Tag Archives: UK

Gold price surging as Sterling Slumps On ‘Hard Brexit’ Concerns, Up 36% YTD

Via Mark O’ Byrne @ goldcore.com

  • “GBP gold is just 13% below the all time record nominal high in sterling terms of £1,161/oz, reached on August 24, 2011. Gold bottomed at £700/oz in July 2015 and has seen a series of higher lows and higher highs since then”
  • “Over the long term, gold has performed well for UK buyers and protected them from the risks manifest in recent years. Over 10 years, gold in GBP terms is up more than threefold or by 222% from £317/oz to £1,023/oz. An average annual performance of over 13% per annum”

Read more here…



London Bankers Plot Bailout Under New Prime Minister: “Monetary Response to Brexit Shock”

Via Silverdoctors.com

  • Britain’s new finance minister Philip Hammond declared Tuesday that it was up to the Bank of England to respond to the economic “shock” arising from Brexit.

    “The initial response to this kind of shock must be a monetary response by the Bank of England,” Chancellor of the Exchequer Hammond told lawmakers at the House of Commons.

  • What will this mean for global markets and the future of the European Union? That remains to be seen, but they are definitely scheming to make sure that the City of London is protected at all costs, and even at the expense of other parts of the economy.

Read more here.. 

Brexit = Death of the Technocrats

Via Michael Krieger @ libertyblitzkrieg.com

  • “To summarize, the exact same people who ruined the world bailed themselves out, avoided all accountability and continue to call the shots. These are the men and women we know as “the experts.”
  • “To the status quo technocrat, this is a lifelong position. They consider themselves to be the wise indispensable elders required to steer the world in the appropriate direction irrespective of any and all calamities they cause along the way. Unfortunately for us, history shows us that the biggest disasters happen precisely when you combine such expert arrogance with unbridled power”

Read more here..

Services close to 80% of UK economy

Via Emily Cadman ft.com

  • “Britain’s service industry recorded its 12th consecutive quarter of growth on Thursday and now accounts for almost 80 per cent of the economy.”
  • “Other growth areas include the vibrant creative industries, encompassing everything from computer games to musical shows. Stian Westlake, policy director at Nesta, the innovation charity, said the sector has enormous potential. “As the world becomes richer, people want to be entertained,” he said.

Read more here..

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The Distorted UK property market – One big dangerous game?

It seems today in the UK, that you cannot go anywhere without constant reminders of just how crazy the property market is as we move into Q2 of 2015.

Whether it’s walking down a street and seeing several letting agencies within 100 yards.

Whether it’s the saturation of property related TV programming and daily news articles, either reporting record prices, or bashing ‘Buy to let’ landlords.

Or whether it’s the constant talk of property price speculation from the Baby Boom generation, or Millennials complaining about their extortionate rents. The signs of a late stage property bubble are everywhere.

The housing crash and subsequent financial crash of 2008 it appears is a distant memory. The lessons of the last financial crisis have already been forgotten in this new normal of ‘It’s different this time’ house price nirvana.

Why I’m avoiding this market:

Whenever you see a major excess or shortage of any asset, it’s always a clear indication of massive intervention in the free market, which leads to mispricing. And in this case of the UK housing market it’s no different.

Whilst you have to look at each individual market based on its own merits as an investor; there are 3 main attributes I look for when it comes to long term investments in these types of market.

  • Do the fundamentals indicate future growth, are they sustainable or in-line with the current Net Asset Value (NAV) of the market?
  • Is the market (based on historical measures) overvalued or undervalued?
  • If I plan to sell these assets in the future, who will I be selling them too?

Let’s take a look at the UK housing market based on these attributes:

From my analysis, the underlying supply/demand fundamentals of this market that should give us accurate price discovery, have been completely decimated by out of control money creation through the likes of Quantitative easing (QE) & Fractional reserve banking (FRB). As well as other out of control government policies designed to exacerbate what is in my opinion, an already over valued asset bubble.

These policies have led to extremely low artificial interest rates, which has led to the impotence of yielding assets. This in turn has led to a perfect storm of yield chasing property price speculation, based mainly on the belief of ever increasing extension of credit, debt and low interest rates; in order to justify the current price valuations.

Does this look like well balanced government policy, or a desperate attempt to prop up an overvalued housing market that contributes a disproportionate amount to the UK GDP calculation.

