On currency turmoil

The euro plunges against the dollar. The pound rises. And I find myself, entirely inadvertently, almost perfectly hedged as far as income goes. Serendipity is a weird thing.

I earn in three different currencies. People in the UK denomiate my earnings in £ and pay me in £. The bulk of my earnings, while paid in $, are calculated in € and then converted at the appropriate rate of the day of payment. And there’s a small amount of $ earnings as well.

And my expenses are largely in €, some in £ and a little bit in $. And as it happens, through no planning at all, those income streams are largely equal to the expense streams in each currency. I am thus hedged, entirely by happenstance.

Ain’t that odd?

41 thoughts on “On currency turmoil”

  1. This just proves that the whole of the world economy is a neoliberal conspiracy orchestrated by your good self.

  2. Well, by the same logic someone like me with 100% of income in € and 100% of expenditure in € is also perfectly hedged.

    And that means, the Greeks all busy withdrawing € from their banks in anticipation of a redenomination to New Drachma are not hedgers, but speculators. One can only wonder if, after the event, the good socialists of Greece will blame the collapse of their banks on those millions of speculators doing evil speculating.

  3. Tim, where do you see the £/€ going over the next 3-9 months?

    It’s obviously going down against sterling at the moment, but how long is that fall likely to last? What effects will euro QE and the UK election have?

    Any good analysis blogs you would recommend?

    I get paid in sterling and the bulk of my spending is in euros.

  4. bloke (not) in spain

    Question for you people understand this stuff:
    If you have a contract for a service provided in a Eurozone country & that country bails out of the Euro, the service provider would be required to discharge that contract at the Euro/new currency conversion rate set at the time of the imposition of the new currency,in the new currency? Would you expect this to apply if the enjoyer of the service was a foreigner? I’m thinking property rentals,here.

  5. No, it would be at whatever the market rate at the time of payment was. So, imagine, Spain leaves the euro, you’re in Colombia, the rental contract is in euros. Then pesetas. So, the rent is €100. At the time of the new peseta this is 100 peseta. In time, the € peseta rate goes to 1;2. You still get paid 100 peseta, ie, €50.

  6. Of course, if your contract were denominated in sterling all along then the euro / peseta thing would make no difference. Spain doesn’t have the power to change an English contract in English currency.

  7. bloke (not) in spain

    You reading my mind, Tim?
    There’s one wow of a beachfront apartment I’d like to have on a long lease payable in devalued Npesetas. Penthouse with pool!!!

    But I was also wondering about the effects on Brits owning places where they’re reliant on rents paid in Euros. This could hurt.

  8. bloke (not) in spain

    But I do have a good feeling for the $Co. A lot more than I do for the €uro, GBP, NPeseta or the $US for that matter And it’s great being a millionaire on pocket change

  9. @Tim, but a customer who signed a sterling contract and then found themselves in a country booted out of the euro might not be in a position to honour that contract. You might be better off collecting something in New Drachmas than nothing in Sterling.

  10. The Npesata might devalue sharply, but the demand for property is going to soar.

    Imagine the affect on tourism, let alone expat numbers.

    Spain is going to have a problem with unemployed yoof: you won’t be able to find any.

  11. bloke (not) in spain

    “the demand for property is going to soar.”
    We’ll see. I’ve heard it said there’s 14 years worth of surplus to work through. And who’d have the confidence to buy any of it? After so many lost out when their supposedly legitimate homes turned out to have been illegally built?
    Personally, I don’t own one brick.

  12. I was being slightly flippant I must admit.

    Ireland also has many year’s worth of properties. The solution proposed by Harvard in the US is to pay someone to knock unsold properties down, and then start again with a stable construction industry. Crazy, but also with merit.

    Spain will, I hope, have learned not to poke expats with sticks in future.

  13. After so many lost out when their supposedly legitimate homes turned out to have been illegally built?

    See, that just cannot happen in France. When you buy a property here it must be done through a notaire, a civil servant who is paid a government-set fee calculated as a percentage of the sale price. He usually works for both sides, bringing the two parties to meet in the middle. One of his jobs is to ensure all the correct paperwork is in place before the sale can proceed, in fact AFAIK it is his job to dig out all the stuff like construction permits. If somebody buys a house and finds it was not constructed legally, the notaire is liable.

