Jill Kirby on Radio people with sums on deposit losing 10% recently due to fall in €

[Chris]

Yes indeed - thats the solution to Greece's problems. But while you blame the Greeks for letting this situation arise lets not forget (and you didn't deny it) that the Bond Traders are indeed speculating against the Greek economy first and the Euro second, and creating the mayhem we are witnessing in the euro value. Thats what I said was happening! Whose fault it is is another debate. The point is the Bond Traders and Ratings Agencies are out to make a killing on the Greeks and/or Euro. They've spotted a weakness and they are going in for the kill like a pack of wolves.

If speculators have driven Greek bond prices below what they should be then why aren't actual bond investors pouring in to buy new Greek debt? Bond investors are agreeing with speculators, otherwise Greek bonds sales would be going up.
Speculators are of utmost importance to ensure that new information influences market clearing prices as quickly as possible. Speculators are constantly being blamed for driving prices up or down more than what the price should be. Take for example the ban on short selling Irish bank shares. This was introduced by politicians (in their infinite stupidity) because Anglo Irish shares were being pushed down "beyond anything that resembled fundamental reasons". As it turns out, those that were shorting Anglo Irish were absolutely right. Instead of Anglo Irish being forced out of its misery sooner, the ban on short selling ensured that more people bought shares in the bank, and lost the lot.

Thats a very technical piece, and I'm no expert - but what jumps off the page at me is that - having spent a lot of effort absolving the speculators - he then walks away without explaining exactly WHAT was the cause of a rapid DOUBLING of oil prices. Methinks he doth protest too much. Is he a Broker? Duh?

Nope, he's not a trader, he's an economist.

I didn't blame suppliers - I blame the Traders.

But yet you mentioned the apparent manipulation of prices through keeping oil tankers in a holding loop. Speculators buy futures contracts, not actual oil. The price of a futures contract has to be ultimately confirmed by the spot price, which is a result of actual oil sales.

So says Mr.Murphy. Who may have a vested interest in pulling the wool over your eyes. Here's another writer who says exactly the opposite of Murphy - that speculators drove 60% of the 2008 oil price rises, and that inventories DID increase at the same time: [broken link removed]
Who to believe? You can Google any version you like!

Engdahl's main proof for his theory is summed up in this quote:

By purchasing large numbers of futures contracts, and thereby pushing up futures prices to even higher levels than current prices, speculators have provided a financial incentive for oil companies to buy even more oil and place it in storage. A refiner will purchase extra oil today, even if it costs $115 per barrel, if the futures price is even higher.

As a result, over the past two years crude oil inventories have been steadily growing, resulting in US crude oil inventories that are now higher than at any time in the previous eight years. The large influx of speculative investment into oil futures has led to a situation where we have both high supplies of crude oil and high crude oil prices.

This is exactly what Robert Murphy proves empirically as incorrect. Crude oil inventories have been pretty much unchanged for more than 10 years.

We're all just so many dry leaves in a financial hurricane. Its a joke asking the little people to rush from one currency to another to try and save themselves, when the next target for the speculators is wherever they've headed.
Gold bubble next?

And what would you say to a pensioner if their euro holding becomes worthless some day. Let me reiterate the example of pensioners who had all their wealth tied up in one apparently safe bank, and now that is worth nothing. The same could happen with euro cash. It's all about eggs in the one proverbial basket

Speculators are not some evil entity, they are of huge importance to the market and investors, as Murphy points out.

 

[darag]

I think you are narrowly defining speculators as a clique of market manipulators. I agree that these are a fiction.

But isn't that the generally accepted meaning of a speculator these days? It certainly is what is implied by Starbuck's use of the term and it's clear that politicians generally use the term with this sense - i.e. that "speculators" manipulate markets unfairly.

People who don't understand markets and don't like the prices at which people are willing to buy and sell to each other on markets love the idea that they can blame some conspiratorial group of elite "speculators" who have somehow forced OTHER buyers and sellers to agree to exchange at an "unfair" price.

If you truly believe "speculators" have manipulated the price of anything, then it is trivial to make huge amounts of money if you are right. If I ever find convincing evidence of market manipulation, I certainly won't be writing blogs or Internet articles about it - I'll be using that information to become fantastically wealthy.

The Anglo share price example that Chris mentions is typical of anti-speculator hysteria; the government bans short-selling to stop "speculation" in response to it becoming apparent that the Irish property market was not in for a "soft" landing and that Anglo was hugely exposed.