If we took away all of the policies above and allowed the free market to determine price discovery, it is highly unlikely we would have the exuberant house price valuations that we see today.

In the event of a currency crisis and or market forces pushing interest rates higher from there record lows; are these valuations going to stand up to even a modest interest rate rise?

The reason I doubt this is because of the extreme divergence we are beginning to see in the Average House price: Average Income ratio.

Historically, house prices has found a mean of around 3.5X – 4X the average income, from data measured between 1983- 2000.

If we look at the average income now of £27,000 compared to the average house price of £195,000 (1) in Q2 of 2015, it shows a current ratio of 7.2X. This is around double the long running average and in some areas such as London ,South East and the South West we have seen eye watering ratios, ranging anywhere from 10X to 20X the average income.

Guardian £500,000 headline september 2014

We are beginning to see an undeniable large divergence between these 2 key indicators.  

Housing article - growing income - price divergance

Where is the future support for this market going to come from? – A look at ‘demographics’:

Another key aspect of this market  to analyse, especially when looking at the potential sustainability of the graph above is  ‘demographics’.

Is the upcoming millennial generation going to be able to sustain the current level of artificially elevated consumption, in order to support the demand side of this market in the future?

In my opinion, there are 3 important reasons why this will not be the case:

First is the student debt bubble.  Millennials are now leaving University with an average of £40,000 in student debt  (3).It is highly unlikely this demographic will be lining up to buy £200,000 – £500,000 houses in the future, when they already have such huge debt burdens upon graduation

The first point is further exacerbated by the increasing automation of industries all over the world. From the property markets perspective; this is having unwanted side affects of increasing competition in the labour market and reducing quality jobs which puts constant downward pressure on wages.

Things like ‘Blockchain’ technology (decentralised public ledgers) , ‘Industry 4.0’ (4) and the advent of Decentralised Autonomous Corporations (DACS) (5), are also individually & collectively threatening a whole range of long standing professions:

Percentage risk of jobs lost automation

The third reason that Millennials may not be able to support current property price levels going forward, is the general decline in ‘real’ productivity in the UK.  Long extended periods of low interest rates has led to mal-investment and speculation rather than grass root SME development and Capital expenditure.  The graph below shows the real world effects of this; as imports increase and exports decrease, the UK current account deficit hits record highs:

Current accoutn deficit


Rather than letting free market forces determine the right price of the housing market, it appears the government has instead decided to play an extremely dangerous game of blowing a short term house price bubble, as a means to support GDP figures.

This favours unproductive speculators & rent seeking activity and has the unwanted side effect of hollowing out the real economy; by punishing workers and wealth creators. Essentially, the government instead of the free market is deciding who wins and who loses in this economy and history has shown repeatedly that this can lead to massively detrimental outcomes in the long run.

It could be argued that the government (as well as the BOE who have failed to raise interest rates here’s why) have created an economic ticking time bomb, that requires an ever increasing extension of debt, credit, and low interest rates in order to sustain current price levels.

Hedging risk:

By partly tying the fate of the UK economy to the housing market and vice versa, I would personally not enter the UK property market today without being hedged with an allocation of sound money like Bitcoin or Bullion; to protect from potential currency collapse and tail risk in the UK and global economy.

Its unlikely big speculators and momentum traders are going to hang around in the property market once interest rates rise and the tide turns. Eventually every market corrects to fair market value.

Personally, I am more focused on what I believe to be undervalued assets with huge growth potential at the moment, such as precious metals and cryptocurrencies.

Whilst these assets are in no doubt still risky to hold, they potentially offer a Risk:Reward perspective that is much more favourable than the current UK property market, especially to millennials, many of which will never even get close to raising the capital required for a mortgage down payment.

It’s not impossible to rule out further nominal gains in UK property prices. However, it’s becoming harder to see in real terms, where future gains in this market are going to come from.


Foot notes:

1) http://www.theguardian.com/business/2015/jun/03/house-price-rise-puts-average-cost-of-uk-home-at-195k

2) http://www.theguardian.com/business/2014/sep/16/house-prices-record-bubble-interest-rates-uk

3) http://university.which.co.uk/advice/how-much-debt-will-i-actually-get-into-by-going-to-university

4) http://en.wikipedia.org/wiki/Industry_4.0

5) http://en.wikipedia.org/wiki/Decentralized_Autonomous_Organization



The Elephant in the room – Rising Sovereign Debts, Rising Interest rates

It’s been over 5 years since the epic events of 2008 that should have marked the end of the runaway fiat currency, debt saturated global economy which we have been thrown into by a combination of loose regulation and easy credit that was willingly administered by the quote, ‘too big to fail banks’.

