Pound Opportunity


My son, who lives in England,  just sent me a note showing that the pound could fall to parity with the US dollar.

See how my reply can help you create extra profit now.

Jake sent me to a link to the MSN.com article “Pound Falling to Parity Is an Idea That’s Starting to Take Hold” (1).

The artcile says: Suddenly, the idea of pound parity seems less far-fetched as the risk grows that Britain may crash out of the European Union without a deal.

Rupert Harrison, a fund manager at BlackRock Inc., is short the pound and sees the risk of it falling to trade level with the dollar on a no-deal Brexit. The view echoes Morgan Stanley’s recent forecast that the currency can plunge toward $1 on such an outcome. That isn’t the majority view yet — a Bloomberg survey this month estimated the pound will slide to $1.10 should the UK exit the bloc without an agreement.

I replied to Jake:  “Yep it’s been there before under Ted Heath… touched 1 dollar per pound just for a moment in the early 1980s.

Then the pound rebounded to 2.2.  This chart at macrotrends.net show it falling to $1.07 dollars per pound low in 1984.

pound chart

I took advantage of that pound distortion to buy a house in Bedford Park, W4 London.

Multi currency investing requires more than just investing in various currencies.

In the “good old days” (1970s-80s) multi currency investing was easy.  The US government was conducting a “Guns and Butter” policy that cost more than the government’s income.  The political idea was great… spend now… let the next government worry about the payback.

Good or not politically, that system was bad economically and the deficit spending caused the US dollar to fall versus industrialized currencies where governments (especially Germany and Japan) were more fiscally prudent.

Now multicurrency investing is more complicated because the prudent governments have learned deficit spending as well… Germany to finance the buy back of East Germany… Japan to bail out an economic meltdown, etc.  Most nations are now riddled with government debt.

So today, one great social economic problem everyone faces is the destruction of purchasing power of many currencies, all over the world, all at the same time.

Investing in the play ground of currencies now is like trying to choose the rising tetter totter on the playground, when all all the teeter totters are going downhill on a slide.

We are living in global inflation due to government deficit spending.

For most people, this is bad.

Yet inflation creates fortunes for those who know what to do.

There are three multi currency ways to profit and stay ahead of inflation.

#1: Multi currency investments in good value shares

#2: Distorted commodity speculations.

#3: Distorted real estate investments.

This premise is based on my experiences during a time of inflation about 50 years ago.  In 1970 I was just beginning my career and lived in London for a year, then moved to Petaluma California and then Hong Kong.  I bought a home north of San Francisco, in Petaluma.   I had also purchased a house and some duplexes in Portland, Oregon.

This was a time of great inflation. The homes in California, Portland and in Hong Kong appreciated mightily.

In 1976, I moved again from Hong Kong back to London. Upon arrival I noticed that London real estate was priced about the same as it had been in 1970. This puzzled me. Why had London property prices remained flat despite inflation?

On investigation, I learned that there had been a huge real estate crash in 1970 continued to distort and dampen real estate prices six years later despite the rampant global inflation.

Then at the same time, the British pound collapsed suddenly by almost half versus the U.S. dollar from 2.4 dollars per pound to a new all time low of 1.00 dollar per pound. To my way of thinking London houses, which I thought were already very cheap by world standards, just became 50% cheaper.

I could not resist and began property shopping and eventually bought a five bedroom house in Bedford Park in West London. I made a 10,000 pound down payment and took a 25,000 pound loan to meet the 35,000 pound asking price.

I was right.

London property had been under priced.

I was able to sell the house four years for 115,000 Pounds. I made a profit of 80,000 pounds.

But the currency change helped enormously too. The pound had risen to over 2.2 dollars per pound. My 80,000 pound profit was now worth $176,000. I earned extra profit because of currency moves!

That out of kilter London real estate market was the root of Merri’s and my real estate tour business.  We started London real estate tours. Later we conducted Isle of Man real estate tours. Later still Ecuador real estate tours.   In each case, fortunes were made on distortions in those good value real estate markets.

There is much we can learn about distortions that create real money, international purchasing power and how they affect currencies, inflation and property prices.  The example of London real estate is a classic example of real money versus currencies that have been adulterated by governments.

In this case, property was the real money.  Residential property is a classic hedge in times of inflation and currency destruction because it always offers a real service of value, i.e. a home for someone to live.

This real money was distorted downwards by a local real estate crash.  Most British real estate buyers were not aware how inflation had pushed real estate prices up in other countries.  The low real estate prices were not caused because of a greater supply of British land nor were British builders more efficient nor were British building materials more abundant.  British homes were cheaper only because of the crash.

Then prices really became cheaper when the pound crashed. I was lucky to buy when the British pound was low.

This did not last long. Overseas buyers (like myself) caught on to the cheap prices and Americans, Japanese and Arabs began buying London homes. Prices soared. So much money flowed into Britain that the pound rose as well.

As is usually the case with all currencies and items of value, the pound and real estate had been oversold at its bottom. In these instances when they recover,  they rise dramatically.  That effect on my house resale was simply wonderful.

This was true in Ecuador as well. Real estate prices were a good value.  Then the Ecuador sucre crashed versus the dollar.  That made Ecuador real estate a steal in US dollar terms!

The sucre never recovered and Ecuador switched to the US dollar as its currency.

The period of dramatic inflation and currency turmoil in the 1970s and later in Ecuador was similar to current circumstances,  except now, the inflation is shown in depressed interest rates instead of higher prices.

Low interest rates is inflation for those who have invested and saved money.  Their savings now buys less, unless it is invested with greater risk.

I am not suggesting investments in London now.  Prices are distorted there yes, but on the high side.  I looked in the area where I bought and sold that house (which was 11 Rupert Rd) and asking prices for houses like the one I sold, for 115,000 pounds, now top 2 million pounds.

I do suggest that it makes sense to fight inflation by looking for distorted currencies.

The distorted, overpriced currency now is the US dollar.  The greenback’s strength is so high, the US government has been considering that they will force it down.  The government says it won’t.

Denial by a government is usually a sign that they almost certainly will do what they say they will not.

One way to profit from a US dollar correction is to invest in good value equity markets.  I explain this here Profitable Investing Made EZ

Another way to beat inflation is to invest in gold bullion.

Silver, though more volatile than gold, may be an even better short term investment as its very good value compared to gold.  The Gold-to-Silver ratio sits at its highest levels in more than 30 years, meaning silver is extremely undervalued compared to gold.

Though more cyclically tied to the global economy, silver is nevertheless a monetary metal and will follow gold prices higher.  From its high of $48.60 an ounce in 2011, silver is down a dizzying 66% at just $16.44 an ounce. 

See below how to invest in the iShares Silver Trust (NYSE-SLV).

Gary

(1) www.msn.com: Pound falling to-parity is an idea that’s starting to take hold