Back in January this year when the British pound was falling in a crumpled heap a certain investment great came out and said this about the GBP:
“For the last 26 years, the U.K. has been selling oil, the North Sea. That’s what’s saved the U.K. in the past three decades. It’s finished. The North Sea oil is running out. Within the decade, the U.K. will be importing oil again. And then they’ve got nothing to sell… I mean, again, I hate to say it, but I would not put any money in the U.K. I’ve sold all of my sterling…”
To be fair he also had this to say about commodities and emerging markets:
“The real opportunities remain commodities and emerging markets. I continue to think that real assets are the best place to be because that’s where the shortages continue to develop. If the world economy develops and gets better as Mr. Geithner says, then obviously raw materials will be the best beneficiary. If the world does not get better, raw materials will still be the best beneficiary because the governments are printing so much money all over the world, and throughout history that has led to higher prices.”
Some of you may remember that the famous investor was Jim Rogers. For the time being he has been wrong about the GBP (in USD terms at least) but right about commodities and emerging markets in both GBP terms and USD terms. Anyway the point here is not so much on how wrong Rogers has been about the GBP (perhaps he has a much longer time perspective than us and in which case he may well not be wrong) but rather to highlight that when you hear comments from a highly respected commentator/investor justifying the current market action when by all historical accounts the market is in an extreme oversold or overbought condition…….odds suggest that the market is ripe for a reversal.
Whilst commentary on the GBP is far from being extremely bearish as it was in the 1st quarter of this year it still remains in a generally bearish state. Yet the GBP continues to hold out against the US and looks as if it is getting ready for the next big move up.
Investing in currencies is a very different art than investing in stocks because currency investing is a relative game. Whilst a currency is to a country what a stock price is to a company the valuations of a currency are expressed as a relative (to other currencies) whereas a stock price is expressed as an absolute. So whilst the fundamentals of Great Britain may appear to be poor (as Rogers points out)……they are perhaps not as bad as those of the US. Of course now it comes down to which currency is a better of a bad bunch.
We think that the GBP has more upside, however…..if you are a long term investor then perhaps Rogers was right all along. Perhaps he just forgot to say against which currency he was valuing the GBP. We have a funny suspicion he had in mind the GBP against the Aussie.
We have yet to witness any wild bullish claims about the prospects of the Aussie dollar so we believe that its upside is far from over. But as always happens, the Aussie will climb until such a point that the crowd reaches universality of bullish opinion and then will start to move against the crowd. Enjoy the ride.
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Great blog and post! Just found you on Technorati, I’ll try to visit on a regular basis.