Preparing for the coming GBP collapse

 Showman Barnam is barely 24 hours into his new job as Prime Minister and it's looking like pressure on GBP is headed our way.  Barnam will of course blame the black holes on the previous administration - the Labour administration that is not the conservatives although he does seem to be blaming Thatcher....

I don't envy him as he has inherited an economy which raises £868 Billion / year from taxation and spends £1.2 Trillion / year so there's not really any room to manoeuvre.

The ONS statistics released today show that wages are growing at 2.9% with the public sector growing at 5.5% - yet more money we don't have.

He has promised to remove VAT on electricity bills from 1st Oct costing £840 Million per year stating this could be funded from scrapping Digital ID which it turns out was not funded anyway.

It looks pretty certain that Barnum will have to either raise taxes or borrow yet more money.  I doubt he would do the right thing and stop spending. Increased taxation will backfire.

So the GBP to Euro exchange rate, which had been at a 12 month high, has started to fall. It was 1.18 over the weekend and has since fallen to 1.173 (0.6% fall).

10 year gilt rates have risen from 4.94% on Friday to 5.05% today. The UK has around £500 Billion index linked 10 year gilts so that's another £550 Million John Healey has to find as Chancellor just to service these gilts.  

It's not looking good.

So what can you do to prepare for the impending shit storm which is headed this way?

1/ Buy foreign currency.  You probably have a few days of high Euro to GBP exchange rates left to buy in at a 1 year high.  The pound looks set to slide against the Euro making all these Euro imports more expensive. You could buy into a money market fund denominated in anything by GBP.  (Disclosure: I have invested in Amundi Smart Overnight Return UCITS ETF Acc).

2/ Buy shares which have low GBP exposure.  Buying a FTSE100 ETF is a reasonable bet.  Most of the firms in the FTSE 100 have considerable non GBP income so if the pound crashes, they will report significant increases due to FOREX so they provide a good safety net. Other markets to consider. The Japanese NIKKEI ETF has performed well and although the financial situation in Japan is far from ideal a crash like the UK is less likely.  The Korean Kopsi has also performed very well over the last year however I would exercise caution as most of the growth has been as a result of the AI boom (or is that bubble). (Disclosure I hold positions in some of these funds).

3/ Buy overseas property.  This is another way to take a position in a foreign currency.  Unless you plan to develop the property or live there then I would be cautious.  Property is a very illiquid asset and also governments know where it is if they decide to tax it.

4/ Buy gold.  Gold has always been a good store of wealth in the long term. However gold has been frothy over the last 6 months and you are likely to see loses.  Whether these loses are less than you will see with a GBP crash is to be seen.  The good news is gold is a very liquid asset.

So much could the pound crash? Well if the IMF is called in then a 50% loss of value is not impossible.  Certainly a 20% loss in value is very real. 

I would suggest you plan for a crash - simply deciding what to do when something happens is a good step even if you don't decide to execute yet.

Be like a boy scout - be prepared.


Comments

Post a Comment

Popular posts from this blog

Rachel planning to charge National Insurance on rental income

 The rumour mill is that Rachel is considering introducing National Insurance on rental income. How ironic! For as long as I can remember, the government and HMRC stance is that rental income is not earned income and therefore it has consequences in how it is taxed and treated. For example you can't use rental income to make pension contributions (that can only be from earned income).   Also unearned income bubbles to the top of the tax stack (order of taxation) so is most likely to treated at the highest level of income tax.  By making rental income (hopefully profits rather than income) subject to national insurance it will almost certainly have unintended consequences.  Firstly if you are past State Pension age you dont pay National Insurance. it would therefore open up the government to litigation if they make rental income subject to National Insurance for OAPs.  I can just see the negative headlines ! It is estimated that there are 1 Million Buy to Le...
Read more

Energy Performance of Privately Rent Properties - expect crazy things as we approach 2028

 The wonderful Labour government has very generously given private Landlords until 2030 to improve the energy performance of rental properties to an EPC of C for incumbent tenants.  For new tenants they need to achieve this by 2028. I agree with the idea of energy efficiency in the home but it needs to be economically viable. Ignoring the fact that the EPC scoring system  is a work of fiction (for example installing triple glazed windows doesnt improve scores) I thought it would be interesting to work through the financial side of the EPC targets.  Social and council tenants currently do not have EPC targets of E (the current minimum for private landlords) although Labour seem to be suggesting that there won't be a 2 Tier system and that council and social landlords will also have to achieve C by 2030 (previously it was 2050 to achieve E). Although I suspect the council and social landlords wont have huge fines if they fail to achieve C.  Anyway it seems  c...
Read more

Rayner's attack on Landlords. TIme to rebalance the relationship in favour of Landlords.

 Exit anti-Landlord Conservative - only to be replaced by the very anti-Landlord Labour.  Government attacks on Landlords are set to continue. This feels like this Zombie attack cannot die. Angela Rayner makes unqualified statements about their forthcoming equivalent to the Renter Reform Bill such as “rebalance the relationship between tenant and landlord.".   Really? The law favours the Tenant way more than the Landlord. I thought it would be interesting to go through just how imbalanced things have got and how easy it is for a Landlord to get fined and get a CRIMINAL record. Let's start with the basics.  If a property has gas then the Landlord has to have a gas safety certificate.  Failing to get a gas safety certificate is a £6,000 fine and  a CRIMINAL record and potentially 6 months in prison.  This is not if the system is unsafe or kills someone.  Simply to not have the paperwork.  Most home owners do not have annual checks on ...
Read more