MoneyWeek roundup: Investment lessons from Methuselah

This is where we highlight some of the best bits from all the free emails, newsletters, blogs and MoneyWeek magazine that we’ve published in the last week. ● Goldman Sachs must have been thanking the Gods for the Greek bond crisis this week (in fact, I was quite surprised that no one blamed Goldman for it). Tales of calamity in the eurozone were the only thing keeping the uber-investment bank from hogging every spare column inch in the financial papers. MoneyWeek editor-in-chief Merryn Somerset Webb looked on the bright side of the Goldman scandal on our blog – at least we’ll never trust the banks again. ● In any case, Greece spent the week pretending it wouldn’t have to ask for help, then finally gave in to the inevitable yesterday and asked the EU and IMF for the money they’ve been promised. When your ten-year borrowing costs are heading for double-digits, I guess the IMF starts to look like the easy option. But this won’t be the end, as I wrote in Money Morning last week. One bail-out is never enough. And now that they’ve set the precedent with Greece, moral hazard is well and truly entrenched in the eurozone. Hedge fund billionaire Louis Bacon of Moore Capital put it nicely when he told clients: “Investors had always regarded the euro as a de jure German Deutsche mark. It is dawning on the world that it is becoming, de facto, a Greek drachma.” ● Needless to say, that means the euro could fall a lot further after the initial excitement over the bail-out goes away. In fact, Simon Caufield, who’s working on a newsletter for us right now, reckons “the euro is doomed. Why? Because Europe’s peripheral countries have damned their economies by allowing them to become wildly uncompetitive. Higher unit labour costs make the companies of the PIIGS countries less competitive than their rivals in the north.” There’s no way those labour costs can be cut the hard way – populations just won’t allow it. And, says Simon, “even if the southern Europeans did manage to quell public unrest and drive through a savage round of wage cuts and structural reforms, they would still be stuck in a vicious cycle of depressed demand and laboured economic growth. That would leave them with a stagnant economy.” In short, “the euro cannot survive in its current form”, he reckons. ● I’ll let you know more about Simon’s True Value newsletter closer to the launch date. But his logic is hard to argue with. He has a few ideas about ways to play the euro’s collapse which I’m sure we’ll be hearing more about soon. Meanwhile, if you want to play currencies, the easiest way to do it is through spread betting, as I’ve said before. It’s risky, and you shouldn’t bet money you can’t afford to lose, but if you’re keen to give it a try (and I have to admit, it’s quite a buzz), you can find the best provider for you at our spread betting comparison service. And if you’re looking for some less high-octane ways to play general currency trends in the longer term, you should read our MoneyWeek magazine cover story from a few weeks ago. If you’re not a subscriber, you can get your first three issues free here. ● Oh, and before I leave the eurozone alone for now, let me just clear something up. In the Money Morning mentioned above, I mentioned Portugal as potentially next on the bond vigilantes’ list, and said it’s “a country I’m rather fond of, so I take no joy in writing this”. One blogger responded: “John – can we take this to mean you do have an axe to grind with poor Greece?” So for the record, I have nothing against Greece – I just happen to like Portugal. ● So what else happened this week? Gordon Brown, David Cameron and Nick Clegg battled it out on TV again. I missed it this week, but judging by the post-debate coverage, it sounds like it was a near-carbon copy of the last one. We’ll be looking at whether the election really matters to the economy – and delivering our wish list of economic and political changes – in the next issue of MoneyWeek. ● But one thing’s for sure, the politicians show no sign of tackling what really matters – our huge debt burden. “Politicians of all hues are in ‘fiscal denial’”, as Bengt Saelensminde put it in his free newsletter, The Right Side. “When Labour took office in 1997, the public debt was £350bn. Today it has doubled to £776bn. In four years’ time, it’ll be double again at £1,406bn. And these are the official figures! “So, in all the years up to 1997, the government’s accumulated debt amounted to £350bn. Now in just 17 years, we’ll have quadrupled it. That’s extraordinary. This sort of debt acceleration is ‘normally’ the result of a major war, or other catastrophe… During peace-time, this is totally unjustified and unsustainable.” ● So what should you buy in such uncertain times? Stephen Bland, writer of The Dividend Letter newsletter, knows. Stephen is a man who sticks to his guns. This week he addressed “a question that quite a few subscribers have put to me in recent weeks – why don’t I extend the scope of the Dividend Letter to other income sources? The suggestions range from small caps to foreign shares and even non-equity investments such as buy-to-let property, bank deposits, or gilts and corporate bonds. I always respond the same – ‘no, no, and respectfully… no.’” Here’s what Stephen buys: big UK-listed companies that pay big dividends. He calls it the High-Yield Portfolio strategy. It’s a simple practical approach – no derivatives, no obscure brokers to contact, no nonsense. And I have to say, that’s what I like about it. If you’ve ever been tempted to invest but given up at the sheer complexity of it all, Stephen’s approach is for you. And best of all, it’ll suit you throughout your life, reckons Stephen. “I make Methuselah look like a teenager, and I devote the overwhelming majority of my investments to the High-Yield Portfolio approach.” Read more on the Dividend Letter and Stephen’s strategy here. ● Dr Mike Tubbs focuses on dividends too. But in Mike’s case, they’re ‘invisible dividends’. It might sound an odd concept, but I urge you to read about it . Like Stephen, Mike has a very clear investment strategy, and it’s produced some impressive results so far. And I have a confession to make – if I’m looking for a heads-up on an exciting sector or cover story idea for MoneyWeek magazine, Mike’s newsletter is rapidly becoming one of the first places I look. One of his top picks, design software group AVEVA, has more than doubled since he tipped it. This week it came out with a solid trading update, showing that full-year results would come in ‘marginally ahead of expectations’. “AVEVA has often exceeded expectations in the past so ‘marginally ahead’ may prove to be an understatement,” as Mike put it. AVEVA is currently a HOLD, judging by Mike’s portfolio, as it’s above his buy limit just now. But there are 12 other ‘invisible dividend’ stocks he currently rates as a BUY. I sent you an email about Mike’s newsletter last Saturday. ● That’s all for this week – my colleague David Stevenson will be back on Monday, where he’ll be looking at the Canadian economy, which is having rather a more rapid recovery than we are.

Useful links

Want to find out more about any of the newsletters and contributors I’ve quoted today? Just click on these links: • Bengt Saelensminde’s free newsletter, The Right Side • Stephen Bland’s newsletter, Read more on the Dividend Letter and Stephen’s strategy here


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