Another is the Greek bonds fiasco; despite the fact everyone agrees that Greece out-and-out lied about the extent of its national debt and about the extent of its budget deficit for years, it was the speculators' fault for causing wild swings in their bond yields. The simple fact was the market was responding (reasonably rationally) to each new revelation which demonstrated how much of a basket case Greece was.

And why anyone would expect the euro to maintain it's value in light of the EU's political response to the Greek situation (with Germany flipping back and forth between vague promises and taking a hard line) and the announcement of a major and drastic change in ECB policy (that it will directly fund government debt), is beyond me.

There is simply no need to go looking under rocks for "speculators" to explain these market reactions. Isn't it funny how these bond and currency speculators have never actually been identified? You'd imagine at least one would have written a book or appeared in a TV news program (even with their voice disguised and behind a shadow screen)? The reason is that the idea of a "speculator" who manipulates world bond or fx markets for their own gain is a bogeyman peddled to the gullible by politicians and other vested interests who are infuriated that they cannot force people to buy and sell to each other at prices they deem "fair".

 

[Duke of Marmalade]

And what would you say to a pensioner if their euro holding becomes worthless some day.

This is nonsense talk. I too have great faith in speculators to ensure that realistic prices and not politically manipulated prices obtain.

Now consider the following 10 year sovereign bond yields:

German Euro: 2.86% p.a.
US Dollar: 3.45% p.a.
UK Sterling: 3.75% p.a.

We can assume that there is no explicit default risk in any of these situations as each could engineer a devaluation to avoid default (UK and US do this habitually).

So as a currency the Euro is still viewed by the markets (speculators) as a long term better bet than the Dollar or Sterling - speculators are prepared to buy (and sell) German 10 year Euro bonds for a measly 2.86% p.a. despite the fact that Jill Kirby tells us (in today's Sunday Times) that it has 15% - 20% further to fall.

What Jill seems to be forgetting is that the Euro was a big benefactor of the credit crunch and it strengthened spectacularly against the Anglo Saxon currencies which were by far the biggest abusers of credit.

The Euro has recently given up a small proportion of those gains as it grapples with its own delinquents but IMHO it is irresponsible to suggest the possibility of a total meltdown in the currency.

 

[Starbuck]

Good points there DoM. Unfortunately JK's advice (scare stories?) will have effect of simply terrifying some people (probably older people) into doing something wreckless and ill advised with their money. For no good reason, and no benefit.
By the way - in an ultimate irony - during the interview she advised us to buy PHYSICAL gold, then in the same breath admitted she has her own gold holding in unallocated certificates!! The hypocrisy! Do as I say, not as I do....

 

[RMCF]

Surely if you have savings in Euro, live in a Euro country, earn in Euro, don't plan to move to a non-euro country, will always be buying things in Euro etc etc, then you have not lost anything?

 

[TSThomas]

Purchase any imported goods?

 

[Chris]

We can assume that there is no explicit default risk in any of these situations as each could engineer a devaluation to avoid default (UK and US do this habitually).

I'm not as optimistic about default as you, but let's take that argumant as it is. To a foreign investor devaluation is the same as default. Let's say an investor loaned the UK treasury €100 converted in to sterling, and let's say that would be £90. 2 yearts later the UK treasury has devalued the currency and pays the investor back £90, but because of the devaluation that £90 is now only worth €90. This is no different than going to the b9ond holder and saying that you can only repay 90c on the €.
This is why the euro has been stronger than sterling and US$ in the past couple of years; the UCB has refrained from direct devaluation of the euro until now.

So as a currency the Euro is still viewed by the markets (speculators) as a long term better bet than the Dollar or Sterling - speculators are prepared to buy (and sell) German 10 year Euro bonds for a measly 2.86% p.a. despite the fact that Jill Kirby tells us (in today's Sunday Times) that it has 15% - 20% further to fall.

Yes, I agree that the euro is still viewed as a stronger currency than sterling ans US$, and would personally agree with this. But since the announcements of the Greek bailout and ECB purchasing bad debts directly (read printing money) I believe that it is now merely the best out of a bad lot.

Surely if you have savings in Euro, live in a Euro country, earn in Euro, don't plan to move to a non-euro country, will always be buying things in Euro etc etc, then you have not lost anything?

Again this ignores the impact that higher import prices (due to a weaker euro) will have on locally produced goods and services. Zimbabwe and other hyperinflationary countries of history are extreme examples, but you can hardly argue that the devaluation of their currency has anything but a negative impact on people living, working and buying in Zimbabwe.

 

[Starbuck]

More scare mongering. This is not Zimbabwe. Don't be ridiculous.

Euro slide pulls oil prices lower

Monday, 17 May 2010 07:11

http://www.rte.ie/business/2010/0517/oil.html

PS Best of a bad lot still means best, and a better bet in the long run.

