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 had a surge of excitement on Thursday morning when I saw the front page of The Independent, of all papers.
‘The day America took leave of its senses’ ran the headline.
“Fantastic!” I thought, assuming they were referring to Wednesday night’s much-hyped press conference from Federal Reserve chief Ben Bernanke. “Finally the mainstream press is waking up to the irresponsibility of the Fed.”
Sadly, they were just talking about the ridiculous spectacle of Barack Obama waving his birth certificate in front of Donald Trump.
I shouldn’t have been surprised. It’s not like Bernanke said anything unexpected. The gist was, “I have no intention of doing anything about inflation, so keep selling the dollar. And buy gold.” I’m paraphrasing obviously, but that’s the key takeaway.
● But how much gold should you own? That’s the discussion my colleagues Bengt Saelensminde and newsletter writer Simon Caufield were having this week. Bengt related their chat in his free Right Side email:
“The beauty of gold is that she can provide the sort of insurance against financial disaster that simply isn’t available from most other investment classes. And we may be a lot closer to financial disaster than you think….”
As you may know if you read Money Morning regularly, Simon reckons the Fed is bust. And that means there’ll be more money-printing at some point in the future.
When that happens, says Bengt, “what’s that going to do to the credibility of the dollar? It could accelerate its downtrend. And as it does it’ll likely drag most Western currencies down with it.” That’s why you want to own gold.
But again – how much? How much insurance do you need? Simon advocates 10% to 12% of your portfolio. Bengt is a little less bearish, he says – “I’ve been working on between 5% and 10%. I reckon that’ll provide decent cover if the worst comes to the worst. But then again, if you’re like me and hold quite a commodities-centric portfolio, then you’ve already got some cover.
“The key here is to look at the overall balance of your portfolio. If you are reliant on the performance of bonds and other cash-like investments, then arguably you should take out more insurance.
“Sure gold can go down. But if it does, then the likelihood is that financial meltdown has been avoided. The rest of your portfolio is intact. That’s insurance for you, if you don’t claim, you lose the premium.”
● This all makes sense to me. Gold is definitely worth having as insurance. But in the short-term, I’m more cautious on commodities and stocks. I’m not sure what could derail the market – a Greek default maybe? But there are some red flags out there suggesting that the markets are ripe for a correction.
Firstly, the greenback is now near enough at a record low (as measured by the dollar index, which looks at the dollar’s value against a trade-weighted basket of major currencies). That makes me think it’s due a bounce. And when the dollar goes up, pretty much everything else goes down.
Secondly, there’s the gold/silver ratio. We’re bullish on silver – just read the latest piece from my colleague Dominic Frisby to find out why – but it’s gone up so far and so fast that it suggests investors are getting over-excited. My colleague David Stevenson put together a chart comparing the gold/silver ratio with the S&P 500 this week. The correlation is quite striking.
Thirdly, even David Rosenberg – the notoriously bearish Gluskin Sheff analyst – has begrudgingly turned as bullish as he’ll ever get. That’s often a contrarian indicator (as I’m sure Rosenberg himself is painfully aware).
Sure, there’s a very strong long-term case to be made for commodities. As we discussed in Thursday’s Money Morning, Jeremy Grantham of GMO makes a really quite frightening argument that we are going to “run out of everything” if we don’t make some major changes to the way we run our economies.
But in the short-term I think – as does Grantham – that it’s time to tread cautiously.
● Of course, that doesn’t mean you should sell everything you own. Indeed, one of our writers, Stephen Bland, reckons that you should ignore the news altogether – it’s just too distracting.
The important thing is to buy big, relatively safe, high-yielding stocks and then sit on them forever. And when Stephen says forever, he literally means that you never voluntarily sell these stocks. That might sound odd, but when he explains the strategy behind his
Dividend Letter newsletter, you’ll understand – it’s the perfect investing approach for the laid-back investor
● Merryn’s been stirring up comment with her latest blog. Here’s her idea in a nutshell: Job Seekers’ Allowance (JSA – or dole money, for those not up on the latest jargon) equates to about 11 hours’ worth of pay on the minimum wage.
So why not scrap JSA and give everyone on the dole who’s actually capable of working a “state-sponsored part-time job at the minimum wage, until they find a better option?” You’d have to work out what sort of work people would do, and who’d be exempt, but “managed properly, it could produce huge benefits.”
She’s generated a range of reactions so far, from Michael Lewis’s (no, not that Michael Lewis – at least, I assume not) hyperbolic “OMG – how about a return to poor houses too?” to complaints about overly generous child benefit.
My view is that it’s a great idea. And not from some vengeful “make these bone-idle people work”-type instinct. The point – and Merryn quotes The Guardian’s Jackie Ashley on this – is that “work is habit. Getting up in the morning or turning up at the right time is a routine people can easily fall out of”.
Being out of work is bad for your mental health. Way back in the mists of time, near the start of my writing career, I decided to take six months out to work on a film script (it’s a long story, if I bump into you at the MoneyWeek conference on 17 June – see below for more – maybe I can share it with you).
I wasn’t claiming unemployment benefit (you can’t if you’ve left employment voluntarily). I had a very firm idea of what I was trying to do. And I knew I had a job to go back to at the end of the six months.
Yet the absence of a strict routine really threw me. The biggest challenge was staying motivated, and, to be honest, maintaining my self-esteem in the absence of a monthly or weekly pay packet.
It’s a bit embarrassing to realise how much you depend on routine. But if you think about the number of people who retire, only to promptly go off the rails, die prematurely, or rapidly return to work, it shouldn’t come as a surprise.
So – particularly in light of the current governmental obsession with happiness and well-being – I think Merryn’s idea is hard to object to. But why not have your say on it here.
● Tim Bennett’s latest educational video is up on the site – it’s all about the ‘yield curve’ this week. This is a financial phrase that tends to be bandied about without anyone being quite sure of what it means – Tim can make sure that you do.
If you haven’t already seen his tutorials on bond basics, I’d suggest you watch them first – but you’ve got the whole Bank Holiday weekend to explore his video library, so why not do a little swotting up while you’re there?
● And just another reminder – Friday 17 June! Mark it down in your diary. It’s the MoneyWeek conference 2011: Crisis or Opportunity?
We’re holding it at One Whitehall Place in central London, and a swathe of your favourite writers will be there, from Merryn to Dominic to Paul Hill and Tim Price, among others. We’ll be sending out registration forms and full details very soon.
• Oh, and if you get a little tired of watching the royal wedding re-runs over the weekend, then treat yourself to a viewing of the latest ‘Keynes vs Hayek’ rap video. Entertaining yet surprisingly educational.
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