Time To Short the British Pound?

The UK economy and the UK housing market have been in trouble for some time, but the latest news from the UK Times suggest that more troubles may be ahead.

According to the Times, Nationwide, the second largest mortgage lender in the UK just announced that they will start to turn away business in order to get “greater control” over their loans.

Are they facing internal difficulties?
Are they in trouble?
Could this foreshadow a big blowup in the UK?
I’m not sure how stable Nationwide is at the moment, but I do know that the Bank of England is behind the curve. They need to catch up with the Fed and look beyond just adding liquidity or cutting interest rates.

With one of the largest financial markets in the world, the UK is just as vulnerable losses related to underperforming subprime mortgages or other credit derivatives.

I expect the UK housing market to suffer the same fate as the US , just at a slower or more delayed pace.

This news is very bearish for the British pound. I expect the GBP/USD to fall back below 2.0 and EUR/GBP to hit a new record high.

Just for the record. I am writing this when the GBP/USD was trading at 2.0060 and EURGBP at .7870

From tomorrow on, Nationwide will increase the rates on its tracker deals by more than half a percentage point in an attempt to become less competitive.

Read the entire article in the Times Online > Nationwide shuts door on mortgage hunters

Comments

[Ralph F:]

Is there any way to short the UK pound using ETFs?

2008 Mar 27 03:27 PM

[valueinvest...:]

Ralph F: The FXB is probably what you are looking for.

2008 Mar 27 03:37 PM

[BxCap:]

The FXB wouldn't short the UK Pound. From the summary....
The investment seeks to track the price of the British Pound Sterling, net of trust expenses. The fund seeks to reflect the price of the British Pound Sterling. The sponsor believes that, for many investors, the shares represent a cost-effective investment relative to traditional means of investing in the foreign exchange market. The fund is nondiversified.

I would want the ultra-inverse or inverse if I was shorting, no?

2008 Mar 27 04:05 PM

[valueinvest...:]

Short the FXB and you are short the pound.

2008 Mar 27 04:14 PM

[valueinvest...:]

I would add that I figured Ralph was smart enough to figure out that I was implying he should short the FXB and not buy it.

2008 Mar 27 04:17 PM

[Ralph F:]

I don't think it's easy to get a borrow on, is it?

2008 Mar 27 04:25 PM

[valueinvest...:]

Not sure how easy it is to borrow as I have never tried to borrow it.

2008 Mar 27 06:37 PM

[GKM:]

Just buy puts on the FXB.

2008 Mar 27 06:50 PM

[Just Say Whoa!:]

I wish I could have shorted FXB back in 1947, before a short, skinny guy in a loincloth brought down the whole British Empire.

2008 Mar 27 08:12 PM

[Mark in SF:]

Or do forex. Don't have to tie up lots of capital that way.

2008 Mar 28 05:31 AM

[eshing1:]

The Nationwide move is a reflection of the fact that even as a mutually-owned building society (i.e. no shareholders as such), it still lends out more than it gets in savers deposits, and funds the difference with funds borrowed on the wholesale market. This money has become very very expensive looking at interbank interest rates of 6%, so they have decided to raise mortgage interest rates iin order to reflect this higher marginal cost of funding, and also because all other mortgage lenders have already done this - if they didn't, the Nationwide would end up potentially with 100% of the new mortgage business in the UK! Edmund

2008 Mar 28 04:27 PM

[Jason Mark:]

The Euro is proabably heading towards a state of being at a 1:1 valuation versus the Pound but I believe that the USD will appreciate against both the Euro and Pound in the long term. The currency that should rise against all three is the Chinese if allowed to float. I suspect that the UK will be in a similar situation that the US is in now so the time spent being at an even valuation with the Euro mabe short.

2008 Mar 30 06:30 PM

[mjw:]

As far as I understand these FX... funds are all versus the USD. Therefore if you believe that the GBP will weaken vs the EUR, you would go Short FXB and Long FXE. This would give you exposure to the GBP/EUR fx rate.

2008 Apr 01 09:17 PM

[mongobobo:]

There are inverse etfs of all kinds. DB Gold Short ETN (DGZ) goes up as gold goes down. Surely there is an ETF out there they will short the GBP?

2008 Apr 05 09:37 PM

[steve H:]

Do you feel the pound will regain strength against the Euro in the next 6-12 months?

2008 Apr 09 05:43 AM

[drposhmoney:]

Sterling started it's decline against the Euro when Northern Rock imploded, due to subprime in the US. This started an irrational trend that may well end up with the Pound at parity with the Euro, partially driven by the fact that the Chinese stopped lending the UK consumer money (take a look at the Yuan/GBP exchange rate) to buy artificially cheap Chinese goods. This will be excellent for the UK economy as a whole, so long as the Pound remains strong against the dollar, which I expect. There is no oversupply of property here, as per the US and Spain, and many other places, so we'll be selling lots of cheap stuff to our European friends while the Chinese keep buying Euros instead of Pounds :-). Thank you China, very helpful policy you have towards us now! :-). And if you think St. George is going to lower interest rates again, or use more taxpayers money to bail out UK banks who've been stuffed by their American friends, you've got another think coming! UK LIBOR will stay 100 bp above the base rate until UK banks are strong enough to take maximum opportunity when the upturn eventually comes. Us Brits are not as dumb as you think! :-).

2008 Apr 14 06:42 PM

[optionsgirl:]

be careful with the etn's. they are not the same as the etf's.

2008 Jul 08 06:23 AM