 

[Duke of Marmalade]

RTE scaremongering.

Headline news this morning - "Euro falls sharply to 4 year lows etc. etc."

Oh dear, I think, should have listened to Jill as I do spend quite a bit of sterling in the six counties.

Turn on my computer to see the worst. What's this? Euro is actually up against sterling.

RTE headline should have read "dollar rises..." and it should not have been a headline, we have in fact had a very quiet open to the week on world markets.

 

[Chris]

More scare mongering. This is not Zimbabwe. Don't be ridiculous.

I never said that the Euro zone is or ever will be like Zimbabwe. What I pointed out was that a devalued currency is not irrelevant from the perspective of someone living, working and buying within the euro zone.
People that warned of the property crash and financial crisis were all accused of scare mongering as well (in the press, by politicians and on this forum). The fact that,contrary to what politicians keep saying, many economists actually predicted the whole mess, is now being ignored with comments comments like "nobody saw it coming" or even worse "nobody could have seen this coming". And the same economists now have a very bad outlook for the majority of western fiat currencies.

PS Best of a bad lot still means best, and a better bet in the long run.

No it is not, there are far more stable and stronger currencies out there. Moving out of the Euro into sterling or US$ would make absolutely no sense, so you have a point there, but Swiss francs, Canadian/Australian/HKL $ are all better options in the long run.

 

[Duke of Marmalade]

But isn't that the generally accepted meaning of a speculator these days? .....The reason is that the idea of a "speculator" who manipulates world bond or fx markets for their own gain is a bogeyman peddled to the gullible by politicians and other vested interests who are infuriated that they cannot force people to buy and sell to each other at prices they deem "fair".

darag I missed this post first time round. I agree with most of what you say here. What I was trying to say is that short term exchange rate movements are driven by the speculative motive and not by shifts in the balance of exporters/importers. Used to be only exporters/importers had access to the FX markets. Since Thatcher and de-regulation it has been open season. It is not always a good thing. Look at sterling last year. It moved from 1.50 euro to parity in a short space of time. Sheer panic had set in. It was clearly overdone and has swung back. Back to topic is it really good advice to recommend being exposed to these wild mood swings?

 

[roker]

I receive a UK pension every month and I don't see the exchange rate varying that much recently and cannot see what the panic is about, today it is £1 = €1.17 it was the same last july, the worste was last Oct when it was £1 = €1.06, Oct 2008 it was €1.29

 

[darag]

Hi Duke - it's relatively easy to say the Sterling panic was overdone last year with hindsight but at the time it didn't seem unreasonable given the monetary policy decisions taken by the BoE and the horrendous fiscal position of the UK government. This was back when France and Germany were still smug about having dodged the crisis by "not following the Anglo-Saxon model" while now we see that their banks were hugely exposed to dodgy debt (just that it wasn't anything to do with sub-prime mortgages).

I'd also argue with your 80s/Thatcher deregulation theory; until 2 years ago (when the price of everything went bananas), the FX volatility had been steadily declining for decades.

But back to the topic indeed. No I don't think any individual investor will gain a lot from direct exposure to other currencies. But if you've followed the old advice - investing globally in low cost cap-weighted index funds - they you're already hedged to an extent against currency swings as you are buying profits generated in all the major currencies.

 

[Starbuck]

I thought it was worth revisiting this discussion 3 months on, just to see how those who followed Jills advice and bailed out of the euro will have done.

Firstly, lets look at AUD performance; EUR AUD Chart
You'll notice that, as if by magic, the EUR took a huge leap UP against the AUD within days of Kirby's advice. It went from about 1.41 to the AUD to almost 1.55. Anyone who bought AUD must've been wetting themselves.
It fell back since, but has never gone below 1.40 and is currently around 1.45. So you lost if you took her advice.

Next, the Swiss Franc; EUR CHF Chart
She did a bit better here - after some ups and downs the EUR went from about 1.40 in mid May to - eh - 1.37'ish today. Hardly the plunge we were warned of.
But beware - the Swiss Government have been spreading the word that they don't like the current strength of their currency and want to see it fall. And don't forget, CHF interest rates are zero.
A small move downward (as they wish) and you lost money!

In fact, after a long slide over winter the euro has been rallying against most currencies in the last few weeks. Its on an upward trend.

But the best is yet to come.
Kirby gave a stringent warning to listeners to buy PHYSICAL Gold as a currency hedge - just before admitting that she doesn't take her own advice and is heavily into Gold Certificates with the Perth Mint.
A bit of Googling revealed this about the Perth Mint:

From www.24hrgold.com
This is an article about the difficulty Perth Mint Certificate investors were having in getting hold of their physical gold/silver.

