Here in England we love talking about the weather, especially if it’s miserable.
“We’ve had the wettest April since records began, the wettest June since records began, and the wettest second quarter since records began,” said Paul Hill in this week’s Precision Guided Investments.
So what? Well, apart from the fact that we’ve not really had a summer, Paul’s found an investment angle here.
Across the world, weather patterns seem to be changing. “There’s already been awful droughts in the US, failing monsoons in India and devastating floods in Beijing and Manila this year. And that’s before the hurricane season has even started.”
Paul explains: “In the absence of a weather control machine, countries are being forced to invest in new infrastructure that can cope with the new volatile conditions. And that has led me to a superb investment opportunity.”
The firm he’s found sells water treatment and storm control equipment. I’m not going to incur the wrath of Paul’s subscribers by giving away yesterday’s tip away for free here. However, I can do the next best thing.
Lessons from the Flintstones
To grasp just how much the global economy has changed, you should really watch classic children’s cartoon, The Flintstones
, says Merryn Somerset Webb on her blog this week.
She’s been watching it with her own children, “in a probably vain effort to keep them safe from the simplistically weird fantasy world of modern children’s television”. But one aspect of the storyline really clashes with the reality of the world we live in now – “Fred’s working life”.
“Fred worked as a crane operator in a quarry… But Fred and Wilma still had all the best technology… they lived in a nice split-level home and they regularly ate out in restaurants.
“They had pets; they went on holiday; and they had time for hobbies and all manner of community activity [but] there were no dual income households, and no one was working two jobs to make ends meet.”
That made perfect sense in the aspirational 1960s, but nowadays it’s almost as implausible as the Flintstones’ monkey-powered automatic windows.
“It would bemuse and confuse a young person in the US to be told that working five days a week in a skilled manufacturing job was first, a possibility for everyone and second, a path to a comfortable life filled with leisure.”
The fact is, says Merryn, “in the last 20 years, anyone earning the average wage has seen their real income stagnant or falling. If they are in the bottom 80% of the population, their share of national income has gone down sharply.”
A number of factors are responsible for this. “Technology, falling union strength, the rise of cheap manufacturing in China, the rise of hugely dominant and profit-oriented companies, the collapse of paternalism, the rise of the bonus culture, tax cuts at the top (particularly on capital gains) and the rise of the power of central banks (who all too often interpret inflation in terms of wages rather than money supply and so work to keep the former down).”
Unfortunately none of those look like changing any time soon.
The blog soon attracted a stream of comments both about the Flintstones and the world economy.
TV can make other points about the economy, says ‘dr ray’. “TV has been the opiate of the masses over the last few decades. As long as X-factor or Corry is on the box you can forget that the economic system is shafting 99% of the population.
“Secondly, the actual price of a TV has reduced dramatically so that even as workers wages fail to advance they can buy a bigger and better TV (and other consumer products) and don’t realize they are getting poorer. Finally TV reflects a moral degeneration which other cultures or even the Flintstones would have found puzzling.”
Meanwhile ‘DST’ wonders “what the Jetsons tell us about our economic future”.
Plenty of other commenters were making their own cartoon analogies of the economy: you should really watch classic children’s cartoon, The Flintstones
and comment.
The next big investment trend
One newsletter that rarely gets featured in this roundup is The Zurich Club. It keeps a low profile compared to some of the other letters – it’s only published once a month and has a well-established core of longstanding, select subscribers.
As a result investment director Joss Stone and his team are happy to get on with the job of identifying investment trends and working out the best way to profit from them.
For example, August’s edition analysed the shift to outsourcing – something the Flintstones certainly wouldn’t have recognised.
It’s “one of the biggest investment stories of our time”, says Victor Hill. “Right across the globe, governments are struggling to deal with the legacy of bank bailouts and massively unfunded pension promises. They know they can’t hope to deliver the services their electorate expects.”
Of course outsourcing didn’t start with the financial crisis, writes Victor. “Non-core functions like catering, waste management and cleaning have been outsourced for years.” But the interesting shift is that “core public services once considered entirely the domain of the state are now conducted by private companies under contract”.
Responsibility for everything from prison services to critical defense tasks are now being handed to private firms. The Zurich Club team have found one British firm in particular that looks well placed to benefit.
It’s a typical Zurich Club tip – Joss and his team are focused on long-term returns. When they pick a share, they’re not thinking about the next quarter’s results – they’re thinking about how it will swell their retirement pot.
Time to drop Apple?
One of the most popular pieces this week was my colleague’s Phil Oakley’s dissection of the ongoing battle between Apple and Samsung.
The two tech giants have been suing and countersuing each other in courtrooms around the world. Last week Apple seemed to have gained a big advantage when a US court ruled that Samsung had copied Apple’s designs. Yet for Phil, it was proof that it’s time to ditch the shares.
“Far from being good for Apple, last Friday’s events may have revealed its Achilles’ heel – it’s simply too dependent on the iPhone”, says Phil on Wednesday.
It’s all about the ‘moat’, says Phil. “In plain English, this means you are looking for companies that can do things that others can’t copy.”
For now Apple has been able to make phones that customers are willing to pay a lot of money for. “It can do this because lots of consumers think they are a ‘must have’ product. Indeed, during the first half of its financial year, iPhone sales accounted for over half of Apple’s total sales and a big chunk of its profits.”
The trouble is that this makes Apple very dependent on the iPhone. “If customers start to be tempted by other smartphones, and Apple has to slash prices as a result, then it – and its shareholders – will have a big problem”, says Phil.
And once you start thinking about it like that you realise that Friday’s court ruling has hardly made Apple stronger. “It may have scored a brief victory in the smartphone wars, but sooner or later, the danger is that competition and consumers will force down prices.”
Meanwhile Apple’s competition isn’t standing still, says Phil.
“Samsung and Google’s Android operating system allow people to buy phones that do a lot of what the iPhone does for a lot less. In Asia for example, lots of people can’t afford iPhones. But mobile phone makers can use Android to give them cheap smartphones. This is why the Android operating system is on 60% of the world’s smartphones right now.”
The rival phones aren’t just cheaper. In many cases they’re better. “Samsung and HTC make phones with bigger screens and replacement batteries. They don’t tie customers into their software either (unlike iTunes).”
All of a sudden Apple’s moat looks like it could have some leaks, says Phil.
It proved a controversial article. At time of writing there were 65 comments and, judging by their tone, people either love Apple or hate it. the ongoing battle between Apple and Samsung.
Why Polly Peck went bust
Another controversial post on our site is Tim Bennett’s latest video. As most of you will have heard, last week Cypriot tycoon Asil Nadir was found guilty of stealing from his former firm Polly Peck. Most blamed Nadir’s theft for the firm going bust.
But, as Tim explains, Polly Peck investors can’t blame Nadir for all their woes – the firm used some perfectly legal accounting tricks that anyone with an eye for a balance sheet could have picked up on. More importantly, firms could still use the same sort of tricks today, so this video is a must watch if you don’t want to invest in the next Polly Peck.
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
• James McKeigue
• Matthew Partridge
• David Stevenson
• This article is taken from the free investment email Money Morning. Sign up to Money Morning here .