A long term perspective is important for economic issues such as the strength of sterling

As I was travelling up from London tonight I read a great article by Anthony Hilton, the Evening Standard’s City commentator, regarding sterling’s decline, but how it wasn’t a cause for concern. In fact he rather celebrates it. He identified 3 reasons why there is such noise and media coverage for the short term decline in sterling: financial, political and emotional.

“Financial first. For months, hedge funds have been placing their bets against sterling, for the simple reason that it is overvalued in trading terms…

…And having bought their fire insurance, hedge funds start fires. The past few days have seen them queuing up to make inflammatory statements about the disaster about to overtake sterling in the hope that they can profitably bring about its collapse. In an earlier age they would have been dismissed as simply talking their book. These days, the 24-hour media circus is often naively complicit in helping them spread panic.”

“The second reason is political. Most people have no idea what a run on sterling means nor what causes it but it is easy to present it as a loss of confidence in this country by overseas investors which, in turn, can be laid at the Government’s door. One must expect the Tory party and its supporters to do all they can through their rhetoric to make sterling’s slide appear more serious than it is because, if nothing else, it further undermines the reputation of the Government they hope soon to defeat.”

“That brings us to emotion. People like to see their currency as some sort of virility symbol. They want it to be Clint Eastwood not Donald Pleasance. So when the currency weakens people take it far too personally as if it is a national disgrace — a confirmation of national decline. Well over time it can be; in the long run competitive nations get strong currencies and flimsy nations get weak currencies. But eight hours of trading on Monday is hardly long term. It is just noise.”

He then finishes with a comment on the trust in the same ratings companies which backed the banks right up to the credit crunch and praise for Vince Cable.

Full article here

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