    The French get a lot of stuff wrong, but having bought an apartment here a few weeks ago I can’t fault their system of property purchasing. Except the agency fees, they were extortionate.

  14. bloke (not) in spain

    Tim. It’s not that much different in Spain. But if you’ve got crooks in the town hall writing out building permissions on land province or Madrid has decreed not to be built on, you’re follada.

  15. Then the Spanish government needs to take responsibility for failings by the Spanish government.

    As I recall it, there was a reasonable amount of anti-foreigner feeling behind this, especially anti-British.

    If they want to attract inward investment, and I guess they do, then they have options.

  16. bloke (not) in spain

    “As I recall it, there was a reasonable amount of anti-foreigner feeling behind this, especially anti-British. ”

    Oh bollocks. Why not the simple explanation. That they saw a mug coming & took appropriate action. Very pro-foreigner feeling, our enterprising dago.

  17. That they saw a mug coming & took appropriate action.

    That’s a bit unfair. Sure, Brits in forrin might be expected to be on the look out for street-level scams, but I wouldn’t call them mugs for not spotting that the local government is producing fraudulent documents.

  18. B(n)is,
    I meant in the Spanish government’s reaction.

    The scam was their problem, not the buyer’s, or should have been.

  19. “the Spanish government needs to take responsibility for failings by the Spanish government”: that got the laugh you were presumably expecting.

  20. bloke (not) in spain

    Sorry, Tim, but I don’t do much in the way of sympathy. If any deal looks unbelievably attractive – it probably shouldn’t be.
    I’ve met quite a few of the people got taken in & they all had the same vices. Greed & stupidity. The fallow land con-men plant their crops in. If you want to buy a place or a parcel of land to build one, in a foreign country you don’t know how works, stick to reputable vendors recommended by reputable people. And that means starting with someone YOU know is reputable & working from there.
    But then you’re not going to get a particularly cheap deal, are you?. You’ll be paying whatever other cautious people are paying. ‘Coz you’re in the same market. If you choose to move outside of that market in the depths of unexplored furrin’, WTF do you expect? First question is why haven’t any of the locals, who do know what they’re about, already bought it & work from there.

  21. TN>

    The more you look at the more blatant cases, the more it seems that at least the large majority of British purchasers did in fact know what they were getting into. Generally they were aware that local government was permitting construction where they shouldn’t, and were gullible enough to believe assurances that it would all be OK’d by the state after the fact.

    Sadly, those who did get plain old rooked, rather than jumping at a chance that was too good to be true, were those with less money who bought low-end flats in major developments. It was the richer buyers who bought, e.g., the best house in a village, up at the top of the valley, 300m above everyone else, who ought to have known better.

  22. If any deal looks unbelievably attractive – it probably shouldn’t be.

    Ah, okay. That’s slightly different…

    I’ve bought two places in furrin, neither of which was a bargain. I saw the bargains, and thought “no thanks”.

  23. If I got official authorisation from the Town Hall, I’d expect it be honoured. This is the European Union remember*.

    (Another laugh maybe, Dearieme).

  24. Oh, and another thing: even though I’d save about 30% by doing so, no way would I buy off-plan, especially in foreign. I know guys who’ve done it in Thailand and it’s worked out okay, but after a bit of Googling I found the guys who’ve come a cropper in Spain bought off-plan and have found they can’t get electricity or water connections. That’s hard to fake if somebody is walking around it.

  25. It was the richer buyers who bought, e.g., the best house in a village, up at the top of the valley, 300m above everyone else, who ought to have known better.

    I’m always a little wary of this as well. If you’re a rich foreigner taking advantage of cheaper house prices, best not to buy the best house in the town. It’s asking for trouble.

    Not that I had the option to buy a swanky mansion overlooking everyone else, but non-descript apartments in a decent development are a lot safer.

