Sterling, Europe and Redemptions
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Trading Features / Strategies from Simon Denham of Capital Spreads.
While we can see no real reasons for buying Sterling it has to be admitted that the precipitous fall of the last month might be rather an over reaction to the UK’s woes. There are many Euroland members who are in pretty much the same, or worse, situation as the UK.
The power of nations such as Germany and France could withstand the effects of such a strong currency but for Italy, Spain and others the effects can only be described as disastrous. These are huge (by population) nation states and with a reputed fall of over 30% in productivity levels versus Germany since the start of the Euro project a strong currency may well be the last straw for much of their manufacturing sector.
There seems to be a sort of ‘the worst is not over but we know what it will be’ filtering into the markets at the moment and the effect of bad news is now being discounted before it even arrives.
Last year I was asked when was the bottom going to be reached and my answer was to that effect. “When bad news no longer causes major falls that will be the turning point”.
It is quite certain the real pain for the UK has not yet even started. Yes there have been layoffs but most of these will have been with reasonable pay outs. The money has not, yet, run out. The credit cards can still take the strain. The pain will really hit when no work for three months turns into no work for six, seven months…a year.
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Retailers, who have cried wolf so many times over the past decade still seem to be hoping for some kind of turn around. Total retail floor space continues to increase at an incredible rate which does not bode well for returns over the next year or so for existing space.
For longer term equity holders we are also running into the ‘aging population’ effect. A greater and greater percentage of the populace is tipping over retirement age which generally means equity redemptions rather than equity purchases.
The up and coming generations may have precious little remaining (with the enormous deficits being created) to invest or save.
Back in the late nineties I wrote quite a big report on the fact that after 2006 there would be a difficult period for all the developed nations market’s as redemptions might start to outweigh savings. This was, of course, slightly simplistic but contained a small grain of truth.
The above comments do not constitute investment advice and neither Capital Spreads nor Clean Financial accept any responsibility for any use that may be made of them.
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Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.
Article provided / approved by Capital Spreads which is a trading name of London Capital Group Ltd which is authorised and regulated by the Financial Services Authority (FSA), FSA Register number 182110.
'Sterling, Europe and Redemptions' edited by DB, updated 02-Jan-09
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