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.
● It’s been another action-packed week for gold. A fresh all-time high was made, above $1,300 an ounce. And why not? You can’t print it, and digging it out of the ground takes a while. There’s only ever going to be so much gold to go round.
You can’t say the same for dollars or pounds. This week, Ben Bernanke promised to print more money as and when he can bully the rest of the team at the Federal Reserve into letting him get close enough to the ‘on’ switch. And meanwhile our own Bank of England rate-setters swore they would not shirk the responsibility of devaluing the pound if needs be.
And of course, Europe is just a minefield of little fiscal bombs, waiting to go off. The European Central Bank is running around trying to deactivate them behind the scenes. But every time Greece disappears from the headlines, up pops Ireland. So I’d not be especially keen to be holding my money in euros either.
● Much as we like it, you can’t call gold a contrarian investment any more. It was on Radio 4 last week. And I’ve been fielding more calls than usual from non-financial journalists wanting to learn more about it. And this week, Capital Economics – formerly moderately bearish on gold – turned moderately bullish.
I don’t think this points to the top. We’re hardly at the tech-mania stage yet. And there’s still a fair bit of scepticism in the coverage, overall. But I think it’s fair to say that gold is well and truly within the mainstream now.
Of course, it’s not until you reach the very end of a bull market that you tend to see the ‘parabolic’ stage. My colleague Dominic Frisby (who reckons markets in general are at a major turning point) recently finished a report into his favourite gold stocks. We had 500 copies to sell at a special discounted rate, but we’ve got less than 15 left.
● Speaking of bubbles, thanks for all your comments on my piece on house prices and regulation from the other day. No subject that we cover – not even gold, not by a long chalk – draws as much attention and comment. I’ve said it before, but I’ll know the property market has finally bottomed out when no one cares when we write about house prices.
Don’t get me wrong – I can see why it’s an emotive subject. For many people, investment is something they’re quite detached from. Their employer sticks some money in a largely underperforming pension fund for them and beyond an annual statement, that’s about all they see of it. But everyone needs somewhere to live.
So you might be interested to learn that we’ll be having another of our property roundtables very shortly. We like to have at least one of these – always entertaining and frequently explosive – sessions a year, and you’ll be able to read the results in MoneyWeek issue 507, out on 15 October (if you’re not already a subscriber, sign up here, and get your first three issues free).
● Merryn, our editor-in-chief, was in the mood for controversy this week. Not only did she tackle tax-dodging in the South East on our blog, but she also chipped in to the debate on ‘feckless’ families – inspired by the tale of Kevin MacDonald, the 25-year old unemployed man who made all the papers this week for having managed to father something like ten children by ten different mothers.
That individual story is depressing enough. But some of the statistics, when you really think about them, are grim – nearly a quarter of households in the North East are workless, apparently. What kind of life is that to bring kids into? And on an economic basis (which is what we’re all about after all), supporting all this chews through a big chunk of the £192bn welfare budget, at a time when we’re talking of nothing but who’s going to get the chop in the next round of cuts.
What’s to be done? Merryn’s a bit sceptical of the latest big idea – that is, getting investors to chip in to fund interventions, “such as parenting classes for teenage mothers and so on”. If it works, the idea is that the investors would get a ‘return’ in the form of a cut of the money that the state saves in benefits and crime costs.
“Can it work? It is impossible to tell – the idea of anything being managed by a combination of men from the big banks and the state gives me the shivers.”
One commenter on her blog made an interesting – and controversial – point that hadn’t occurred to me – namely that the ‘welfare’ business has become a self-sustaining industry in itself. The bodies set up to deal with these problems would vanish overnight if they actually solved them. So arguably, there’s every motivation for them to encourage the ‘feckless’ to remain right where they are.
“Believe me, these people don’t want to go shopping in pyjamas and languish on welfare. They have aspirations and a desire for self worth. But what hope have they got when they are now into the second and third generation of social engineering with all these huge public sector-supported industries that are doing very nicely thank you from “trying to help” – yeah right, of course they are.
