‘who knows’.

    @rt21 wrote:

    Mark I am quite intrigued by your views on “galloping inflation”

    Whilst I agree that such a strategy has been used by countries in the past to alleviate debt problems and is still one that cannot be entirely discounted, I just cannot comprehend it happening in todays climate. Germany is haunted by memories of hyper inflation during Weimar Republic and its economic policies since then,

    Germany doesn’t need inflation – the countries that do can’t be in a monetary union with German. It seems inevitable whats going to happen.

    UK and US need inflation and can allow it. UK inflation figures have been way above what is acceptable yet nothing has been done (increase interest rates), so the UK has inflation that is chugging along if not galloping.

    The US has manipulated its inflation figures for decades to allow it to manage its debt, the fact is that its citizens are far poorer (-60%) than they were in the 1970’s due to inflation.

    And don’t forget that even small rates of inflation have a significant amount of effect over the life time of debts (average UK government debt is for 14years maturity). 2.5% inflation means a having in debt value in 28 years versus 19 years for 3.5% and 16 years at 4.5%

  • #99546
    Profile photo of Anonymous
    Anonymous
    Participant

    @rt21 wrote:

    Mark I am quite intrigued by your views on “galloping inflation”

    Whilst I agree that such a strategy has been used by countries in the past to alleviate debt problems and is still one that cannot be entirely discounted, I just cannot comprehend it happening in todays climate. Germany is haunted by memories of hyper inflation during Weimar Republic and its economic policies since then, which have also shaped ECB economic policy, are geared towards controlling inflation. I think it would be a huge change of mind set for Germany to tolerate “galloping inflation” in the eurozone. Unless of course there is big rupture in the eurozone and either Spain or Germany left. If that happened then anything is possible.

    Under what scenario can you see the ECB allowing galloping inflation to occur in the eurozone ?

    Richard

    P.S when you referred to “our government” I assume you are referring to the one in Spain

    Richard, I’m mainly referring to the UK, though I wouldn’t rule out high inflation in the Euro zone either.

    Let me preface by stating the obvious: I don’t have a crystal ball. Just my opinion.

    Perhaps “galloping” isn’t the right word. But high enough to seriously punish savers. In the 5 to 10% range I guess.

    In the UK I think it’s a done-deal. Raising inflation is almost official government policy. As the biggest debtors they have the biggest motive, and they also have the means to do it (printing money at a marginal cost of zero). They either get rid of debt through inflation, or through painful saving and cuts (if that even works – a moot point). What do you think our spineless politicians are going to do?

    The Euro zone is trickier to predict. I get all the arguments about German aversion to inflation. It’s not just historical either. Germany is a nation of savers, as demonstrated by their current account surplus, so inflation will punish Germany more than others. But as I see it the choice is between inflation or an economic and social debacle in the Euro zone. I think even the Germans will have to accept it as the lesser of 2 evils.

    And anyway, with the ECB now buying PIGS government bonds and accepting toxic assets as collateral in exchange for cash, you could say the inflation process is already underway.

    Expect the worst, and you won’t be disappointed.

  • #99597
    Profile photo of Anonymous
    Anonymous
    Participant

    The news that the German Constitutional Court is considering transfers made to Greece raising the issues that they are contrary to German Basic Law and to the Lisbon Treaty. It is suggested that if they outlaw any more transfers the euro will collapse not only because Greece can never pay its debts. If the Euro did break up as is suggested would be the result of an adverse decision by the court how would it affect UK holders of Spanish property? A 25% devaluation of the new Peseta would reduce the UK repatriation value -but might a reinvigouration of the property market and lower costs there make this shortlived as property values soar again in Spain and its islands?

  • #99609
    Profile photo of rt21
    rt21
    Participant

    I wonder whether the following article on Greece is a foretaste of what Spain will experience

    http://money.cnn.com/2010/07/12/news/international/greece_spending_slows.fortune/index.htm

    Richard

  • #99614
    Profile photo of angie
    angie
    Spectator

    The pound was back down to 1.1883 against the euro today, so it’s bouncing up and down like the stock market, not sure what’s going on anymore, is it speculators or just manipulation?

  • #99620
    Profile photo of peterhun
    peterhun
    Participant

    @angie wrote:

    The pound was back down to 1.1883 against the euro today, so it’s bouncing up and down like the stock market, not sure what’s going on anymore, is it speculators or just manipulation?

    UK economy is in worse condition than previously thought.

    http://uk.reuters.com/article/idUKTRE6684E420100712

  • #99771
    Profile photo of peterhun
    peterhun
    Participant

    @angie wrote:

    The pound was back down to 1.1883 against the euro today, so it’s bouncing up and down like the stock market, not sure what’s going on anymore, is it speculators or just manipulation?

