This is where we highlight some of the best bits from our free emails, newsletters, blog and MoneyWeek magazine that we’ve published in the past week.
● The markets have had a good week this week. Greece is becoming a distant memory, the Eurocrats are threatening to exterminate speculators, and investors even took a surge in Chinese inflation in their stride.
Sterling is still being battered of course. And as my colleague David Stevenson pointed out this week, our ever-expanding trade deficit shows it’s still not doing us any good.
Despite the weak pound, “the country’s exporters – the ones who are meant to save us from perpetual stagnation – aren’t benefiting. Although their goods are now much cheaper for global customers to buy, they’re selling fewer of them. January export goods volumes dropped by 8%. Excluding some data distortions three years ago, that was the worst monthly drop since 2002.”
● That puts the whole debate about ‘rebalancing’ the British economy into perspective. We’ve relied too much on financial services, and unfortunately, we’ve thrown away what little money we had left on bailing out the banks. The good news is, the world’s more entrepreneurial scientists aren’t waiting for governments to get behind them.
“Craig Venter said he was going to change medicine – everyone thought he was a maniac,” points out Dr Mike Tubbs in his Research Investments newsletter.
“But seven years ago the former Vietnam veteran beat an army of government scientists to the biggest medical advance in decades – decoding the human genome.
“The state sponsored Human Genome Project had been busy sequencing the three billion biochemical blocks in our DNA for years… and running up a $3bn bill in the process.
“But Dr Venter beat them to it. And in an instant, a colossal new medical sector came of age. By deconstructing the human body cell by cell, scientists believe they will uncover the genetic roots of the most complex diseases – from cancer to Alzheimer’s.
“That heralds a new age of personalised medicine – allowing doctors to gauge our risk for conditions such as cancer and diabetes and taking pre-emptive action.
“And so today a vast industry has sprung up – using the techniques developed by the likes of Craig Venter in a race to decode these diseases and use this knowledge to find new treatments. The market for personalised medicine will reach $42bn by 2015, according to PriceWaterhouseCoopers.”
Mike’s Research Investments newsletter is based around buying companies that put serious investment into research and development in areas like these. And he’s not the only one who believes that scientific developments provide a ripe hunting ground for investors.
● “Last month I met a man who has been in the business of making money from science for the last 25 years. Phil Atkin has watched successive governments downplay the efforts of his kind while applauding the relentless rise of the financial sector,” says Tom Bulford in his Penny Sleuth free email.
“Finally we have woken up to the realisation that the latter does not produce any real wealth at all. And this means Atkin’s time may finally have come – especially after a special announcement made last week…”
Atkins heads up Scientific Digital Imaging (LSE: SDI). As with most science companies, explaining what it does is complicated, so you can read Tom’s piece if you want to know the details. But basically it makes various measurement and imaging devices for laboratories.
“SDI is certainly one to keep an eye on,” says Tom. “Chairman Harry Tee was the driving force behind Roxboro, which made plenty of money for investors in the 1990s. He is also chairman of another fast growing company, Dialight (DIA).
“Better than our politicians he understands what is required to build a science-based business. This one is definitely on the Red Hot Penny Shares radar screen.”
● Last week’s debate on ethical investing attracted quite a few thoughtful responses. Most agreed with our view that we should be presenting readers with money-making opportunities and leaving the ethical decisions to them.
But I just had to share this reader’s take on the ethics of investing in tobacco firms… “Until a couple of years ago, I too avoided owning any tobacco company shares, figuring that it would be unethical to profit from a company that depends for its continued growth on getting more people addicted to a substance known to directly cause several serious health issues.
“However, I changed my mind when we returned from a family holiday in France. Sitting at a table on the ferry (in an open area) two people sat down at the same table with us and, without asking if it would be ok and ignoring the fact that we had our young son sitting with us, proceeded to light up and blow smoke around. The problem was that the wind blew it straight to us on the other side of the table.
“This inconsiderate behaviour so incensed me that I vowed as soon as we got home that I would buy some BAT shares, so that I felt I could at least get my own back in some way by part funding my retirement thanks to the behaviour of people that ignore all the warnings and inflict their brand of poison on those around them as well.
“If you can’t beat them, profit from them!”
● Riccardo Marzi, the ex-City trader behind the Events Trader newsletter, knows how to draw a reader’s attention. Here’s the headline from his latest issue: “How you could profit from a deadly virus outbreak in Chile“.
I winced as I thought of the complaints that would flood in. Then I read the piece. The “deadly virus” in question is killing off salmon, not people. Phew. Still, it’s a pretty miserable experience for Chile’s salmon farmers. The country is the world’s second-largest producer of the fish. And with its annual production down about 70% year-on-year, salmon prices are going up.
And you can guess what that means for the rest of the world’s salmon farmers. A profit bonanza. “Norway is the world’s biggest exporter of salmon. It will take at least 18 months for the Chilean salmon industry to raise fish to maturity – if they manage to get the disease under control. In that time Norwegian salmon groups will enjoy a major boost to their earnings,” says Riccardo.
