Jim Mellon, chairman of Regent Pacific tells MoneyWeek where he’d put his money now.
When I first wrote for this magazine a few years ago, I suggested selling US dollars and buying euros. At the time, one euro was fetching only about 85 US cents. A great deal has changed since then, not least that the euro has appreciated by about 50% against the US currency. I mention this simply to highlight the importance for all investors of getting so-called macro – or big – decisions right. Don’t just focus on the micro decisions on which stocks to buy, sell and so on – there are many ways to make money elsewhere.
Macro decisions include what currencies to hold or sell, and such things as whether or not house prices are going up or down. Quite often, investors ignore macro decisions and focus only on the micro, which, in my opinion, is a mistake. For example, the dollar/euro trade would have produced a far better return than an investment in any of the major stockmarket indices over the period – and thus by implication most of the blue-chip stocks that compose those indices. Here’s where I’m placing my bets now.
A very important macro decision for people living in the UK and the US is whether or not to buy, sell or hold onto real property. MoneyWeek editor Merryn Somerset Webb has made a convincing case for selling, particularly in the UK, and I absolutely agree with her. All the pointers are towards much lower house prices, catalysed by higher interest rates, oversupply and excessive prices – the latter the result of decades of bull-market house-price moves.
This halcyon period has come, or is shortly coming, to an end. The factors conspiring to produce this new bear market in real-estate prices are those that will also constrain equity market prices. Higher interest rates, slowing economic growth, monumental levels of debt and fairly rich pricing will lead UK and US equities to underperform for some considerable time. I have been a stockmarket bear for a while, and I see no reason to change my mind.
A downturn in China’s economic growth rate – and it is coming – will also be bad for commodity prices, and may provide a temporary fillip for the US dollar. The greenback will tend to rise in value against most currencies in coming months. Among freely tradeable currencies, the exception to this forecast will be the Japanese yen, which will continue to rise in value against the dollar.
The only commodities I favour as a medium-term investment are silver and uranium, which will certainly benefit from a renewed emphasis on nuclear power. I believe stockmarkets in the UK and US will fall, perhaps by a quarter or so, over the next few years. In those circumstances, you should avoid most shares, though I am still attracted to the online-gaming sector. One of my recommendations in the past has been Sporting Bet, but I feel it’s risen enough (about 10 times in two years) and would be best replaced by another Aim-listed firm, BetOnSports (BSS). This is much more cheaply valued and could, I think, rise two or three times from its present level.
Lastly, I like Berlin real estate and have bought about 500 apartments there. The net yield is about 10% and the cost of borrowing less than 4%. And the price you pay per square metre is about a tenth of what you’d pay in London. It’s one for the retirement pot!