    UK economy is in worse condition than previously thought.

    http://uk.reuters.com/article/idUKTRE6684E420100712

  • #99621
    Profile photo of peterhun
    peterhun
    Participant

    @Ptr wrote:

    -but might a reinvigouration of the property market and lower costs there make this shortlived as property values soar again in Spain and its islands?

    Probably not

    Panics and Booms, a lesson from 1897

    Thanks to Patrick for an absolute gem. Earlier this week, he linked to a fantastic newspaper article written in 1902. That article actually reprinted a paper written five years previously, entitled “Panics and Booms” by L.M. Holt. When Holt wrote the paper, the economy was at the tail end of a depression. Holt argued that booms always follow busts, so folks should anticipate the return of flush times. Fast-forward five years, a new boom was in full swing, and the newspaper republished Holt’s paper as a warning that the next depression was due around 1910, give or take. The Bank Panic of 1907 arrived a bit ahead of schedule.

    It’s a great read, particularly now when most observers remain conflicted about what kind of economic funk we’re in. Mr. Holt described quite clearly the economic conditions we face today, a depression created by over-indebtedness. And he offers a prescription for how to dig ourselves out: pay back debt. It’s a prescription I endorse wholeheartedly.

    The paper is so good, for posterity’s sake, I have reproduced it here in full. Another reason: Irving Fisher generally gets credit for having created the “debt deflation theory of depressions,” but Holt beat him to it by 36 years. Enjoy!

    http://blogs.reuters.com/rolfe-winkler/2009/03/11/panics-and-booms-1897/

  • #99773
    Profile photo of peterhun
    peterhun
    Participant

    @Ptr wrote:

    -but might a reinvigouration of the property market and lower costs there make this shortlived as property values soar again in Spain and its islands?

    Probably not

    Panics and Booms, a lesson from 1897

    Thanks to Patrick for an absolute gem. Earlier this week, he linked to a fantastic newspaper article written in 1902. That article actually reprinted a paper written five years previously, entitled “Panics and Booms” by L.M. Holt. When Holt wrote the paper, the economy was at the tail end of a depression. Holt argued that booms always follow busts, so folks should anticipate the return of flush times. Fast-forward five years, a new boom was in full swing, and the newspaper republished Holt’s paper as a warning that the next depression was due around 1910, give or take. The Bank Panic of 1907 arrived a bit ahead of schedule.

    It’s a great read, particularly now when most observers remain conflicted about what kind of economic funk we’re in. Mr. Holt described quite clearly the economic conditions we face today, a depression created by over-indebtedness. And he offers a prescription for how to dig ourselves out: pay back debt. It’s a prescription I endorse wholeheartedly.

    The paper is so good, for posterity’s sake, I have reproduced it here in full. Another reason: Irving Fisher generally gets credit for having created the “debt deflation theory of depressions,” but Holt beat him to it by 36 years. Enjoy!

    http://blogs.reuters.com/rolfe-winkler/2009/03/11/panics-and-booms-1897/

  • #99629
    Profile photo of adiep
    adiep
    Participant

    Richard, the problem for the UK these days is that a vast majority of the debt is in some way index linked.

    See the chart – http://blogs.telegraph.co.uk/finance/files/2010/06/ukdebtmarket.jpg

    Pension funds tend to be index linked, as are of course index linked bonds.

    Bit of a pain really, but looks like we’ll have to work off most of it.

  • #99789
    Profile photo of adiep
    adiep
    Participant

    Richard, the problem for the UK these days is that a vast majority of the debt is in some way index linked.

    See the chart – http://blogs.telegraph.co.uk/finance/files/2010/06/ukdebtmarket.jpg

    Pension funds tend to be index linked, as are of course index linked bonds.

    Bit of a pain really, but looks like we’ll have to work off most of it.

  • #100002
    Profile photo of angie
    angie
    Spectator

    The exchange rate is very erratic at present and not condusive to comfortable purchases of a large size whether property or otherwise.

    In the last 2 days the pound fell to approx 1.17 euros and back up to approx 1.19, must be speculators methinks!

  • #99834
    Profile photo of angie
    angie
    Spectator

    The exchange rate is very erratic at present and not condusive to comfortable purchases of a large size whether property or otherwise.

    In the last 2 days the pound fell to approx 1.17 euros and back up to approx 1.19, must be speculators methinks!

  • #100003
    Profile photo of katy
    katy
    Spectator

    The euro/dollar rate seems to be more or less back to rates before the Greek crisis. I do wonder if the rate did climb to around 1.30 if it would make any difference to British people buying (unless they buy off spanish which is rare). When we sold the low rate did have a major factor in the selling price (around 1.10 at the time) if it had been 1.25 or above we would have adjusted the price upwards.

