The best way to profit from a currency war – MoneyWeek

AndrewSentance–thesoleMonetaryPolicyCommitteemembercallingforhigherrates–looksincreasinglyalone。

TheonlyconsolationforanyoneworriedabouttheeffectsoffurtherQEisthatwerehardlyalone

Saversarespendingbecausetheyhaveto

CharlieBeanmightbepleasedtohearthatconsumersareinfactspendingtheirsavings。

Sadlyitsnotoutofanysenseofpatrioticduty。

Itsbecausetheyhaveto。

AsMyraButterworthreportsinTheTelegraph,theproportionofearningssavedorusedtopayoffdebthasfallenfrom5。

5%to3。

2%inthepastthreemonths。

Thatsthelowestlevelinnearlytwoyears。

Soifwerenotsaving,andwerenotpayingdowndebt,wheresthemoneygoing?

Areweanationofincorrigiblespendthrifts?

Notatall。

Thetroubleis,wageshavebeenflat,whilethecostoflivinghasbeenrising。

Soitscostingpeoplemoretobuythesamegoods。

Andthatmeans,asJonathanLoynesofCapitalEconomicsputsit,thathouseholdshavenochoicebuttodipintotheirsavings。

Ofcourse,MrBeanandMrPosenmightpointoutthatthisispreciselywhyweneedmoreQE。

Ifconsumersarebeingsqueezed,theywontspendenoughmoneytokeeptheeconomytickingalong,andsowellendupinthedoldrumsagain。

Butthenagain,consumersarebeingsqueezedpreciselybecausetheirincomesarentkeepingupwithinflation–whichyoucouldargueisaside-effectofQEandlowinterestrates。

Andmeanwhile,whatfewsavingstheyhavearebeingdeliberatelyerodedbytheBankofEngland,whichinturnisntahealthybackdropforencouragingthoseoh-so-vitalanimalspiritstoreturn。

Arewesoontoseeariseinprotectionism?

Thereissomeconsolation。

Plentyofothercountriesareplanningtodebasetheircurrenciesaswell。

Andthatmakesitalotharderforanyonegovernmenttotrashtheirpapermoney。

Aswenotedyesterday,Brazilsfinanceministerdeclaredthattheresaninternationalcurrencywargoingon。

AndasDavidRosenbergofGluskinSheffpointsout,sincethecreditcollapsebegan,weveseenaseriesofrollingcurrencydepreciations。

Forexample,fromApril2008toOctoberthatyear,theAustraliandollarfellby35%。

Thenitwasthepoundsturn,plunging28%betweenOctober2008andJanuary2009。

Thisyear,thefocushasbeenmainlyontheeuro,butsinceJune,itsthedollarthathasbeenunderpressure。

SpecialFREEreportfromMoneyWeekmagazine:Dontbefooledhousepriceswillfallagain!

WhyUKpropertypricesaresettocollapseby30%

Whenitwillbetimetogetbackinandbuyupdirtcheapproperty

Ofcourse,asJohnHigginsofCapitalEconomicspointsout:Noteveryonecanhaveaweakercurrency。

TheyarguethatthefinancialauthoritiesintheWest–outsideofSwitzerlandandJapan–areunlikelytointerveneincurrencymarketsdirectly,becausebasically,nakedinterventionisntreallyapprovedof。

No,itsmuchbettertodothesethingsinanunderhandmannersoyoucanpretendyourestillabidingbytheprinciplesofthefreemarket。

Sounfortunately,whatHigginsreckonsisalotmorelikely,isariseinprotectionism。

Anobviouschoiceofcourse,isfortheUStoimposepunitivetariffsonChineseimportsifChinaisnotpreparedtoallowgreaterstrengthintherenminbi。

Aresultingtradewarwouldbeacurrencywarinallbutname,andundoubtedlydetrimentaltotheoutlookforglobalgrowth。

Howtoprofitfromacurrencywar

Itsanuglyprospect。

Andagain,itslittlewonderthatgoldisrisingagainstthisbackdrop。

AsRosenberg(alsoafanofgold)pointsout:itisbehavingmoreandmorelikeacurrency–acurrencythatisnoliabilityofanygovernment。

Forus,thatsthebestargumentforholdingontoit。

Yes,itshitnewhighsyetagain,andthatalwaysmakesusedgy。

Rosenbergsuggeststhatitcouldfallby10%fromherewithoutbreakingthroughanysignificantpricelevels,soyoumightwanttowaitforacorrectionbeforebuyinganymore。

Ofcourse,everyothertimethatgoldhashitafreshhigh,itsendeduphittingafreshpeak,somaybeyourelessworriedaboutwhatitdoesintheshortterm。

OurpreciousmetalscorrespondentDominicFrisbyrecentlyputtogetherareportlistinghisfavouritegoldstocksaswellasaguidetotradingsilver。

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