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.
● This week, the ugly secret at the heart of central banking was revealed. It probably didn’t come as a big surprise to you. But it turns out that the Bank of England is deliberately encouraging inflation, and it wants to punish savers by eroding their capital so that they get out there and spend.
Charlie Bean, the Bank’s deputy governor, didn’t put it quite that baldly in his chat with Channel 4 news on Monday. But that was very much the essence of what he said.
Both our editor-in-chief Merryn Somerset Webb and I got stuck into this topic this week (you can read Merryn’s take on our blog, while I covered it in Money Morning). So I don’t want to go on about it to you in detail here again.
But as Merryn points out in MoneyWeek magazine this week (Mr Bean’s unfunny farce), trying to force savers to spend by reducing the value of their deposits doesn’t work. It just makes them feel insecure, which makes them want to save even harder because all they can see ahead are rainy days.
I mean, think about it for a moment. The people who are sitting on savings right now didn’t feel like spending or investing them during the New Labour boom era, when apparently nothing could go wrong. If they didn’t want to spend back then in the ‘good’ times, what on earth could make anyone think they’d want to spend or invest now?
● This policy is grossly unfair and it’s a back-to-front, gutless way to run an economy. But more to the point, it won’t work and we’ll all pay for it in the end.
Why not? Because what’s really worrying – and it’s a topic we’ll be returning to again and again I suspect – is the fact that the Bank of England isn’t alone in doing this. As Brazil’s finance minister declared, we’re in an “international currency war.” And this is all part of a wider trend.
Capital Economics pointed out this week that a currency war is – at heart – a trade war. Everyone wants to make their currency weak so they can export their way out of trouble. Instead of imposing tariffs on imports, countries manipulate their money. Indeed, my colleague David Stevenson emailed me earlier to flag up a piece in the FT which notes that Asian central banks are buying the bonds of other countries in the region in an underhand attempt to strengthen their rivals’ currencies and undermine their own.
This could get really nasty. We’re facing a secret global trade war and the more money our central bankers conspire to print, the worse it will get. Small wonder gold hit yet another record high this week.
● The net effect of the general upheaval in the markets is to make it more important than ever that you take control of your own finances, or at least have a good understanding of what your financial advisor is telling you. If nothing else, it’ll help you cope with the general uncertainty and the sense that you can’t trust anyone in authority to make the ‘right’ decisions.
On that note, we took our first venture into the world of online video this week. If you haven’t looked at it yet, get on to the website and check out MoneyWeek deputy editor Tim Bennett’s beginner’s guide to p/e ratios. Tim will be doing more of these videos so feel free to leave your requests in the comments section or email us at editor@moneyweek.com – he won’t do karaoke by the way, so best not ask.
● And for more specific information on where to invest, Tom Bulford wrote an excellent piece in his free Penny Sleuth email this week, on the case for small caps: Revealed: the two most important investment themes of today. Now, many investors generally think of penny shares as being risky little minnows for inveterate gamblers. And some of them are.
However, as Tom points out, it’s also where you find the companies of tomorrow. Right now, reckons Tom, there are two major themes you need to be exposed to – natural resources and technology. On the one hand, emerging market growth means that the price of raw materials is only going to keep rising. It’s a well-rehearsed argument, but it’s no less valid for that.
As for technology – well, the tech bubble was obviously horrendous for investors caught up in the subsequent bust. But the fact is, a lot of the dreams that drove the tech bubble in the first place have now been realised. In fact, things like “universal wireless connectivity, a portable world of information and entertainment, shopping at the click of a button” have probably materialised even more rapidly than anyone would have dared imagine.
“It is in these industries, technology and natural resources, that fortunes are being made and will continue to be made for the next few years,” says Tom. “Property, building, retailing and banking have had their day and will continue to struggle as Western economies retrench.”
That’s why you want to be paying more attention to penny shares, says Tom. “While the FTSE 100 share index is still weighed down by these dinosaurs of a former age, Aim is bursting with junior natural resource companies and exciting technology plays. Of Aim’s 1,212 listed businesses, 482 fall within these categories… with this heavy weighting to the world’s best money-making opportunities, to my mind outperformance of the penny share sector looks assured.”
Of course, this is not index-tracker territory here. You have to know what to buy. And Tom’s the man to show you. He’s just told readers of his Red Hot Penny Shares newsletter about an exciting new gold play, and he’s looking at another natural resources stock that he expects to rocket.
● Before I go, as you might have noticed, I’ve been making a point of mentioning Dr Mike Tubbs’ Research Investments newsletter here regularly over the past few weeks. Why? For the simple reason that his stock tips are doing rather well and so I think you should have the chance to try it out for yourself.
● Oh and one last thing – I know you love reading about property and house prices. You can’t get enough of it, and nor can we. So we really don’t want you to miss the next issue of MoneyWeek magazine, out on Friday. We lined up five top property pundits, shut them in a room with a few bottles of wine (I can’t quite remember just how many) and a tape recorder, and got them to shout at each other for an hour and a half before giving us their five-year forecasts for house prices.
Seriously, if you don’t already subscribe to MoneyWeek magazine, do yourself a favour and sign up now – you get your first three issues free and you’ll get to read the whole story as soon as your postie arrives on Friday morning.
• 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!
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• Forecasts and past performance are not reliable indicators of future performance. Shares are by their nature are speculative and can be volatile and you should never invest more than you can safely afford to lose. Information in Money Morning is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. Appropriate independent advice should be obtained before making any such decision.
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