  • #99836
    Profile photo of katy
    katy
    Spectator

    The euro/dollar rate seems to be more or less back to rates before the Greek crisis. I do wonder if the rate did climb to around 1.30 if it would make any difference to British people buying (unless they buy off spanish which is rare). When we sold the low rate did have a major factor in the selling price (around 1.10 at the time) if it had been 1.25 or above we would have adjusted the price upwards.

  • #99840
    Profile photo of rt21
    rt21
    Participant

    From what I have read in various articles the euro’s rise seems more to do with a lack of confidence in the dollar than anything else. However, currency dealers are of the opinion that the euro is overvalued based on economic fundamentals and expect it to fall. This view seems to be shared by some large eurozone companies and also representatives of Spanish exporters who all say that the current level of the euro is hurting them

    I also think that the recent news that the UK’s budget deficit was significantly above expectations had a negative impact on sterling.

    Richard

  • #100005
    Profile photo of rt21
    rt21
    Participant

    From what I have read in various articles the euro’s rise seems more to do with a lack of confidence in the dollar than anything else. However, currency dealers are of the opinion that the euro is overvalued based on economic fundamentals and expect it to fall. This view seems to be shared by some large eurozone companies and also representatives of Spanish exporters who all say that the current level of the euro is hurting them

    I also think that the recent news that the UK’s budget deficit was significantly above expectations had a negative impact on sterling.

    Richard

  • #99848
    Profile photo of Anonymous
    Anonymous
    Participant

    I think your post is absolutely right Richard, the Euro is over-valued in my view – especially against the Swiss Franc. There’s been no need for UBS intervention for a long while now.

    I also believe after the Greek bailout the EU realised what a devasting affect this kind of negative news was having re. confidence in the whole EU project. So I think there is now a lot of ‘activity’ going on behind closed doors which barely makes the news, as well as low-media help going on eg. the colossal monthly loans to Spanish banks. If the full extent of the EU’s perilous financial situation regarding all its member states was made public, the Euro would plummet.

    Friday could be interesting re. the Euro against other currencies.
    From the Forex website:
    This week the central focus will undoubtedly be on the European bank stress test results due this Friday. Initial comments from various EU officials are encouraging, and we believe this has factored into the Euro buying. However, there is also a decent risk that the markets will perceive the tests to be too lax if the banks pass with flying colors and in turn look to re-establish short positions in the Euro.

  • #100009
    Profile photo of Anonymous
    Anonymous
    Participant

    I think your post is absolutely right Richard, the Euro is over-valued in my view – especially against the Swiss Franc. There’s been no need for UBS intervention for a long while now.

    I also believe after the Greek bailout the EU realised what a devasting affect this kind of negative news was having re. confidence in the whole EU project. So I think there is now a lot of ‘activity’ going on behind closed doors which barely makes the news, as well as low-media help going on eg. the colossal monthly loans to Spanish banks. If the full extent of the EU’s perilous financial situation regarding all its member states was made public, the Euro would plummet.

    Friday could be interesting re. the Euro against other currencies.
    From the Forex website:
    This week the central focus will undoubtedly be on the European bank stress test results due this Friday. Initial comments from various EU officials are encouraging, and we believe this has factored into the Euro buying. However, there is also a decent risk that the markets will perceive the tests to be too lax if the banks pass with flying colors and in turn look to re-establish short positions in the Euro.

  • #99858
    Profile photo of rt21
    rt21
    Participant

    Hi Charlie

    It would seem a little ironic on one level if the stress tests revealed that the spanish banks passed but on another that they still could not access funds from the wholesale market and had to continue relying on ECB arrangements.

    If that was the outcome then I for one would be very suspicious of what was happenning in eurozone.

    Richard

  • #100014
    Profile photo of rt21
    rt21
    Participant

    Hi Charlie

    It would seem a little ironic on one level if the stress tests revealed that the spanish banks passed but on another that they still could not access funds from the wholesale market and had to continue relying on ECB arrangements.

    If that was the outcome then I for one would be very suspicious of what was happenning in eurozone.

    Richard

  • #99862
    Profile photo of Anonymous
    Anonymous
    Participant

    Considering the EU accounts have not been signed off for over 15 years, I think there are many of us suspicious of what was and is happening in the eurozone. 😈

    A Reuters poll of economists show they are now expecting the ECB to start hiking interest rates.
    Here we go……

  • #100016
    Profile photo of Anonymous
    Anonymous
    Participant

    Considering the EU accounts have not been signed off for over 15 years, I think there are many of us suspicious of what was and is happening in the eurozone. 😈

    A Reuters poll of economists show they are now expecting the ECB to start hiking interest rates.
    Here we go……

  • #99868
    Profile photo of rt21
    rt21
    Participant

    If the ECB was out of step with other countries in increasing its rates, the euro would increase significantly in value at the expense of club med countries who would find it more difficult to export their goods to non eurozone countries.

