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.
● Just a quick reminder before I start – I hope you got the chance to watch Stephen Bland’s presentation on dividend investing last week.
● Europe was the big story of the week – yet again. European Central Bank (ECB) president Jean-Claude Trichet pulled off a clever stunt on Thursday. He didn’t unveil a massive bail-out for troubled eurozone countries, but he did send his troops in to aggressively buy up Irish and Portuguese government bonds while he was chatting to journalists after the ECB meeting: A back-door bail-out for Europe?
So spreads narrowed (that’s the gap between the yield on ‘safe’ German debt and the yield on other bonds – check out this video tutorial if you want to know more: Why do governments go bust?), and the euro rebounded.
How long it will last is anyone’s guess, of course. The Trichet patch hasn’t resolved any of the real problems. Fiscal union or full-blown ECB money-printing seem to be the only realistic ways to avoid a break-up.
Oh and there’s just one problem with those spreads narrowing. As FT Alphaville pointed out, it’s not just because yields on troubled countries’ debt have fallen. It’s partly because the yields on German debt are rising. In other words, investors are starting to price in an expensive bail-out for the German taxpayer. Your average German on the street ain’t going to take too kindly to that idea, however good the euro is for their manufacturers. This story will run and run…
● Elsewhere in the news, global economic data was a little more positive. Britain turned in some very punchy manufacturing data. Our Roundtable experts this week give their views on the best stocks in the manufacturing sector (as well as an interesting aside on how to invest in Russia without getting your fingers burned). Subscribers can read the piece here: Ten tasty stocks to snap up now – If you’re not already a subscriber, subscribe to MoneyWeek magazine.
● Less cheery was the news on US unemployment. The monthly US non-farm payrolls data report is arguably the most important data release in the world (despite regular revisions which make it somewhat hard to rely on). And with the unemployment rate hitting 9.8% in November, from 9.6% before, and only 39,000 jobs added compared to expectations for 150,000 or so, markets took it badly – Capital Economics described the report as a ‘painful reality check’. The dollar fell and gold surged. We’ll be looking at the US economy in more detail next week in Money Morning.
● What with the dollar yo-yoing, and all this upheaval in the eurozone, currency markets are very much in focus. Trading currencies is risky, make no bones about it. But even if you don’t want to trade them, it’s useful to understand how the foreign exchange (forex) markets work and what factors drive currencies.
We’ll be covering the forex markets in more detail in the next issue of MoneyWeek, out next Friday. But in the meantime, as a bit of a warm-up, check out my colleague Tim Bennett’s latest video tutorial, which is on this very topic: Beginner’s guide to investing: the currency markets.
● And talking of currency unions between vastly disparate economic regions: in last week’s round-up, I discussed the huge difference in living costs between London and the rest of the UK, and how it distorts the view of policymakers living in the SouthEast as to what a ‘living wage’ constitutes.
I got a fair few replies – thanks very much to everyone who took the time to write in. Most of you concurred, with the proviso that what really makes the South East expensive is housing costs (and the cost of getting from your house to your work). Many other living costs are broadly similar, or even cheaper.
I think that’s fair enough – as one reader pointed out, fuel for example, can be a lot more expensive in more remote parts of Britain (I remember the first time I ever saw a litre of petrol priced above £1 was on a road trip to Orkney in my student days – and back then oil cost about a tenth of what it does now). But given that housing costs are the lion’s share of most people’s annual budget, they’re enough on their own to account for the big gap in cost-of-living perception between the South East and everywhere else.
One reader raised an intriguing point on the currency issue: “I find it amusing that you and your magazine continuously lambast the fallacy of the euro and its one-size-fits-all approach, yet can talk about London being a different planet. Perhaps you could explain what is the tipping point that makes the euro wrong [for the whole eurozone], but the pound absolutely appropriate for London, the sclerotic North East and the public sector-dependent Northern Ireland.”
Good question. The answer, to keep it brief, is we’ve got fiscal and political union, and Europe currently doesn’t. Add those two magic ingredients, which were forged in Britain over centuries of warfare, bloodshed, and a significant amount of lingering resentment on the behalf of some parts of the UK, and I’m sure the euro will work just fine…
● Another reader asked: “To what extent are London prices a product, rather than the cause, of the London allowance? Prices, I think adjust to reflect the money available and, foreign millionaires aside, London housing costs factor this in… any talk of adjusting wages to reflect local cost of living therefore makes me see pink.” I’m not convinced that higher public sector wages make the difference – weight of population and bank bonuses probably have at least as much impact – but public sector wages might have a bigger impact in other parts of the UK. Costs in Edinburgh shot up quite dramatically when the Scottish Parliament decided to locate there, for example.
And in case the topic leaves us sounding a bit sorry for ourselves, one reader suggests: “If you want to feel better about the cost of living in Britain, take a short trip to Oslo. A pint of beer will set you back around £8 and a glass of wine £6. Food prices are also horrific with a pot of mustard that costs 70p in UK, about £3.55.” As for the snow, we can’t complain either: “Temperature today is minus 12 Celsius, plus at least another 5 for chill factor.” But “apart from all that, it’s the best country in the world to live”. Keep your comments coming to editor@moneyweek.com.
● By the way, my apologies to you if you’ve been trying to comment on articles or blogs this week and found the comments sections closed. We’ve been swapping servers (that’s what our technical guys tell me) and that’s been one of the unwanted side effects – we’re working to fix it as quickly as we can.
It’s slightly frustrating as Merryn’s been on a bit of a roll this week. First she gave Ed Miliband tips on how to soak the rich, then she told the government how it can make us all happy, before rounding it all off with a discussion of how the UK housing market doesn’t have a hope unless the Bank of England restarts the printing presses (not that she believes that’s necessarily a good idea). Check them out, and if the comments section is broken, send your views to editor@moneyweek.com and we’ll try to put them up once it’s back online.
● We’re getting close to that time of year when everyone gets their crystal balls out for a peep at what could be coming next. Paul Hill has been looking to the future in his latest Precision Guided Investments newsletter. I’m a bit of a secret science geek so I found this fascinating – he’s talking about how to invest in “swarm robotics”.
If you’ve seen the film Minority Report, you might have an idea of what Paul’s talking about. Swarm robotics is about miniature robots working together – a bit like insect colonies – for tasks from military reconnaissance to harvesting crops to post-disaster search and rescue missions.
Paul reckons swarm robotics could be one of the “most promising new technologies of the next 10 years.” But he’s also open to suggestions from his readers. I know I got a great response from the science and engineering experts among you when we talked about funding for the sciences a few months ago.
So I’d like to pass on Paul’s invitation to you. If any of you have top tips on what could be the “most exciting technologies of the next decade” as Paul puts it, please do drop me a line at editor@moneyweek.com. Looking forward to hearing your ideas.
Have a great weekend – don’t know about you, but I’ll be going sledging.
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