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.
● Markets had a tough week. There was a lot of ropey economic data to blame the fall on, not to mention the swathe of ‘death crosses‘ on the technical side. But it all adds up to a realisation by investors that the economic recovery has been based on little more than government stimulus and restocking. Now that both of those effects are fading – well, so’s the economy.
● Paul Hill’s not surprised. Company results are starting to show that things are far less rosy than investors have been prepared to believe. “This week brought two shocking announcements that really took the City by surprise. One was from consumer thrift group McBride. The other from a company repairing council-houses – Connaught.
“By rights, these kind of businesses should be performing well in a weakening economy. McBride sells cheap goods to cash-strapped consumers. Connaught is tied to ongoing maintenance spending on state properties.”
But that’s not how it worked out. McBride, which should be benefiting from people trading down to own-brand goods, issued a profit warning. “The problem is that blue-chip consumer brands are struggling so badly to draw in customers that they are dropping their prices to rock-bottom levels. That has triggered a devastating price war… And that’s hit McBride’s sales at exactly the time when fund managers were expecting blockbuster results.”
And Connaught became “the first big state contractor to warn that George Osborne’s emergency Budget would materially hit earnings this year and next. The company’s woes stem from activities in social housing where 31 contracts have been deferred. In a nutshell cash-strapped local councils have been delaying spending, putting Connaught’s work such as re-wiring and other repairs, on hold.”
Unfortunately, “both the consumer and the government are simultaneously pulling up the drawbridge… The upshot is that my prediction of a second half plunge in the FTSE 100 to around its fair value of 4,500 still holds.” The good news is that Paul has been preparing the Precision Guided Investments newsletter portfolio for such an occasion. Find out more about PGI here.
● It certainly seems now that the recovery rally peaked in April. Markets are going to be volatile for the foreseeable future. There’s no getting away from it. And that’s a frustrating environment for investors. But it doesn’t have to cause you sleepless nights. Stephen Bland has the perfect answer for anyone who’d rather invest then forget about their portfolio, while enjoying a nice income stream.
In his Dividend Letter newsletter, Stephen prides himself on ‘strategic ignorance’ – ignoring what the market’s doing and just focusing on a few key aspects of a share. As Stephen points out – and research by behavioural economists bears him out – panicking in reaction to news of daily falls and surges will only lead you to make bad investment decisions. So better to ignore it altogether. Just pick stocks that you can buy and hold forever.
Stephen’s approach is among the simplest yet most effective I’ve seen. I suggest you find out more about the Dividend Letter here.
● Of course, while buying big high-yielding blue-chips is sensible, it’s not going to deliver you the returns or the adrenalin rush that you can get from buying small-caps.
Few sectors have delivered more thrills to investors recently than the small-cap oil sector. And Tom Bulford thinks he knows where the next ‘Falklands Oil’-type story could come from. In his Red Hot Penny Shares newsletter, he notes that “the oil discoveries made in the Santos Basin off the coast of Brazil have completely redrawn the oil maps.”
Big deal, you’re thinking. Everyone knows about Brazil. But “it seems that Brazil may have a geological twin. Geologists are certain that a few million years ago South America formed one huge continent with Africa, and that the area of land now known as Brazil was once connected to the area of land now known as Namibia.”
In other words, there’s a great big basin full of oil off the coast of West Africa too. It’s a pretty exciting story – Tom wrote about other promising areas in a recent edition of MoneyWeek magazine. And he’s picked his most promising play on the region as a tip in the latest edition of Red Hot Penny Shares.
● Oil has been remarkably resilient in the face of the global recession. Several soft commodities haven’t held up quite as well. Indeed, there have been recent warnings of a potential supply glut, with the US expected to have another record corn harvest.
Trouble is, you just can’t plan for bad US weather. This week wholesale corn prices surged, as it turned out that farmers had planted a lot less corn than expected due to unusually heavy rain in May. That’s a bit of a problem, given that the US is the world’s top corn producer and grows more than half of global corn exports. Meanwhile, stock piles of corn shrunk far more rapidly than last year.
“Now we don’t have as much corn on hand. We don’t have as many acres. We still have strong demand. It’s significantly bullish for the market if these numbers can be believed,” Darin Newsom of commodity newswire Telvent DTN told the FT.
And as new MoneyWeek writer James McKeigue points out, demand is only likely to keep rising. And that’s good news for the companies that are helping farmers to keep up with that demand. If you’re not already a subscriber, subscribe to MoneyWeek magazine.
● Running out of time as always – but just before I go, I want to remind you that Money Morning isn’t the only free email we send out. If you don’t get the others, it’s worth taking a moment of your time to sign up for them now. After all, if you don’t like them – although I’m sure you will – you can always click ‘unsubscribe’.
There’s MoneyWeek Saver. It’s a weekly personal finance email dedicated to finding ways for you to save money and manage your finances more effectively. Then there’s MoneyWeek Asia, which – as the title suggests – is Cris Sholto Heaton’s weekly look at what’s going on in that part of the world. And there’s Penny Sleuth, which is Tom Bulford’s twice-weekly look at what’s new in the world of penny shares, and Bengt Saelensminde’s free investment email, The Right Side.
Even if you do nothing else this weekend but sign up for these four free emails, you’ll have taken a big step towards securing and improving your financial situation.