    An interesting comment was made by a spanish exporter in a recent article that I read. He basically said that German goods carry a premium value over their rivals so that they are more able to cope with a revaluation of the euro because buyers are still willing to pay a premium price for their goods. However, no such premium is carried by Spanish goods and by inference other club med goods, which are more price sensitive. Therefore a stronger euro means either thinner profit margins for club med exporters or reduced sales.

    It’s a very tough life for some in the eurozone .

    Richard

  • #100019
    Profile photo of rt21
    rt21
    Participant

    If the ECB was out of step with other countries in increasing its rates, the euro would increase significantly in value at the expense of club med countries who would find it more difficult to export their goods to non eurozone countries.

    An interesting comment was made by a spanish exporter in a recent article that I read. He basically said that German goods carry a premium value over their rivals so that they are more able to cope with a revaluation of the euro because buyers are still willing to pay a premium price for their goods. However, no such premium is carried by Spanish goods and by inference other club med goods, which are more price sensitive. Therefore a stronger euro means either thinner profit margins for club med exporters or reduced sales.

    It’s a very tough life for some in the eurozone .

    Richard

  • #100025
    Profile photo of peterhun
    peterhun
    Participant

    @rt21 wrote:

    If the ECB was out of step with other countries in increasing its rates, the euro would increase significantly in value at the expense of club med countries who would find it more difficult to export their goods to non eurozone countries.

    An interesting comment was made by a spanish exporter in a recent article that I read. He basically said that German goods carry a premium value over their rivals so that they are more able to cope with a revaluation of the euro because buyers are still willing to pay a premium price for their goods. However, no such premium is carried by Spanish goods and by inference other club med goods, which are more price sensitive. Therefore a stronger euro means either thinner profit margins for club med exporters or reduced sales.

    It’s a very tough life for some in the eurozone .

    Richard

    Its a bit more involved than that. The Spanish economy is un-competitive compared to Germany; they have jacked up prices and wages and failed to improve efficiency to compensate. Many other Euro countries are in the same boat and their are two solutions. The first is devaluation of the currency and the second is to deflate the economy by about 30% in both cases. Deflating will require 30% wage cuts nationwide but will probably take a decade. Leaving the euro is far less painful, the UK devalued the pound and so far its been rather easy.

    Discussed here.
    http://www.bbc.co.uk/blogs/newsnight/paulmason/2010/07/spains_pain_goes_beyond_the_bu.html#comments

  • #100027
    Profile photo of rt21
    rt21
    Participant

    Yes I couldn’t agree with you more Peter, there are more dimensions to the Spanish economic woes than just the value of the euro and the external market to the eurozone. I was concentrating on this one aspect of the problem as the recent revaluation of the euro was topical.

    The spanish economy is like a Spanish onion. As you peel each layer away there is another layer underneath and each layer seems to have deep structural problems. If I was in Zapateros’ shoes I just wouldn’t know where to start to put things right. It seems that Spain has a huge mountain to climb and that there are too many internal barriers to allow much progress. I personally think that there would have to be a deep cultural change within the country for them to succeed. (or of course a restructuring of the eurozone which would see either Spain or Germany leaving the common currency block)

    Richard

  • #100046
    Profile photo of Anonymous
    Anonymous
    Participant

    Ahead of the results being announced later this afternoon of the bank stress tests for the eurozone, it is being leaked that some of the Spanish banks will fail, namely some of the Caja’s.

    As Katy posted a while ago, the head of the IMF did visit Spain (Zapatero) last month. Am wondering if these huge loans they’ve been giving to Spanish banks was all part of the plan to pre-empt more of them failing. In fact it wouldn’t surprise me if a lot of that has been going on to cushion the blow of these tests revealing the real state of affairs of the eurozone. Will the markets believe any of it?

    As the criteria of these tests are apparantly unknown, a better indication as to the true state of affairs of banks and how well they can hold up if the crisis is prolonged is if they published a list of all banks and how much they’ve individually borrowed from the IMF. But I expect that’s taking transparancy an incy-wincy bit too far!

  • #100059
    Profile photo of katy
    katy
    Spectator

    So 5 out of 7 of the banks who failed the test were Spanish. We are assured though (by the EU) that these are very small banks…thats allright then 🙄 Apparently the countries themselves were responsible for supplying whatever figures were asked for, so another fudge :mrgreen:

You must be logged in to reply to this topic.