Devaluating A Currency: Free Money Has A Price

This morning both the ECB and Bank Of England put on their reactive management caps and cut rates as aggressively as they ever have. Now that we are looking at pending negative real interest rates in Europe, the revisionist historians can remind you that this is generally bad for one’s home currency (see the chart below, the British Pound has been pounded).

Interestingly, European stock markets sold off hard on these reactive management decisions. Bounces in free falling equity markets (like the UK) are actually higher than those you’ll see in bull markets. Don’t confuse short term hope with reality.

Gordon Brown has forced his socialist hand onto the table of the British elite. Tax rates on those earning over 150,000 pounds are being hiked to 45%. There is no question that this is not a good thing for consumer spending in the UK. However, the open question remains as to what those British pounds are actually worth.

We remain short the UK via the EWU etf.
KM