However, since 2008 it is fair to say there has been no real fundamental reform of economic policy, banking regulation and the very nature of the institutions that brought us to our knees. As a result UK debt levels continue to escalate.

In addition to this there has also been no real evolution in the mainstream media’s (MSM) coverage and rhetoric on the fundamental reasons and critical state of sovereign debt levels.

In particular how the need to maintain low interest rates on these debts, make any chance of a genuine recovery a near impossibility.

Despite all the talk of recovery and ‘green shoots’ in the economy that I hear on a daily basis, backed up by the pseudo backdrop of record high equity markets, bond markets and a propped up housing market still benefiting from artificially low interest rates. It is still evident that sovereign debt levels mostly inherited by past bank bailouts and servicing of interest on that debt are growing worldwide and are predicted to grow further throughout 2014.

G7 Soverign Debt levels

Of course the chart above only shows sovereign debt, when corporate, financial sector, private debt and unfunded liabilities are factored in, the debt to GDP in the UK is estimated to be around 900% GDP.

G10 Debt DistributionThe UK’s approach to this crisis (as well as many other countries globally) has led them to quantitative easing (QE).  This is essentially money printing where the central bank (BOE) monetizes debt through the purchase of government bonds (Gilts) from other financial entities such as banks and corporations. The two main objectives of this is supposed to keep interest rate low by creating artificial demand for gilts and to stimulate growth by funding SME’s.

However, it could be argued that the very same forces designed to stimulate growth are actually undermining the real economy at the same time as the increase in base currency through QE and fractional reserve banking is causing asset price inflation in essential commodities.

This in turn not only drives up living costs and reduces disposable income for large parts of the population, but has the knock on effect of damaging businesses due to reduced demand, leading to layoffs that create an excess of labor and dropping wages.

What we have ended up with is a catch 22 situation that is not being widely discussed in the MSM. The very steps to try and resolve the crisis is undermining the real economy by driving up total sovereign debt which almost ensures the need for even more debasement of the currency through QE in the future, to roll over maturing debt and the interest on the sovereign debt.

This in turn will again lead to more inflation and the erosion of purchasing power of fiat currencies including the pound, creating a dangerous negative feedback loop in the economy.

With sovereign debt approaching £1.4 trillion and what looks like a reversal of the gilt bond market into a secular bear market in May of 2013, signaling rising interest rates on Index linked bonds and new gilt purchases.

The opportunity for the government to make and meaningful reduction on the UK’s sovereign debt to a sustainable level, is looking more and more insurmountable.


Bitcoin V UK Retail Banking – David and Goliath

For centuries banks have provided a medium for the facilitation of financial transactions domestically and internationally. During this time they have provided a necessary service that has helped facilitate the growth of domestic and global commerce.

However in the last century especially, it could be argued that the financial services sector has become growingly complacent with archaic infrastructure, considerable fees and a severe deterioration in integrity and trust.

The lack of serious competition may have fostered this complacency, however, this all changed with the creation of Bitcoin in 2009. There is no doubt that globally banks are very worried about the competition that Bitcoin offers and for good reason. Bitcoin has the potential to massively disrupt their privileged position as financial/transaction intermediaries that net them billions in commissions and fees every year.

However, if bitcoin is to grow into a mass adopted currency, it needs to provide retail users with utility and benefits that go above and beyond the current banking system that currently handles the vast majority of transactions.

With a recent study showing that UK consumers are still very sceptical about Bitcoin, now may be a good time to look at this in more detail.

This article aims to take a closer look at how Bitcoin compares in cost, speed and availability against other transaction methods used in retail banking in the UK. But before we look at the intricacies, there are two major benefits that Bitcoin can potentially offers over the current banking system, that I think need special attention:

Reduced Counterparty risk:

It is no secret that due to fractional reserve banking (FRB), banks have rehypothecated thier tier 1 capital multiple times in the UK, much of which has made its way into risk assets.  This brings into question if banks actually have the collateral available to back all the bank deposits currently sitting on their balance sheets. In the event of one or more major sovereign defaults and the likely ensuing contagion, it is not difficult to envisage a scenario where the mark to market losses on these risk assets would render one if not more of these institutions insolvent.