● We’re sceptical on China’s growth ‘miracle’. But that’s no reason to write off the whole of Asia. Cris Sholto Heaton, the man behind the MoneyWeek Asia free email (if you don’t already get it, I advise you to sign up for it right now) is currently testing out a newsletter in which he tips individual stocks. The second edition came out earlier this week. If you’d like to be kept informed of when it goes live, just give us your email here.
In Cris’s latest piece, he looks at one vital piece of infrastructure that many parts of Asia are entirely lacking right now, and will need a lot of in the future. It’s not roads, or sewage systems, or railways – it’s software. I’ll let Cris explain.
“In the West, banks have used computers for processing data and transactions since the sixties. But these were huge, complex and costly systems dedicated to specific functions. Picture a huge humming room of densely packed computers running a bank’s data – the kind you would see in Cold War movies. If you had two different systems working on a similar task, they couldn’t talk to each other and share data.
“But over that last decade or so, things have become much more sophisticated. State-of-the-art banking systems are tightly integrated, with all the key software running in the same framework and sharing information. And as a result of this, they’ve become much more powerful and useful.
“Computers no longer simply store data, but can monitor accounts for fraud, improve risk management by credit-scoring potential borrowers, and on top of that, they run schemes such as airmiles and loyalty cards to gather information about customers and increase usage.
“Systems like this are standard in Europe and North America. But in the emerging world, it’s obviously much more variable. Some countries and banks are pretty advanced. Others make what a British bank was using twenty years ago seem sophisticated.
“So most emerging market banks are going to have to invest billions in better IT over the next couple of decades. Not only do many have a long way to go to bring their existing systems up to modern standards, but they’re also going to need to expand to cope with hundreds of millions of new potential customers.
And this means that emerging markets should offer very good growth prospects for the firms that develop and maintain these highly specialised systems.”
● Last week I wrote a piece about what people could learn from the plight of the ‘king and queen of buy-to-let’. Fergus and Judith Wilson are two ex-maths teachers who built a portfolio of hundreds of houses in Kent during the boom times. They ran into some difficulties in the crunch, but when the Bank of England slashed interest rates, it had the knock-on effect of cutting their costs.
The piece drew a lot of comment – as most of our property pieces do, which is as strong an indicator as any that we’re still in bubble territory. But I also got an email from Fergus himself. He described the piece as a “very fair article”, so I gave him a call to get his take on the market.
The way Fergus sees it, the real problem is with flats, rather than the houses that he predominately lets out. “These blocks of flats in northern cities have been a complete disaster. I have 30 flats which I regret having. They’ve fallen in value, whereas the houses have seen a reasonable increase in the last two years.”
Now, on the one hand, I’d agree that the epicentre of the housing market collapse was always going to be in the market for dodgy flats. And with the bank rate as low as it is, at 0.5%, Fergus is in a sweet spot – he reckons the typical £180,000 house, with a £140,000 mortgage, is costing him about £300 a month on the mortgage. If it’s let for £700 a month, with £100 going to the letting agent, then he clears £300.
But with the market stagnant, it can’t be easy to offload all those properties to first-time buyers – they can’t afford it. And what happens if interest rates rise?
Fergus, who’s nearly 62, reckons we’ll be lucky to see a 2.5% bank rate again in his lifetime. “The government won’t be that stupid. Every time rates go up, more people will become homeless.”
I can’t say I’m convinced. The Bank of England needs to take far more into account when it sets the bank rate than just its impact on the property market. The only way that interest rates can remain that low for that long, is if Britain goes the way of Japan. And in Japan, house prices are still 60% lower than they were at the start of the bust.
I certainly don’t wish the Wilsons any ill. But our chat just confirmed in my mind that the current rebound is a temporary blip before the market starts heading down again.
● And it’s not just the property market that’s set for harder times ahead. Tim Price of PFP Wealth Management tells readers of The Price Report to watch out. “Last week I was invited to present at the Private Wealth Management Conference in Smithfield. There I listened to a lot of people I’ve known and respected for most of my career. And there were two very clear concerns coming through.
“First, how do I avoid getting burned by stocks again? After the gyrations in the market over the last two years, there was a lot of talk of not placing too much faith in equities – because it’s unwarranted. The question everyone wanted to ask was – how long could this bear market in stocks go on for?
“The second real concern among private wealth managers is inflation. I’m not the only one worried about governments printing their way out of this crisis, as it turns out. If there is a dangerous bout of inflation on the way, how do we protect our wealth?”
I’m running out of space to go into the details here, but suffice to say, Tim reckons that there’s another down-leg to come in the bear market. As for inflation, he doesn’t see it taking off just yet, but there are some assets you should be holding for when it does.
Useful links
Want to find out more about any of the newsletters and contributors I’ve quoted today? Just click on these links:
• Dr Mike Tubbs’ Research Investments newsletter – enquiries for this exclusive service are by phone only, call 020 7633 3600