The death of Margaret Thatcher dominated the news this week. In Tuesday’s Money Morning my colleague John Stepek explained what investors could learn from Thatcher.
One of the most interesting questions, says John, is “how much of what happened under Thatcher would have happened anyway?”
On the one hand her critics argue that “Britain was at such a low ebb, change was inevitable. She just happened to be the one in charge when it came about.” But, as her defenders like to point out, two previous prime ministers – Edward Heath and Jim Callaghan – had already been broken by the trade unions. So in that sense her victory was far from assured.
The truth, says John, is probably a combination of the two.
“Only Thatcher had the determination and the will power to achieve what she did. The Falklands War proved that. But she only gained power in the first place because Britain had reached a point where voters were so desperate for change that – in far more sexist times – they’d even vote for a woman.”
“So what does this tell us about investment?”, asks John. “Many of the biggest opportunities in investment happen at extremes. If something can’t go on, then it won’t… In 1979, the British people were sick of the direction of the economy. It couldn’t go on. So they voted for change. Change is what they got.
And now it looks like we’re seeing a similar change today. “Last year, the Japanese people finally voted for change, after decades of stagnation and deflation. Change is what they’re getting. So far, Japanese equities have been the big beneficiary of the new regime. We’d keep buying, because this change has a lot further to go.”
Europe also looks likely to change. “Europe’s voters haven’t yet decided that enough is enough, but they’re getting close. They know that they are fed up with the people leading them, but they haven’t yet grasped that the real problem is the euro.”
Here in Britain we can’t be complacent either, says John. “We’ve been lulled into something of a false sense of security by the Bank of England’s ability to hold down interest rates. But given the sheer level of debt our economy has incurred… something has to change.”
We’ve looked at other aspects of Margaret Thatcher’s economic legacy in this week’s magazine. If you’re not already a subscriber, you can sign up for subscribe to MoneyWeek magazine.
The gold party isn’t over yet
One investment that normally does well in times of crisis is gold. But in the last year or so, the yellow metal has performed poorly. In the latest edition of his Metals and Miners newsletter, Simon Popple explains what’s happening and why he’s not losing faith.
One reason is that “insiders are buying gold stocks”, says Simon. “According to INK Research, there are now seven precious metals stocks on the TSX with insider buying, for every one with insider selling. That’s a near doubling of the ratio since mid-January, which represents a level of lopsided transactions that is usually only seen during major market peaks or troughs.” Given the recent struggles of gold miners, “it’s very encouraging that people closest to the mining companies are buying.”
Another bullish factor for gold is the eurozone crisis, says Simon. It may not be lifting prices yet, but it will eventually. Take the Cyprus deposit grab for example. “Up until several weeks ago it was not unreasonable to assume that if you put your money in a bank, you could get it back. Cyprus changed all that. Although politicians are scrambling to deny their earlier admission that this is a template for further bail-outs, the sad truth is that it is. As long as they can keep the masses happy – those with less than €100,000 on deposit – they’ll see this as a neat way of solving debt problems and keeping voters onside.” It could happen in Britain too, says Simon.
“Needless to say this is all very bullish for gold and silver, as the ultra-rich remove cash from the banking system in search of safe ‘real’ assets. There is only so much physical gold and silver already out there.” And that will benefit gold miners.
Simon doesn’t think every gold miner will do well. In fact, he thinks there is only select group of miners that have the right characteristics to succeed. He applies a strict set of tests and those that meet his criteria he investigates further. He’s written a report explaining what you should look for in a miner and you can read it here.
Children must learn to code
Back on our website and Merryn Somerset Webb has been blogging on education.
“There is a skill gap in the UK”, says Merryn. It’s generally accepted that out educational system hasn’t produced technical colleges while many graduate courses don’t produce skills that are transferrable for good jobs. But aside from these obvious problems there is another flaw that no-one seems to talk about.
“I did a quick trip to all the schools around me recently to see what they were offering their students. I asked all of them about their IT curriculum. None really had one. They did a lot of research on computers. The smarter ones used iPads. But none taught any coding or anything that might give any insight into how computer software comes into being.”
“The situation doesn’t get any better as children get older, says Merryn. We do no better as our children get older: under 3,500 computer science A-levels were completed last year – that is a 70% decline since the late 1990s.”
Indeed, people from Google chief Eric Schmidt to the Chartered Institute for IT have warned that the UK is throwing away its great computer heritage.
“Some 35% of commercial property demand in London is from tech companies and in 2011 at least, there were 110,000 tech vacancies in the country. There is, it seems, a huge disconnect between what we are teaching our children and what we need to teach them”, says Merryn.
It’s a topic that struck a chord with the readers, who soon chipped in with their comments below the article.
‘Tony P’ believes that wages have a lot to do with it. “If engineering positions in the UK, were paid at the level they are worth, then I assume school leavers will opt for these qualifications in higher numbers. Note: a civil or structural engineer who studies for the same duration as a medical doctor, is paid only £30K, and some computer PhDs are on a similar level. These wages are only just above average, and not worth the study time.”
However, ‘MichaelL’, who works in the field, doesn’t think school courses can solve everything. “I think it has to be self taught – you can teach people management and how it relates to software development process, but nuts and bolts coding – I don’t think so.”
If you want to get involved in the debate, click here.
Can smart beta help you?
Elsewhere on the website you can find the latest Tim Bennett video tutorial. This week he investigates ‘smart beta’ – one of the latest buzz phrases doing the rounds in fund management. Tim explores whether this is something that MoneyWeek investors should think about when selecting a fund.
How to play Britain’s energy revolution
By now many investors know how ‘fracking’ drilling techniques have opened up huge gas reserves in America, says David Stevenson in The Fleet Street Letter. Far less understood is that Britain is about to do the same.
“Britain’s potential shale gas reserves might be so huge, we believe they could transform the country’s energy future in the way that North Sea oil did from the 1960s onwards”. Very soon the British Geological Survey (BGS) is due to release its latest estimate on how much shale gas is underneath the UK. Earlier measurements of the country’s shale gas reserves have been based on relatively shallow deposits. But the new data from the BGS will be based on much deeper wells.” This report is likely to increase the amount of Britain’s estimate reserves, says David.
“At the top end of the range, there’d be enough UK NG to heat UK homes for 1,200 years. Sure, generally it’s only possible to extract about a third of shale gas deposits. But even if just 10% of, say, 1,500 trillion cubic feet of gas were accessible, that would still suffice to heat our homes for 100 years.”
Another positive factor is government support. Initially fracking was banned, following safety fears. But now that an independent report from the Royal Society and Royal Academy of Engineering has concluded that fracking is safe, the government is throwing its weight behind the industry.
“In December 2012, the Secretary of State for Energy and Climate Change, Edward Davey, declared that fracking could be re-started subject to specified risk controls. Then in last month’s Budget, Chancellor George Osborne promised tax breaks for frackers. He also announced incentives for communities that allow drilling to take place locally. That’s not entirely altruistic, of course. Shale gas is owned by the Crown, and firms who extract it would have to pay tax on their profits.”
So, how can investors play the story? Well, David has been researching this for months and has come up with some interesting ways to gain exposure to the sector before it takes off. Indeed, the FSL team have written a report detailing the global implications of this energy revolution, which you can read for free here.
• This article is taken from the free investment email Money Morning. Sign up to Money Morning here .
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