In an event like this, bitcoin potentially offers a safe haven (similar to physical precious metals) of having an investment without any counterparty risk to the highly leveraged current financial system. Whilst counterparty risk can come from holding bitcoins in third party companies such as exchanges like Mt.Gox. This risk can be mitigated with various hot and cold storage techniques that can greatly reduce or almost eliminate this risk altogether.

Protection from devaluation of fiat currency:

Around the world, the continuing and accelerating debasement of fiat currencies through FRB and Quantitative Easing (monetisation of sovereign bonds) has accelerated, especially since the financial crisis of 2008 and the bank bailouts that ensued. In the UK currently £375 billion has been pumped into the monetary system by the BOE and the real world effects of this can be seen with asset price inflation creating price rises in fuel, energy, utilities, travel, tuition, house price and rents. The result of this, simply by holding your money in GBP, people’s purchasing power continues to decrease as low interest rates cannot offset losses from a higher rate of inflation.

On the other hand, as a currency, bitcoin has a set limit of 21 million units. Whilst bitcoin remains inflationary as bitcoins are rewarded through the mining process, the inflation rate is very slow and as a result, devalued fiat currencies continue to fall in value against bitcoin. One of the major advantages of this is that bitcoin holders possibly have the opportunity to protect their purchasing power from more aggressive devaluation.

Having looked at two of the major benefits that Bitcoin could provide going forward, let’s take a closer look at this comparison.

The following information takes a look at how Bitcoin compares against a standard infrastructure and fee structure of a large UK retail bank account. It will look at the most widely used transactional methods used BACS, BACS faster payments, CHAPS and SWIFT, in terms of cost, speed, availability and limitations for Domestic and international payments. A list of all financial institutions that use these methods can be viewed here.

The information collected is publicly available information from one major high street bank in the UK. Whilst other banks may differ slightly in there fees structure this information should provide a fairly reliable benchmark across the main players in the industry.

Before we review this information, it is worth taking into account that the Bitcoin protocol and bitcoin market factors are changing all the time, so the scope of this information is to give a realistic snap shot in time of what the Bitcoin can potentially offer. Depending on adoption and growth of the bitcoin network these factors are likely to change going forward.

Domestic transactions:

Domestic payment UK retail banks and Bitcoin

(Click for larger image)

At the moment, it is possible to make fee free domestic transactions in the UK through BACS and BACS faster payments with a retail bank deposit account up to the value of around £25,000. A full break down of faster payment limits can be viewed here.

For clients sending money between the institutions where faster payments are available, this service actually provides a fairly good cost effective way of sending money domestically in the UK.

It is worth noting that Bitcoin transactions can be made without a fee, but the fastest transaction confirmation time of 10 minutes cannot be guaranteed. More detailed information on Bitcoin transaction fees can be found here.

Whilst this undercuts the current recommended miner fee of around 0.01 mBTC to help ensure a 10 min transaction using Bitcoin. It could be argued that it is the speed and availability that will make Bitcoin a viable competitor for smaller domestic payments. Further adoption of bitcoin and increased transaction volume could potentially reduce this fee in the future, which would help make micro and small transactions more cost effective in a domestic scenario.

One area where Bitcoin clearly offers an advantage is with large, time sensitive transactions that make up the bulk of CHAPS payments in the UK. Bitcoin can clearly undercut the speed, availability and average £30 fee charge for this service which is used mainly for payments that are normally above the BACS and BACS faster payment limitations.

Making International Transactions:

Internatonal transactions uk retail banks - Bitcoin

(Click for larger image)

As the Bitcoin protocol and bitcoin currency can be used globally, the advantages of sending international payments are a lot more clear when compared to the most commonly used method of SWIFT, currently used by the banking system. The process of sending money internationally is the same process as sending domestically when using bitcoin in terms of cost, speed and availability. SWIFT on the other hand, as you can see from above, has a lot more disadvantage’s against Bitcoin in terms of:

  • Cost (especially for smaller transactions),
  • Availability (limited to working days),
  • Transaction limits (£75,000 online)
  • Speed perhaps most importantly the time for the transaction to clear. At best transactions clear in 2-4 days, but depending on the geographical region of the receiving financial intermediary this can sometimes be as much as 12 days.

