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.
● I said that after last week’s carnage, there would probably be a rebound this week. And while investors clearly remained jittery about a double-dip, they obliged. On Wednesday and Thursday in particular they were getting excited by obscure data releases on US retail sales and also hopeful that the European bank stress tests would be a successful whitewash.
It really is incredible to observe the rapid changes in mood – at least, as portrayed by the papers and newswires. One day, there’s some bad news, and everyone’s saying the double-dip is on the way. The next, there’s a bit of good news, and suddenly we’re saved and stocks are cheap.
You know our take. We don’t think the euphoria will last. We think there’s another slowdown or slump on the way. And that means a good chance of further quantitative easing – as we discussed in MoneyWeek magazine this week. If you’re not already a subscriber, subscribe to MoneyWeek magazine.) Ben Bernanke in particular is not a man to take any chances. If he thinks the US stock market is heading for an extended period below the 10,000 mark, he’ll start that printing press up again.
● Tim Price agrees. He reckons there’s a good chance we’re heading for deflation. In fact, he says, in as much as deflation is defined as “a fall in the money supply… it is already here”. Bank lending in both the US and UK has fallen into negative territory.
That could take us into Professor Irving Fisher’s debt-deflation scenario. Fisher was around in the Great Depression years, and it understandably shaped his view on economics quite significantly. You’ve probably heard of his work already (James Ferguson regularly talks about it in MoneyWeek), but basically it’s where you get a deflationary spiral.
Bad debts mount up, leading to fire-sales of assets. That pushes prices down further, and you end up with even more bad debts, bankruptcies, unemployment and general misery. As Tim points out, you can check out the original theory here.
What does this mean for your portfolio? Well, it’s not great news for stocks for a start. The banks need more time to recuperate. Forget Europe’s stress tests, says Tim – these “will be easier to pass than a GCSE in media studies.”
And “the rise of Big Government, as evidenced by President Obama’s aggressive intervention in BP’s disastrous Gulf of Mexico spill, or by Chancellor Angela Merkel’s ridiculous pledge to defeat the markets on behalf of politicians, is a terrible barometer for private industry.”
Tim has actually now moved to what he describes as “the most defensive posture I’ve maintained in the three years of writing this newsletter”. As he points out, “Irving Fisher himself was largely wiped out during the crash”. By diversifying your portfolio sensibly, Tim reckons “you have every likelihood of surviving whatever the markets may throw at you”.
And what’s the point of being so defensive just now? Why, it’s so that when the good times return, you’ve still got the capital to take advantage of “an environment that will be more conducive and rewarding for taking prudent risks.”
● Makes sense to me. For some other interesting material along similar lines, I was reminded this week of a cracker of an article that was doing the rounds back in March 2009. It’s a reprint of a piece entitled “Panics and Booms” which was written by one L. M. Holt in 1897, at the tail end of a quite different depression. You should check it out here.
As an investor, I find that getting a historical perspective on these things is extremely useful. That’s why I’m looking forward to reading Adam Fergusson’s recently reprinted When Money Dies, all about the hyperinflation in Weimar Germany. Tim will be reviewing it for us in MoneyWeek – let’s hope it remains an interesting historical artefact rather than a survival handbook…
● What’s the most contrarian bet in the market right now? That’s easy. “Buy Ocado”. At least, that’s the impression you’d get. I’ve barely seen a good word said about it in the financial press.
But what I’m rather concerned about is that, while the financial journalists might think it’s a lot of rubbish, Ocado does seem to have a very committed base of customers. Try writing anything criticising the company in any shape or form and you’ll rapidly draw a flurry of comments defending it to the hilt. And I suspect quite a few of these customers might be tempted to buy into the company. After all, a frequent investment tip is “buy what you know”.
Just to make MoneyWeek’s view clear – we wouldn’t touch the Ocado float. The company hasn’t ever made any money and doesn’t look likely to. If you like getting your shopping from them, good on you, keep using their vans. But for the sake of your wallet, stick with being a customer rather than an owner. Bengt Saelensminde has more on why he’s not a buyer either in his Right Side free email this week – you can read the piece here: Steer clear of Ocado’s dud IPO.
● Interestingly, Bengt also made the counterpoint earlier this week that sometimes it’s the companies that customers hate that make the best investments. Ryanair is the classic, but it’s far from the only offender.
Bengt’s got himself what he describes as “a little getaway pad” in France. He needs to get access to phone and broadband, and being France, there’s only one provider – France Telecom. “And boy do they know it! As far as customer service goes, this is as low as you can go.” But the stock itself pays a juicy yield and looks pretty inexpensive. We’ll be looking at the telecoms sector in an upcoming issue of MoneyWeek.
● Out of time as usual. My colleague Cris Sholto Heaton was looking at an interesting sector – wealth management – in his Asia Investor newsletter this week. When people talk about emerging Asia getting wealthier they’re normally envisaging rural workers moving to the city and maybe buying a car and a mobile phone. But as Cris points out, as the emerging middle class becomes more established, it starts to need people to manage and grow their savings. That’s going to be a massive opportunity for some companies over the coming decades.
And Paul Hill gave his nine big predictions for the second half of this year in Precision Guided Investments. I haven’t got time to go through them all – but Paul reckons the FTSE 100 will go below 4,500 during the second half, sterling could rise as high as $1.60 (though it might dip near-term) and the euro is heading for another kicking.
Anyway, better go now – have a good weekend and enjoy the sun (hopefully!)