John Stepek highlights the week’s best news and views from the MoneyWeek team, including how Germany can save the euro – by ditching it; the final frontier for investors; and the most despised words in the English language.
● Greece dominated the headlines again this week. You’re probably sick of hearing about it. Suffice to say the EU ended the week with a whimper rather than a bang, saying that they had a plan for bailing out Greece, but not telling anyone what it was.
That was probably the most sensible thing to do, as I noted in Money Morning. Political paralysis can be surprisingly helpful sometimes. Indeed, I’m starting to wonder if perhaps a hung parliament in the UK might not be such a bad thing. Any firm decisions on Greece would only have given the market something else to panic about.
● But in the long run, some sort of solution will have to be reached. Merryn Somerset Webb reckons she knows what this should be – Germany should ditch the euro. After all, unlike almost every other eurozone country, if Germany reinstated the mark as its currency, it “wouldn’t fall. It would rise, making any euro debt easier to dispose of and making any euro-priced assets the Germans happen to fancy even cheaper to buy than they already are. It might also make Germany’s patient tax payers (who have muddled along with no big wage rises and no feel-good house price bubble of their own for years now) happier than the alternative – that is, spending a great deal of money to bail out the eurozone’s more free-spending members.”
I think Merryn’s right. And turning German consumers into big spenders could be just what the rest of the eurozone needs. There’s no chance of it happening at the moment. But as she points out, by this time next year, the idea of “a new German currency may have moved from being completely unmentionable to merely being ‘almost unthinkable’.”
● You might not have noticed amid all the fear over Greece, but the ‘new’ space race has been getting a bit of coverage this past week. I’m a bit of a science geek on the side (well, I enjoy my monthly copy of Wired anyway) so I find all this stuff quite exciting. And so does Paul Hill. A month ago in his Precision Guided Investments newsletter he was talking about investing in robots. And now he reckons investors could make excellent returns from commercial space travel – and has recommended a company with exciting prospects to his newsletter readers.
Why now? Well, as Paul reports, Barack Obama has just opened up America’s space programme to private companies. It marks “a major breakthrough”, says Paul. “Transporting astronauts to the International Space Station (ISS) will soon be outsourced to private companies. The commercial sector now has the chance to muscle in on Nasa’s monopoly, with the opportunity to ferry all of its personnel and equipment in and out of orbit once the existing Space Shuttle program ends in less than two years’ time.”
What’s so important about this? Well it provides the initial guaranteed revenue that will make it worthwhile for commercial companies to get cracking on space travel. “For the first time ever it will provide big business with the necessary funding, expertise and guaranteed work to transform the space industry in the same fashion as the airline sector took-off after the second world war.
“Back then the military flew most planes. What really got private companies motivated to start operating aircraft was when they got a guaranteed customer in the form of the US government air-mail delivery service. That’s what NASA’s astronaut transport service will be: a cast-iron $6bn income stream.” And before you know it we’ll be off to Mars. Let’s just hope that commercial space travel is more profitable than your average airline…
● Coming back down to earth – here’s a survival tip for you. If you ever happen to be out walking in South Africa’s Witwatersrand Basin, and you feel a bit parched, don’t be tempted to take a drink from a local stream. “It’s highly likely that you would in fact be ingesting battery acid”, says Tom Bulford in his free Penny Sleuth email. It’s the result of the environmental damage that abandoned mines have done to the region.
Tom’s not trying to make a name for himself as the Ray Mears of share tipsters. He’s just pointing out that there’s a way to profit from these toxic waste dumps – and it’s an ethical one too. Because the money lies in cleaning up this horrendous mess.
“Already at AngloCoal’s Emalahleni coal mines, contaminated water is being treated in a process known as ‘reverse-osmosis’. The process dis-assembles the polluted liquid before reassembling it in different forms that include drinking water, fertiliser, explosives and industrial chemicals.
“So anyone who can find a way of dealing with the problem of acid mine drainage will probably be paid twice. First to remove the dirty water. Then again for the products into which it can be converted. Add to that a raw material supply that should flow indefinitely and you will not only become the poster boy of the environmental movement, you should make great money as well.”
Tom’s been looking for a company that can do just that, and thinks he’s found one for subscribers to his Red Hot Penny Shares newsletter (if you want more details on Tom’s newsletter, see the links below).
● Toyota’s woes have been bringing back memories for Dr Mike Tubbs. Mike, who writes the Research Investments newsletter, used to run the product research & design for a big British automotive and aerospace subsystems manufacturer. “We were developing electronic systems for a large car manufacturer. Some were for a brand new model nearing launch. Shortly before launch, I got a call from the car manufacturer’s chief engineer. He wanted to save more money on the design.
“One of his proposed savings was on a small electronic system that controlled engine idle speed – a very important setting for an owner. He wanted to save 50p on this. Now the only way to do that was to replace a special connector suitable for harsh environments with the sort of connector used in home electronics. I told him this would not stand up to the harsh environment under a car bonnet. I pointed out that it would give his company serious reliability and warranty problems.
“However, he insisted on the change. I refused to modify our design until he had given us a letter saying that his company would be fully responsible for any reliability issues that arose.
“He did so. The new car was launched. The reliability problem I had predicted occurred. It cost the manufacturer an average per car of several times the 50p they saved on manufacturing costs and they lost credibility with customers.
“The message is simple. You should make your engineers concentrate on useful developments rather than on the type of cost saving that merely causes reliability or safety issues. I don’t know whether this type of behaviour is the origin of some of Toyota’s problems. But I would want to find out urgently if I was a senior manager in Toyota.”
● By the way, thank you for your responses to my request for words to add to MoneyWeek magazine’s “banned” list last week. From my small-ish sample size, I can safely say that “moving/going forward” is the phrase that you hate most. Deservedly so – in fact, it’s already on our ‘banned’ list.
But I can’t sit back and gloat. One of my own stylistic ticks, the phrase “anytime soon” cropped up in the ‘banned’ requests more often than I’m willing to admit – so please feel free to send me a scathing email if you see it appearing in Money Morning ever again.
Other suggestions included popular government catchphrases and adjectives, such as “we need to learn lessons” and “robust”. One reader also made the good point that no one should ever refer to “government money” – ‘It’s all your money and my money.’” And finally, there was the request to ban the following: “‘Cliff’ (unless talking about a landscape feature); ‘Black hole’ (unless talking about the specific physical phenomenon); and ‘Cusp’ (unless talking about the feature of a graph correctly called a cusp)”.
Surprisingly, no requests to ban ridiculously macho trader talk such as “bloodbath”, “blood on the walls”, and “massacre” when talking about the FTSE shedding a few points or Greek bond yields bouncing. But maybe I should stop giving you ideas and making my job harder…
● My colleague David Stevenson will be back with Money Morning on Monday. Given that we’re often bearish, David wants to open the week on a positive note with a few share tips, so he’s been trawling the Bloomberg terminal for some interesting-looking US stocks. Don’t miss it.
● Useful links. Want to find out more about any of the MoneyWeek newsletters and contributors I’ve quoted today? Just click on these links:
• Merryn Somerset Webb on The MoneyWeek Blog
• Paul Hill’s newsletter, Precision Guided Investments • Tom Bulford’s newsletter Red Hot Penny Shares • Dr Mike Tubbs’ Research Investments newsletter – enquiries for this exclusive service are by phone only, call 020 7633 3600