David Stevenson 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 began with stock markets plunging. Fears of a double-dip recession reared their heads again as US payrolls data for last month proved very disappointing (The recovery is fizzling out – and there’s worse to come). By the end of the week, a jump in Chinese exports had brought some cheer back to the markets, before a fall in US retail sales dented hopes again.
However, BP remained the big story. It’s a miserable situation for all involved, not least the families of the 11 people who died in the accident, the environment, and anyone whose livelihood has been destroyed by the spill.
But that’s all rather being forgotten amid the blame-throwing going on. The British media is getting increasingly fed up with the flak being tossed our way by the US government and Barack Obama. It wasn’t long before unfavourable comparisons with America’s attitude towards the 1984 Bhopal disaster, where a leak at a US-owned factory caused the deaths of at least 15,000 people in India, were being bandied about. And as our own Tim Price wrote in his Price Report newsletter, “God help Obama if Exxon Mobil is involved in another high profile public disaster – anywhere.”
The political mud-slinging will no doubt continue. But what about the investment case? Well, almost all of our writers have had a crack at giving their views on BP since the spill – my colleague David Stevenson pretty much summed them up last week.
I’ll throw in my tuppence here. As the share price tanked this week, I asked our editor-in-chief Merryn Somerset Webb whether she reckoned it was time to buy. I felt BP had probably hit bottom – she was less sure. She blogged on both our views here.
But her main point, which I agree with, is that even if BP is a buy down here, it’s certainly not the stock it once was. The funds that hold BP do so for the dividend yield, and the promise of safe exposure to global demand for energy. Now it’s very much a short-term punt on whether or not the share will rebound once all the bad news on the spill has come out – I reckon you can probably forget about a dividend being paid, at least for a couple of quarters.
● Shareholders in BP obviously aren’t too happy about this mess. But Stephen Bland tells readers of his newsletter, The Dividend Letter, that there’s really only one big reason to be angry at BP, and it’s nothing to do with the oil spill.
“What really irks me about BP is the stupendous sum they have wasted over the years in share buybacks, which they claim to be a form of return to shareholders. I don’t know about you, but I ain’t seen none of that money. But we would have if they had increased the dividends instead.
“The figures are absolutely staggering – and scandalous. For the years from 2000 to 2008 they spent in total over $51 billion, yes billion, on buying their own shares. A cash spill that would have paid for a hell of a lot of oil spills. In 2009 they spent nothing, though I suspect that owes more to the credit crunch than a change of heart about this foul practice that so shafts the private shareholder in favour of their institutional mates.”
● Getting back to those weak US retail sales – the truth, says Cris Sholto Heaton in his Asia Investor newsletter, is that the best days of the US consumer are in the past. “The US consumer defined the last few decades. And the Asian consumer will define the next. That’s why you’re already reading about which handbag is most popular in Beijing. And how bottled tea has become a craze among young Vietnamese.”
But as Cris points out, lots of people already know this. That’s why “I want to get away from the familiar stories you know about Asia’s middle class: The car sales. The luxury shopping malls. The new television set in every home.”
I’ve worked with Cris for a while. If there’s one thing that makes him a good analyst, it’s his nigh-on obsessive attention to detail (you’ll already know all about this if you read his free email, MoneyWeek Asia). He’s studied what really happens when a society starts being driven by consumerism, rather than simply jumping on the tedious and simplistic “look how many BMWs rich Chinese people are buying” bandwagon.
And that’s led him to look into the market for something rather ordinary – snacks. “If you’re buying a quick snack on-the-go in Britain, you might grab a chocolate bar from a supermarket or convenience store. But in most parts of emerging Asia, you’re more likely to buy a steamed bun or fried tofu from a street vendor.”
But this is changing. As consumers get wealthier and modern retail chains more widespread, they are consuming more shop-bought “processed, packaged snacks”. And this is an important trend for investors to buy into. Why?
“Because when you begin selling more packaged, prepared food, you also sell more branding. While one street stall may be better than its neighbours, they are all selling more-or-less the same product at the same price. Their pricing power is very limited.
“But a company that can build a brand around its product is the only producer of that product. And so it can earn margins far in excess of an unbranded commodity snack. And that means that they profit much more from growing wealth and millions of people’s willingness to spend a few pence more on the branded product.”
It makes sense to me. And Cris reckons he’s found the perfect stock to play the sector.
● One of the dangers of being a small investor is boiler rooms. These scam merchants are particularly fond of cold-calling penny share investors. That’s because they assume they’ll be easy targets – adventurous, and with a bit of spare cash. But one made the mistake of calling our penny share expert Tom Bulford the other day. Says Tom:
“I had a call from a girl called Melanie claiming to be from a wine merchant in Mayfair. It went something like this:
“Melanie: “Hello Mr Bulford, I am Melanie and I am offering you the chance to make tax-free gains by investing in vintage wines…”
“Me: “I am not interested.”
“Melanie: “But you have not even listened to what I have to say.”
“Me: “Go away.”
“Melanie: “Is that because you have never thought of investing in wine?”
“Me: Words to the effect of “get lost“.
“Melanie: “But…”
“Sound of phone slamming.”
Now, as far as I’m concerned, that’s pretty much a textbook way to deal with these people – just hang up right away. And that’s what the Financial Services Authority (FSA) told Tom when he called them to report the scam.
They also suggested the Telephone Preference Service. It’s a free service that allows you to opt out of receiving unsolicited sales or marketing calls – just register your phone number. You can find all the details on www.tpsonline.org.uk.
“But,” says Tom, “the main thing to remember is this. Never ever agree to part with your money on the basis of a telephone conversation. Just put the phone down straight away. Or, if you find you are being drawn into a conversation, be as rude as you like and then slam down the receiver. And report these sharks to the FSA.”
● And I suppose I can’t really finish off this weekend round-up without at least nodding to the World Cup.
One reader replied to Merryn’s blog on BP: “No idea whether BP is a buy at these levels but if the England football players’ wealth managers have invested their millions in high dividend UK oil majors, then Rooney and co have every incentive to counter Obama’s nasty populism and humiliate the USA on Saturday.”
It’s one way to motivate the team I suppose. If it works, we can only hope that the rest of their money has been shovelled into euros – the pain of that loss might give them a fighting chance if they get far enough to play Spain…