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.
● Last week it was all about inflation for the UK. This week, it was all about growth. Or the lack of it. Turns out that the UK economy fell on its backside in the last quarter of 2010. The economy shrank by 0.5%. Immediately we were treated to tales of double dips and how the coalition cuts were already biting.
Now you know I can be a bearish sort of person. But the truth is, I’m not really convinced by this GDP figure. I suspect it’ll be revised up in the coming months. And I also suspect that the weather had a nastier impact than perhaps has been assumed.
● Still it was good news for one man at least – and I’m not talking about the son of the son of the manse, Ed Balls, our new shadow chancellor. No, it was Mervyn King who was grateful for the dreadful GDP showing. Why? Because it made it a whole lot easier to justify his shocking stance on inflation.
Mr King confirmed what we’ve been saying about inflation and the Bank’s likely reaction for a while now. It’s going to keep going up, but the Bank won’t do anything about it unless wages start rising to match. That’s quite a thing to say. Mr King has effectively announced: “2% target? Forget it. As long as CPI stays below 5% and no one gets a pay rise, I’ll be a happy man.”
I’m not sure that wages are going to be as well-behaved as Mr King is hoping. We’ll see. In the meantime, you can keep an eye on key inflation indicators here.
● Inflation isn’t just a British problem, far from it. It’s one of the key drivers behind the turmoil spreading across North Africa. To be more specific, food price inflation, as my colleague David Stevenson noted in Thursday’s Money Morning.
That might sound too simplistic. After all, the people in these countries have lots of reasons to be angry, the main one being that they live in dictatorships. A lot of pundits in the West like to knock democracy, especially these days, but they should try living without it some time.
However, there’s a big gap between feeling angry and oppressed, and getting desperate enough to do something about it. And historically, being pushed ever closer to the breadline by rising prices is a reliable trigger for this sort of instability.
Could this end up being the equivalent of the fall of the Berlin wall for that part of the world? That’d be a good thing in the long run. But in the meantime, as David notes, it just shows the dangers of investing in frontier markets.
● Meanwhile, the problem of rising food prices doesn’t seem likely to go away soon. It may seem a little morbid to talk about profiting from this trend. But I don’t think it is. That’s because the best way to do so is to invest in the companies that are trying to help us to grow more food, which strikes me as the very definition of an ethical investment.
And Dr Mike Tubbs, who’s behind the Research Investments newsletter, has just turned a very handy profit from one company that’s heavily involved in the “growing more food with less land” industry.
I’ve written about Mike’s stuff before, but I still find it surprising just how “under the radar” his newsletter is. He combines what are usually seen as high-risk, ‘blue-sky’ areas of investing – technology and science-based stocks, for example – with extremely sensible, defensive selection criteria. Of course there are always risks involved in buying these sorts of stocks. But I haven’t read anything quite like it elsewhere – and far more importantly, he gets damn good results too.
● Bankers have been complaining a lot recently about being hard done by. And it’s fair to say that they are easy targets. It’s not that they don’t deserve to be criticised – they do – but they are a very visible part of a system that is desperately flawed.
As my colleague Merryn Somerset Webb pointed out in a recent editor’s letter, chief executive remuneration in general, not just in banks, is absolutely staggering and something that shareholders really should be tackling. As for bankers’ bonuses – the real question is: “how do banks get so profitable that they could afford to pay these insane sums in the first place?”
It’s a subject Merryn tackled in her blog this week. And it drew a fair few comments – all of them reasoned and intelligent contributions to the topic, for which we’d just like to say thank you.
Regular commentator “Alex” noted that he’d worked in the City for 15 years before quitting to enjoy a better quality of life, away from 12-hour days, weekend work, and the expense of London. Others chipped in to note that of course, lots of people work longer hours for less pay; while ‘IJ’ reckoned that, judging from his own experience, much of the ‘industry’ “is basically a racket.”
Have your say on the subject here.
● One point that Alex also makes – which I thought was a good one – is that prices for certain financial services, where competition plays a genuine role in the market, have already fallen substantially. Currency trading for example, is now “dominated by low-cost e-based trading.”
I’ve noticed a lot more interest from individual investors in trading currencies, or forex, in recent years. It’s partly down to accessibility and the growing interest in spread betting. But I think there’s more to it than that.
The rise of gold and the decline of faith in fiat currencies has made it a lot clearer to many investors that measuring your wealth in say, sterling alone, doesn’t give you the full picture. Our gold expert Dominic Frisby still gets a lot of complaints when he does his Money Morning pieces that compare house prices to gold for example, but I think it’s a very valuable exercise.
Of course, if your liabilities (like your mortgage) and your wages are in the same currency, then this is academic. But the idea that you can multiply your wealth simply by holding it in the right form of paper currency is very tempting.
It’s an interesting topic and one we’ll go into in more detail in future issues of MoneyWeek magazine. If you’re not already a subscriber, subscribe to MoneyWeek magazine.
In the meantime, if you feel like trading forex via spread betting – understanding of course that it’s a risky business – then you couldn’t do much better than signing up for our spread betting email, MoneyWeek Trader. John Burford, who writes it, understands the risks very well and has strategies for minimising them and keep your shirt, even when trades go wrong. And even if you don’t intend to trade, it’s still a fascinating read, giving all kinds of insights into how the markets move. Sign up free to the MoneyWeek Trader email here.
● Oh, and talking of fiat currencies, if you missed the latest on Alan Greenspan – the man who’s probably more responsible than any single individual for the 2008 crash. The notion of Greenspan as anarchist might seem odd at first. But really, it makes perfect sense…
Lastly, watch out for the latest video in our series. This week my colleague Tim Bennett tackles what investment banks do for a living. We all know about the huge bonuses that investment bankers get paid but here he delves into the activities that they claim justify all that money.
To hear about other bits and pieces on the internet that have amused us or made us think, sign up for our Twitter feeds – we’ve listed them below.
Have a great weekend!
• MoneyWeek
• Merryn Somerset Webb
• John Stepek
• Tim Bennett
• Ruth Jackson
• James McKeigue
• David Stevenson