Do you know the size of the Perth Mint's liabilities of their certificate program? (It's $880 million Australian dollars (which are worth about the same as a U.S. dollar.)

Do you know the estimated annual silver demand in ounces and dollars? (It's about 60 million ounces, or about $1 billion at $16.66/oz.

THE PERTH MINT'S LIABILITY IS WORTH ABOUT AN ENTIRE YEAR'S WORTH OF SILVER INVESTMENT DEMAND!

And this one - appears to be from a Dublin based trader:

I was dealing over the last 2 years with the Perth Mint buying
and selling over $200,000 worth of gold and silver via the Dublin agents
- each transaction was one cock up after another, long delays,
Dublin/Perth not executing at the right buy/sell fixes I wanted,
certificates getting lost because they were not sent to me by registered
mail (to save money...) ... it all became too much and I'm now all in
physical and can sleep soundly at night...
When things go ballistic Perth will not be able to cope, they can barely
cope now, not answering phones etc etc etc
It is a disaster waiting to happen. And BTW I do believe parts of the
Perth operation/govt of western Oz is insured by Lloyds (I may be
wrong), but if several major banks implode, which is still a
possibility, the derivatives crisis in waiting could easily take Lloyds
down too.
All best!
Andy

The Perth Mint website currently carries a statement from its management denying they are short of physical Gold (i.e. selling worthless paper).

All in all I think Jill gave some rather panicky bad advice. All the folk who changed out of the euro need to cut their losses and get back into it now, because the currency is rising. As the Dollar inevitably slides toward disaster the speculators will scramble for a hard currency as shelter.

Finally, here's a good article on the current picture on currency investment, if you have the stomach for it: [broken link removed]

Moral of the story?
Like I said - Forex is not for Widows and Orphans Jill. Stop scaring the public into precipitous bad moves.

 

[Chris]

I thought it was worth revisiting this discussion 3 months on, just to see how those who followed Jills advice and bailed out of the euro will have done.

...

In fact, after a long slide over winter the euro has been rallying against most currencies in the last few weeks. Its on an upward trend.

I don't think she advocated currency trading, and a window of 3 months is not an investment window. I also believe that it has been repeated, that people should not put all their money into foreign currencies, but it should be used for diversification purposes.

From www.24hrgold.com
This is an article about the difficulty Perth Mint Certificate investors were having in getting hold of their physical gold/silver.
And this one - appears to be from a Dublin based trader:

I cannot believe that a gold TRADER would use a certificate program. That is totally moronic. The Perth Mint is an investment facility, and in no way adequate for traders. While I cannot speak from experience about getting gold delivered from the Perth Mint, I do know that my dad had no problem earlier this year.

All in all I think Jill gave some rather panicky bad advice. All the folk who changed out of the euro need to cut their losses and get back into it now, because the currency is rising. As the Dollar inevitably slides toward disaster the speculators will scramble for a hard currency as shelter.

I think you are looking at this in a much too short time frame to give any meaningful criticism of investing in foreign currencies. And you are hardly trying to claim that the Euro is a hard currency, are you?

Moral of the story?
Like I said - Forex is not for Widows and Orphans Jill. Stop scaring the public into precipitous bad moves.

Let's revisit this in a couple of years.

 

[Fiskar]

Let's revisit this in a couple of years.[/QUOTE]

I reckon that's what property investors hope too.

Heard Jill Kirby on the the national station today and would not have an "ounce" of faith in anything she says. I particularly do not like insistent people telling me what to do
Glad to say she got short sharp shriff from the stand in for D Mooney on her book towns.

 

[Starbuck]

I don't think she advocated currency trading, and a window of 3 months is not an investment window. I also believe that it has been repeated, that people should not put all their money into foreign currencies, but it should be used for diversification purposes.

Did I say she recommended currency TRADING? Where'd you get that from?

In her spiel on the Mooney show last May she related a story of meeting 'a pensioner' at a financial roadshow. Perhaps 3 months is a significant period to a pensioner (over 65)? How long do you think would be appropriate?
I have no problem in re-visiting this in another 3 months and we'll see again what's happened. But for the moment - the pensioner has lost money thanks to Jill.

I cannot believe that a gold TRADER would use a certificate program. That is totally moronic. The Perth Mint is an investment facility, and in no way adequate for traders. While I cannot speak from experience about getting gold delivered from the Perth Mint, I do know that my dad had no problem earlier this year.

