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.
● BP dominated the headlines again this week. To cut a long story short: the dividend was scrapped and the company agreed to put $20bn into a fund to pay compensation claims.
But the leak wasn’t stopped; and the $20bn doesn’t cover legal claims nor represent any sort of cap on BP’s liability. So estimates of the eventual cost still range all over the place.
Our view – if you’re still holding BP, you might as well hang on now. The market’s gut instinct seems to be that these concessions draw a line under things, and the stock’s already bounced significantly. But if you don’t already hold it, be aware that there’s a great deal of political and event risk here.
Fiona Maharg-Bravo on Breakingviews reckons bankruptcy is pretty much out of the question. She rustles up a worst-case scenario with a total bill of nearly $56bn. Even although there might be criminal fines on top of this, that’ll all take time to come out. So the company should be able to keep up in terms of cash flow.
But this business will hang over it for years. As Tom Bulford wrote this week, “It’s a mistake to simply dismiss this catastrophe as ‘a little local difficulty’ that will soon be forgotten. For certain, the American law courts will not let BP forget it. And the company’s ultimate liability will not be known for a very long time.
“Sure, the fall of BP’s share price reflects a loss of value that exceeds most estimates of its final bill. But there is still a huge element of uncertainty over BP’s future which makes an investment at this point an all-out gamble.”
Which does make you think – if you’re going to take a punt on an oil company, then why not just buy some promising little explorer that has the potential to turn into a ten-bagger? Tom tipped several in our recent story on frontier oil exploration – I strongly advise you to read it if you haven’t already.
● Of course, there are other ways to play the BP disaster. Tom told readers of his newsletter, The Bulford Files, about a company “which could be a huge beneficiary of the coming review of off-shore drilling practices.” I can’t tell you much about it – that wouldn’t be fair to Tom’s subscribers – but I can tell you that it produces a product which can make oil wells far safer.
And this isn’t some spivvy jam-tomorrow stock. It pays a dividend and its product is already in use around the world. Yet the share price is still barely higher than it was four years ago. And there’s one key development which has made it a buy now, says Tom. I can’t tell you any more, but if you’re intrigued, you can find out more about The Bulford Files here.
● The other big story this week was ‘the cuts’. Casualties include a new visitors’ centre at Stonehenge and a business park in Sheffield.
We look at why the cuts are necessary, and the impact they might have on the UK economy in this week’s issue of MoneyWeek magazine If you’re not already a subscriber, subscribe to MoneyWeek magazine.
Meanwhile, another big decision from the government was its plan to scrap the Financial Services Authority, with many of the watchdog’s powers handed over to the Bank of England. My colleague David Stevenson homed in one particular aspect of the FSA / Bank of England move – the potential effect on the housing market.
He blogged: “The Bank is now wearing two hats. In its new role, it’s been told to prevent another housing bubble. But at the same time, the Bank’s Monetary Policy Committee is in charge of setting bank base rates. These broadly determine the cost of home loan finance.
“Britain’s house prices are currently climbing at 10% a year, according to the latest Nationwide survey. The value of the average UK home is within 9% of 2007’s ‘bubble’ peak. Indeed, in parts of London and the South East – which set the trend for the rest of the country – prices have climbed above their old highs.
“That sure looks like another bubble forming. So to stop it from inflating further, when can we expect to see base rates being raised again? After all, the cost of living is rising at 3.4% a year, compared with the 2% target, meaning that there shouldn’t be a problem with rate hikes on this score.
“Over to you, Mervyn.”
● And in this week’s edition of MoneyWeek Saver, our free personal finance email, Ruth Jackson looked at how you can make some rather less painful cuts of your own, using the power of the internet. Cheap travel by train or plane, lower shopping bills and quicker, more convenient budgeting can all be yours using just four simple websites.
● Amid all this talk of austerity, ongoing fears about the state of Europe (Spain’s the big worry now), and the unconvincing US recovery, it’s no surprise that stock markets are jittery. But Paul Hill is keeping his cool and looking way past all that.
He explains to readers of his Precision Guided Investments newsletter: “My main aim with PGI is simple. I want to unearth growth opportunities that offer sustainable returns for years at a very attractive price. And that’s why I keep coming back to pharmaceuticals – an industry that has all but been ignored during the boom years.
“You know the story already. With rapidly ageing populations in the West boosted by rapid growth in emerging markets, the queues for pills, medical devices and potions are only going to get longer over the next decade.
“And it’s not just a matter of keeping more old people in good health – it’s the changing lifestyle of those entering their twilight years. Growing old used to mean nursing homes and days in the park. But now you have a new breed of pensioner wanting to travel and live a new lifestyle – staving off decline with a colourful cocktail of prescription drugs.”
It’s an intriguing vision of pill-popping pensioners spending their twilight years raving it up around the world – I’m sure JG Ballard would have been impressed.
But it’s hard to argue with Paul. If we can be sure of innovation continuing in any sector, it’s health. That’s because, as we all live longer, the diseases that kill us are changing. And cancer is one of the big ones. “More than one in three people will develop some form of cancer during their lifetime.”
Now there are plenty of risky little biotechs operating in the sector. But Paul’s not looking at those. He’s uncovered a pharma stock whose “small team… targets and patents those treatments that Big Pharma misses.” The company has plenty of products in late-stage development, and is already making money. And Paul reckons anyone who buys now could make a return of more than 60% if it hits his price target. You can find out more about the PGI newsletter service by calling 020 7633 3634.
● On the topic of healthcare innovation, you may have seen the news this week that robots are going to be running errands around a new hospital in Scotland. It all sounds pretty high-tech, but these sorts of ‘delivery-bots’ have been used in hospitals in the US and particularly Japan for a while. New MoneyWeek writer James McKeigue wrote about investing in the robotics sector a couple of weeks ago. It’s a fascinating subject, and it might just be one of the biggest investment themes of the future.
● And just before I wrap up – the gold price (in dollars) hit another record high this week. While BP hogged the limelight, and Spanish banks hovered grimly in the background, the yellow metal quietly ticked higher with a minimum of fuss.
Few topics raise more controversy in our comments section than gold (house prices is about the only topic that rivals it). As Simon Caufield, who writes the True Value newsletter, says: “There is a lot of baggage that comes with gold as an investment. In the past, it has carried a reputation for being the preserve of cranks. Nowadays we have the opposite problem. Gold has become a mainstream investment.” As well as tales of gold vending machines, daytime TV is plastered with adverts “offering cash for your gold.”
Some people seem to be in love with gold. They’ll never sell it. And if the price ever falls, for whatever apparent reason, they point to manipulation by mysterious forces.
Others seem to find gold almost offensive. They see it as an absurd relic adhered to by superstitious fools who simply don’t understand how far our economic system has come under the auspices of Alan Greenspan and Ben Bernanke.
I don’t need to tell you what I think of that stance. But I’m not in the ‘buy gold and hold it forever camp’ either. As with any other asset, there’ll come a day when it’s time to sell your gold. But that time hasn’t come yet. And Simon can tell you why – he reckons there’s one key indicator that tells you exactly why times are still good for gold. But suffice to say, I reckon we’re still a long way from gold’s peak price.