Buying the British Pound: A Savvy Move with an Urgent Deadline
By Steve Emerick
Are you fully aware of how much buying power your dollars have lost over the long-term against other currencies? If you were, you would rush to diversify some of your holdings out of the dollar.
Asset allocation and those ubiquitous pie charts get my goat. They are meant to increase safety but never take buying power into account.
This reminds me of an old joke...
Rip Van Winkle awakes after his long sleep to find a million dollars in his pocket. He calls his wife from a pay phone (told you it was an old joke) to tell her how rich they are. Then the operator cuts in... "Please deposit $500,000 for your call, Sir."
It's happening at the pump, the grocery store and the movies. Just travel abroad with a Canadian or Asian friend and compare your exchange rates. You'll painfully appreciate why currency diversity is needed as the dollar loses long-term buying power.
For over 30 years, ASI Co-Founders, Glen O. Kirsch and Michael Checkan advised you to spread your assets:
• Across currencies
• Across countries
• Across investments
Unlike traditional asset allocation, they were concerned with buying power protection, government control and privacy. These are topics that took foresight three decades ago, but are on everyone's mind right now.
Which currency should you own? Consider Glen's 'Birthday Cake' analogy.
Glen O. Kirsch, our late Co-Founder, was a very philosophical guy. Yet, he always managed to turn his beliefs into good financial sense. He often used a birthday cake to illustrate investing in foreign currencies. While the icing is very enticing and appealing, the bulk of the birthday cake is the cake...not the icing.
Too often, when we look to invest in foreign currencies, we get caught-up in how much return we can get on a particular investment. It drives our decision to choose a particular vehicle. Then, we secondarily choose the currency required to purchase that particular investment.
This is all wrong.
First and foremost, we should choose our currency...the cake. This is where the meat of our returns should come from – the exchange rate gain versus our base currency. Then, once we choose the currency, we should look for safe vehicles with worthwhile rates of return denominated in that currency. The anticipated return is the icing on the cake.
We see the British pound as the currency of choice right now, and for years to come.
The Scotland Independence Referendum is now history and the Scots have decided to remain in the United Kingdom. In the months, weeks and days leading up to the vote, the British pound hovered around its lowest levels since November 2013, after peaking in July.
The British pound is a strong currency with many factors that contribute to its fundamental strength:
- England did not join the European Union's conversion to the euro in 1999. Because Britain chose to remain with the pound and not adopt the euro with the rest of the continent, England's economy did not experience (and will not experience) any of the recent downward pressures on the euro caused by the fiscal problems of Greece, Portugal and Italy.
- The Bank of England, as its central bank, actively monitors and controls the effects of the country's economy on the value of the pound, ensuring that value levels remain high and stable.
- When the British economy was faltering, the Bank of England intervened with a modest Quantitative Easement, easing the pressure on the pound while the economy recovered.
- The new chair of the Bank of England, Mark Carney, the former head of the Bank of Canada, is proving to be an effective fiscal conservative, committed to the strength of the pound.
So what has caused the drop since the July peak?
Despite the UK posting positive construction and services numbers over the course of the year, the pound weakened against most of the other major currencies, as investors agonized over a potential 'yes' vote in the Scottish referendum.
The fear of a secession logically had a negative impact on investor confidence. If the 'yes' vote was confirmed, the pound could have been set for heavy losses.
As is clear from the chart below. Since July, the pound had fallen from its high (above $1.71) to a low of $1.61 earlier in September. As the Scotland vote approached, and pundits were predicting a 'no' vote, there was a slight uptick. And when the 'no' vote materialized, the pound immediately spiked to over $1.64.
Buy on the dip and hold assets denominated in British pounds.
Now, with the numbers on the British economy continuing on the up-swing, the road appears clear for a resumption of the pre-vote rise in the value of the pound. There does not appear to be any factor, absent the ever-present and unpredictable march of world events, to prevent a return to the $1.71 July levels and perhaps even higher. (In the just last decade, the pound has been over $2.10).
Given this, the British pound appears to us as the currency of choice for a hedge against the euro and diversification out of the U.S. dollar. I know that all currencies seem to be rife with faults, but remember, in the world of foreign exchange, it is not about which currency is perfect, it is about which currency has the least faults.
If you're savvy, you'll take action now as the pound's recovery is upon us. As I write this article, the pound is still 5% off its July high; meaning you could purchase an asset at a 5% discount. Truly, you need to pick up the phone now to take advantage of this dip as we expect the pound to recover in the very near future.
What pound denominated asset would provide the best return, the sweetest 'icing?'
Certainly, you can own the currency directly. ASI will convert your currencies for you. Just call us at 877-340-0790 and speak with a Preferred Client Relations representative.
But why not diversify over currency, country and investment class; satisfying all three parts of our 'three-legged asset protection stool?'
We can help you there too. Did you know that ASI is the North American Representative of Stanley Gibbons, Ltd. the oldest dealer of rare stamps in the world? Our program offers both diversification into the pound and a history of extraordinary growth.
Since 1995, the Stanley Gibbons GB250 Rarities Index has grown in value an average of 10.3% per year! Those returns are beating gold, the U.S. Stock market, UK real estate, English coins, the FTSE and more.
Why are rare stamps so consistent in building long-term wealth?
The market in rare stamps is bolstered by millions of collectors worldwide. Collecting rare stamps is one of the two largest hobbies on the planet. (The other is rare coins, also available through ASI's Rare Coin Program).
We help you look at rare stamps in a whole new light. They are a significant investment class that fulfills the cross investment/currency/countries mandate so you can Keep What's Yours!
Rare stamps are an asset class UNcorrelated with any other.
Ask yourself what would happen if your portfolio took a deep dive in value. How long would it take to recover? What would be the impact psychologically and emotionally, for yourself and your family?
Given the market turbulence of the last few years, the long-term devaluation of the dollar, and the extraordinary market movements manipulated by Federal monetary policy, most of us are out of our comfort zone even with portfolios that seem balanced. We can no longer rely on 'business as usual' and what worked in the past.
In today's turbulence, the fact that rare stamps are UNcorrelated to any other asset, is no small matter.
Rare stamps are a currency play.
Stanley Gibbons stamps are purchased in British pounds. When you buy, ASI will generate a currency exchange for you, converting dollars into British pounds. When you sell, you will receive British pounds, and then you have a choice:
1. bring those funds back to the U.S. in USD,
2. keep those funds in pounds, or
3. convert to another currency to take advantage of an opportunity (or need) outside of the U.S.
We even have a way for you to receive Hong Kong dollars, if advantageous for you at that point in time.
Your stamps are stored free of charge in Stanley Gibbons vaults in the Channel Islands or Hong Kong, placing your asset also 'across countries.'
Ice your cake today.
Balancing a portfolio with rare stamps takes extreme expertise. ASI and Stanley Gibbons can give you just that.
With the Flexible Trading Program, you can have a diversified portfolio of 3-7 stamps, stored free of charge until YOU decide to sell. Stanley Gibbons makes a fee as a percentage of your profits... only. If you don't profit, neither do they.
Call us today at 877-340-0790 and speak to one of our Preferred Client Relations Representatives to take advantage of the Stanley Gibbons Flexible Trading Portfolio... our one stop access to the three-legged stool.