Did you actually READ the whole article? I think not to be honest.
And you've missed the point anyhow. Jill recommended physical Gold but admitted she herself buys Certs to reduce costs and security risks. "Do as I say, not as I do".

I think you are looking at this in a much too short time frame to give any meaningful criticism of investing in foreign currencies.

How long has the 65+ year old pensioner got?
Thats the age profile she gave, and the age profile of most D.Mooney listeners too I'd guess!

And you are hardly trying to claim that the Euro is a hard currency, are you?

Certainly!! Are you saying it isn't??
Whats the alternative? The USD? Good luck!!
The Yuan?? Not even the Chinese think so.
The AUD/SGD/KRN ??
Will we possibly be seeing oil traded in any of these soon?
The euro IS a hard currency, and when the USD really tanks in the last Q we'll soon see where the safe haven seekers run to.

Let's revisit this in a couple of years.

Sure. Jills listeners might be dead by then and won't be complaining....

Glad to say she got short sharp shriff from the stand in for D Mooney on her book towns.

Interesting Fiskar, I didn't hear it. Got a link?

Heard Jill Kirby on the the national station today and would not have an "ounce" of faith in anything she says. I particularly do not like insistent people telling me what to do

That hits the nail on the head. Its why I don't like her either. She takes a strident tone in all her pronouncements, a kind of 'do this NOW, I told you so!' attitude. Fair enough if she was right ALL the time, but she certainly is not. Take all she says with a pinch of salt.

 

[Chris]

Did I say she recommended currency TRADING? Where'd you get that from?

You are looking at a 3 month window!!! That is trading NOT investing.

How long do you think would be appropriate?

Years, not months.

I have no problem in re-visiting this in another 3 months and we'll see again what's happened. But for the moment - the pensioner has lost money thanks to Jill.

6 months is still a trading time frame. And unless Kirby, or anyone else here, advocated a pensioner invest ALL their funds in foreign currency or denominated assets, a loss (and lets face it, a miniscule one at that) on these is completely irrelevant for a 3 month time period. If you look at the actual numbers for the two currencies you mentioned then you'll notice that one has offset the other:
EURAUD 12/5: 1.4127 yesterday: 1.4477 (=-2.4%)
EURCHF 12/5: 1.4031 yesterday: 1.3749 (=+2%)

How long has the 65+ year old pensioner got?
Thats the age profile she gave, and the age profile of most D.Mooney listeners too I'd guess!

The average life expectancy in Ireland is about 82 years, so that is a 17 year period, which is long enough to worry about effects of currency devaluation.

Certainly!! Are you saying it isn't??
Whats the alternative? The USD? Good luck!!
The Yuan?? Not even the Chinese think so.
The AUD/SGD/KRN ??
Will we possibly be seeing oil traded in any of these soon?
The euro IS a hard currency, and when the USD really tanks in the last Q we'll soon see where the safe haven seekers run to.

I would have said the same thing 12 months ago, but now the ECB is going down the same road as the Fed and BoE. So any reasons you have for correctly believing the US$ will fall apart, have to equally be applied to the Euro. The Euro is no longer a hard currency due to monetary and fiscal policies of the past 6 months. If you still believe it is then you are seriously blind to what's going on.

Telling pensioners that the best thing they can do is hold ALL their assets in cash and bonds is exactly the same as was being advocated over the last 15 years about Irish Banks. Pensioners put their money in what they believed to be safe havens and now it is gone; there have been plenty of such interviews in the media. What are they going to be told when the Euro seriously loses value and sovereign defaults cause bonds to become worthless, and all their assets are in those two classes? What are they to do when inflation erodes away their fixed incomes?

Nobody has said that a pensioner should put ALL their assets into foreign currencies, and nobody has said that diverting funds into foreign currencies should be done as a wealth creator. Pensioners should not be looking for any further asset appreciation, but rather to preserve their wealth; and bonds and most fiat currencies are not a safe haven for long-term wealth preservation, not in today's world.

 

[rekhib]

As an investment, I think advising a EUR based investor to diversify into AUDs (now or 3 months ago) is probably unwise. The relative strength of fiat currencies can really only be based on the volume traded (EUR - 2nd) and the market size of the underlying bloc (EUR - 1st). That combined with the fact that EURAUD has had trouble breaking 1.40, the AUD is overvalued compared to its long-term average and that Australia is experiencing a massive housing price bubble wouldn't fill me with a great deal of confidence. A small diversification into AUD at 1.6+ might be prudent but only without the massive asset prices and the consumer debt, until those things materialise, if you live, breathe, work &c in EUR, it just can't be a good idea.

 

[Fiskar]

Starbuck

[broken link removed]

click on tuesdays show and plug your ears!