In addition to this, a widely discussed major benefit of Bitcoin is that it provides a low entry transactional network that opens up commerce for billions of people who are currently unbanked around the world, for reasons that range from geopolitical, to the lack of banking infrastructure in there geographical region. With bitcoin something as simple as a cell phone can be used to transfer bitcoins internationally.

Receiving an International transaction:

Receiving international payments

(Click for larger image) 

Another cost that can be mitigated by Bitcoin altogether is when receiving international payments. Whilst the percentage cost is fairly low for large transactions. When receiving international payments through a retail bank account in the UK, it is the more common smaller payments that incur a noteworthy transaction fee on a cost % basis.

Other bank fees that could be avoided through the use of Bitcoin:

Other fees avoided uk retail banking


Time is Money:

Having looked at the difference in transaction speeds across Bitcoin, BACS, BACS – FP, and CHAPS, we can now look at the total time that could potentially be saved per annum, using Bitcoin, based on the amount of transactions for each method and the generally accepted transaction times.

Whilst there are many variables, including transactions that clear before the limits shown below for BACS,BACS FP and CHAPS, as well as Bitcoin transaction confirmations that exceed the 10min 1st confirmation time. The following information I believe shows the potential for time saving when using Bitcoin versus the current banking methods.

The total amount of transactions shown below is taken from the ‘Annual Summary of payment clearing statistics 2013: Inter-bank and Inter-branch Clearings’ available from the UK payments council.

Tranascation times savings bitcoin

(Click for larger image)

Drawing a comparison in overall time saved when using Bitcoin over the current methods of banking transactions, we can see that the potential time saving when using Bitcoin is huge. It’s easy to conceive just how much time could potentially be saved in the UK alone with the reduced time in waiting for transactions to clear and how this can accelerate the speed in which domestic and global commerce can take place.

Whilst the Bitcoin protocol is currently capped at 7 transactions per second with artificial limits to prevent major growth of the Blockchain, before the network is ready for it. These limits can be removed and the amount of transactions that the network can handle is scalable by many multiples, especially with growing computer power which will help facilitate this.  If the network continues to increase in size and speed, the potential for being able to facilitate the amount of transactions shown above is not inconceivable.


Whilst the UK banking industry still plays a dominating role in facilitating domestic and international transactions in the UK and in some instance, provide a good medium for very low cost transactions. The risks associated with using the banking system in the UK are growing by the day.

Coupled with long transaction times and in some case partial availability, Bitcoin looks set to provide much needed competition in the UK retail banking industry, especially with its low cost for domestic and international payments, fast transaction times and 24/7 availability. In addition, the prospective growing need to hold assets that can be used to hedge against counterparty risk and debasement of fiat currency, could see its adoption grow.

Whilst it is unlikely to replace the banking system in the near term. On a longer time scale, with further development of key services needed for wide adoption. The scalability of the Protocol and network provide a realistic proposition of Bitcoin having a much larger market share of this industry.

Because of this, it is likely we will see a determined effort from these banking institutions and other powerful payment providers to try and slow down and limit the impact of Bitcoin through lobbying, regulation and patent trolling.

After the recent Chinese crackdown in particular on Bitcoin exchanges in China, I discussed this fact with Javier Marti, Bitcoin expert, digital trend analyst and CEO of Bitcoin Global Investments.

During the conversation he stated;

“One of the most important things to look at right now, is who has the most influence over the law makers and what will be the outcome?” 

“The difference may be a future in which Bitcoin comes to mass adoption in the medium term, or one where the process is greatly slowed”.

Whilst Javier remains optimistic about the potential of Bitcoin going forward. This is something that has to be taken into consideration.

Whether you agree with political donations or not, perhaps one of the silver linings for Bitcoin in relation to this, is the recent news that US Politicians can now accept bitcoin donations up to the value of $100, which could lead to similar legislation in other jurisdictions.

The future remains to be seen, but Bitcoin has the potential being one of the greatest examples of lean engineering the financial services industry has ever seen, and the fact that Bitcoin is being backed by a tireless community network of developers, entrepreneurs, investors, business minds, journalists and enthusiasts, may help it face up to these head winds.

In addition, with the possibility of extreme tail risk in the banking industry, it is possible the adoption of Bitcoin in the future may go from being a ‘want’ to a ‘need’.