  26. bloke (not) in spain

    “those who did get plain old rooked, rather than jumping at a chance that was too good to be true, were those with less money who bought low-end flats in major developments. ”
    It’s hard to see how that would work. Anyone doing a major development was doing it with a bank’ s money. Any bank, even a Spanish bank, is going to want to see all the i’s dotted & the n’s tilded and they will know things like regional development policies. Which is what these moody building permits have fallen foul of.
    All the instances I’ve seen are the little cortijo, some farmer used as a tool shed, sold as suitable for conversion into a 4 bed 3 bath villa with pool or patches of land in odd corners of the countryside. The first thing to have asked yourself is; would I get planning to do this in Hertfordshire & if not, why here?

  27. bloke (not) in spain

    Not the same con for the Cyps, though. Sell ’em the house but not the land it stands on. Sort of a big caravan without wheels. Nice one!

  28. I’m going back 20 odd years before the EU lowered the tone (officials had to do something for their brown envelopes before then, which was very different to Greece).

    Further, in those days the government were active in regulating the property market; expats were, after all, the Golden Goose.

    There have been some shocking stories since the crash, I’ll certainly give you that, and not all of them can be blamed on the Orthodox Church (every country has a black sheep).

  29. Gunker also has me bang to rights; However, outside Dublin, especially Cork I believe, the story is rather different.

    He says, not checking the latest this time either.

  30. “It’s hard to see how that would work. Anyone doing a major development was doing it with a bank’ s money. Any bank, even a Spanish bank, is going to want to see all the i’s dotted & the n’s tilded and they will know things like regional development policies.”

    You’re looking at it as a business transaction rather than the work of organised crime. The banks could have been complacent, incompetent, dishonest, coerced, or bought-off – if the money even came from banks, rather than directly from the gangsters. Anecdotally, the bigger picture was that the banks just didn’t care if it was a criminal enterprise as long as they got their money, and specifically, bank employees were bribed or coerced to accept forged paperwork.

    Jack>

    If your local council assures you that you can set up a cannabis ‘coffeshop’ under their jurisdiction with impunity, and that sure, sure, the national government will eventually change the law and allow it, with no hassle in the meantime, how much would you invest on that basis?

    Tim N>

    “If you’re a rich foreigner taking advantage of cheaper house prices, best not to buy the best house in the town. ”

    Perhaps true, you’re certainly inviting all the local tradesmen to bump up their prices. But not quite what I meant. I wasn’t talking about the most expensive house in town, but the one and only house up in the hills around the town, or whatever. As B(n)iS pointed out, if it wouldn’t get planning permission in Hertfordshire, that ought to at least ring some alarm bells.

  31. Dave,
    “If your local council assures you that you can set up a cannabis ‘coffeshop’ under their jurisdiction with impunity, and that sure, sure, the national government will eventually change the law and allow it, with no hassle in the meantime, how much would you invest on that basis?”

    Me, nothing. I’m fairly cautious at best of times, and what you’re suggesting would, a) be illegal, and, b) in your example, I’m being told it was illegal. I don’t get your point.

    On the other hand, in my UK home town, the local (not that) big house was sold, knocked down and replaced by many small homes. The landowner was subsequently sent down for bribing the chief planning guy (Home Counties as well!)

    The new owners did not have their new homes confiscated.

  32. bloke (not) in spain

    @Dave
    Sorry, you’re not thinking it through. If the bank makes a loan on moody development it’s the bank takes the major fall if it goes pear-shaped. All the developer loses is his stake. S’pose you could get officers at banks issuing bound to fail loans but why not just steal the money? It’s the same outcome.

  33. bloke (not) in spain

    “Gunker also has me bang to rights;”
    Yeah. Well. Can’t help but notice, the quote about the strong housing market as from “the managing director of Myhome.ie” OK. Right. And surinenglish.com were running a piece, couple weeks ago, on how Malaga sales were picking up nicely. Same piece they ran last year. And the year before. Strange how getting on for a 100k of us furriners have up sticks & vamosed without affecting the market, then.
    I’m more inclined to believe Nigerians than property experts.

  34. bloke (not) in spain

    Incidentally;
    “You’re looking at it as a business transaction rather than the work of organised crime. ”

    This is something some people never get. Just because something’s illegal doesn’t mean the law of gravity just got repealed. There’s no difference between a business transaction & an illegal activity. They both have the aim of increasing wealth.
    It’s often how you can spot something’s moody. If you can’t see what’s keeping it from falling over, then the bit you can’t see is where you’re going to get ripped off.

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