“Everyone can see and no one disputes the harm that welfare dependency has done to Africa – funding despot rulers and their cronies while those intended to be helped are hung out to dry. All I say is look closer to home and on a smaller scale.”
I’d be interested in any views you have on this – email us at editor@moneyweek.com, or add in your two penn’orth at the end of getting investors to chip in to fund interventions.
● With so many different views on the outlook for the economy around, it’s not easy to find genuinely contrarian investments at the moment. But the financial industry is certainly a good place to start. Simon Caufield, who writes the True Value newsletter, was trawling around the sector for his next big tip this week – including taking a good long look at what he describes as Britain’s cheapest share.
One thing’s for sure – he’s not impressed with the new ‘Basel III’ rules to govern banks’ capital requirements. “They’re supposed to be tough new rules to stop another crisis. Banks must increase their equity capital to buffer future losses. But under these new rules, banks are still allowed leverage of 33 times. That means they can still borrow 97p of every £1 in assets. If the value of their assets falls by just 3%, they’ll be insolvent. Do you think house prices might fall by another 3%? I know I do.”
I can’t tell you which financial tip he ends up going for as it wouldn’t be fair to his readers. But the good news is that I’ve heard that Simon’s popular newsletter is going to be opening up again very soon to new subscribers. Last time this happened, the 500 available places sold out in a matter of weeks, so I’ll keep you posted on when the next opportunity comes along.
● Investors are facing an invasion, warns Tom Bulford – of lawyers. Tom’s talking about the new rules that are expected to liberate the legal services market – the result of the so-called ‘Tesco Law’ whereby basic legal services will be on offer from non-lawyers, including the likes of Tesco, the Co-op and the AA.
“The way it will work is that simple forms will be offered either in-store or, more likely, online. Customers will fill in the details as best they can. Then a qualified lawyer will simply rubber-stamp the final document, thereby making a considerable saving on the cost of these things today.
“Faced with this prospect, high-street law firms that have made a cosy living from births, deaths and marriages will have to shape up or ship out.
“Consolidation of this area of the legal profession is likely to be one of the investment themes of the next few years. Some of these firms will join together, close unwanted branches, share back-office functions and present a united brand.”
Sounds exciting eh? But hold your horses, says Tom. This might be good from a consumer point of view. But “cost-cutting alone does not make a good investment case. And the precedents for this type of operation are not auspicious. Buy-and-build chains of estate agents and accountants have had mixed success at best on the stock market. And these were not faced with a challenge from the almighty supermarkets.”
And more to the point, says Tom, big law firms are “hardly short of money.” Even if they do go public, there’s a fundamental flaw here: “This type of people business does not need capital. It does not need millions to fund development costs or build a factory. So it need not care what shareholders think or how to reward them.” And that’s why he plans to avoid the sector. Sign up for the Penny Sleuth email to get more of Tom’s investment views – it’s free.
● Before I go, you may remember that last week I flagged up the Research Investments newsletter, by Dr Mike Tubbs. I mentioned that one of Mike’s tips – a Dutch vaccine specialist – had just been the subject of a takeover bid by Johnson & Johnson, giving his readers a short, sharp boost to their portfolios (the stock flew up by 50%-odds on the day, although obviously not all of Mike’s stocks do this and past performance is no guide to the future, as you’ll well know).
It was only after I’d put the piece to bed that I learned something rather exasperating. Turns out that our promotional team had been planning to send out a report on that very stock to Money Morning readers earlier in the week. They were just waiting on a free slot. And then the bid came in – and it was too late.
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• Here’s how the Dutch vaccine company detailed above has performed over the past 5 years: +117.72% (2005), -11.78% (2006), -41.24% (2007), -4.47% (2008), +27.64% (2009), +71.87% (Jan 1st- Sept 23rd 2010).
• 12 month performance figures for Dr Mike Tubbs’ Research Investments: Average Closed Positions: 2/9/09-1/9/10 +68.36%, 6/2/09-1/9/09 n/a. Average Open & Closed Positions since service began on 6/2/09 as at 23 September 2010: +45.64%.
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