John Stepek highlights some of the best bits from our free emails, newsletters, blog and MoneyWeek magazine that we’ve published in the past week.
● The week kicked off with the big debate between the would-be Chancellors. It was all a bit of a let-down, as I noted in Tuesday’s Money Morning.
Now the big row is over whether the Tories’ plans to reduce the size of next year’s National Insurance hike are affordable or not. Bear in mind here – they’re not cancelling this tax rise. They’re merely suggesting that they might make the proposed rise smaller. That’s how bad a state we’re in.
Peter Mandelson accused the Tories of a “cynical deception”. Shadow Chancellor George Osborne, he says, is “like a kid in a sweetshop, who thinks he can grab sweets from every jar without paying for them.”
I suspect that when you read this quote, you may have choked on your cornflakes at Lord Mandelson’s cheek. Sadly for George Osborne, there are no sweeties left in the sweetshop, because Gordon Brown has – to put it gently – gubbed the lot.
As Simon Wolfson at retail giant Next put it rather pithily: “Of course we have not been deceived. The principle is a very simple one. It is a question of, do we pay for government profligacy through increased taxes or do we urge them to save money in a way that businesses have?”
● Anyway, that’s enough politics – it’s a holiday weekend after all.
The real news of the week for many investors – and certainly the biggest let-down – probably came from oil minnow Desire Petroleum. The company’s first well in the Falklands turned out to be a dud. It “failed to find anything more than a smear of oil,” as Tom Bulford put it in his Penny Sleuth free email.
Desire’s share price plunged on the news, as did the shares of others in the region. But as Tom points out, “don’t forget that this is only the first effort in programme that will see five wells drilled. It would be wrong to conclude that just because the first well has failed, so will the others.”
Tom’s been invested in the Falklands region for some time. But he’s also looking at what he’s described as “an even more exciting oil play for 2010.” As Tom says, “you won’t believe it when you see where it is”.
● Why buy gold? After all, it’s virtually useless, said Bengt Saelensminde in The Right Side free email this week. “As Warren Buffett says about gold, ‘It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.’”
It’s never nice to be on the opposite side of a trade from Mr Buffett. But then, Mr Buffett probably doesn’t need what gold offers. “Put bluntly,” says Bengt, “gold insures against a collapse in paper-based currency.” If you’re Warren Buffett, then maybe you don’t need to worry about this. If you’re the rest of us, it probably matters more. Particularly if most of your assets are in sterling.
“I suspect,” says Bengt, “that UK politicians, whatever the colour, will have problems stemming the public debt situation we’re now in. I suspect they’ll continue down the path of endangering the currency, rather than making the tough decisions needed to rescue us from debt. So long as governments and central banks edge closer to default, then the premium on protecting against such an event keeps rising. That means gold goes up.”
● Tim Price is another long-term fan of gold. In his Price Report newsletter this week, he described his recent visit to a private investment forum in Switzerland. These people advise some of the world’s wealthiest families. And the conclusions of the attendants chimed with Bengt’s.
They aren’t keen on many currencies, but they particularly dislike sterling. “Why? In part because the welfare state is now so entrenched,” says Tim. The welfare cuts now required “to move the UK national finances back towards balance” are so savage that “we run the risk of a flight from Gilts, a flight from Sterling, or possibly both.”
Meanwhile, it’s fair to say that the smart money is still backing gold. “We went round the room in turn, with an admission of how much of our individual investible net worth was held in the form of gold. For me, the figure is roughly 10% – although I firmly intend to add more. That was the lowest percentage in the room, by far… yet unlikely as it sounds, this was not a forum for gold bugs.”
● None of this is to say that gold is going to go to the moon tomorrow. Dominic Frisby, arguably MoneyWeek’s biggest gold fan, this week concluded in Money Morning that his spring target of $1,400 an ounce may have been too optimistic.
But at some point before this financial crisis is truly over, we suspect that chaos and fear will return to the markets with a vengeance. At that point, you’ll want to be holding some gold.
● We’ll be back on Tuesday. Enjoy the rest of your weekend.