David Stevenson highlights some of the best bits from our free emails, newsletters, blog and MoneyWeek magazine that we’ve published in the past week.
• Typical! After the stock market got a real dose of the miseries last Friday, this week it was all change again. By midday yesterday, the FTSE100 had recovered by some 4%.
This was something of a surprise, for several reasons. For one, there were some jitters over the outcome of Europe’s banking stress tests, which are supposed to show how sound, or otherwise, the Continent’s lenders really are. By the time you get this email, they’ll have been released – my colleague John Stepek will be giving his views on what they really mean for investors in Monday’s Money Morning.
Second, US Fed boss Ben Bernanke was his usual cagey self in his six-month Congress testimony. The markets usually get quite excited when Bernanke talks to Congress, but there wasn’t too much to see this time around. Meanwhile home sales in the US fell by 5% in June, while the stock of unsold houses hit its highest level in 10 months. Hardly promising.
Add up the sum total of the above, and there’s been plenty for investors to worry about, or so you might think. But with several American companies coming up with ‘better than expected results’ results and statements – here’s my take on that – investors decided to ignore the bad news and put their happy faces on.
• Meanwhile, back in Britain, the housing market looks like it’s topping out again. Home loan approvals – a key gauge of future prices – dropped by 4.6% in June, according to the British Bankers Association.
This week our editor-in-chief, Merryn Somerset Webb, was talking to a TV crew for a documentary about the property crash (she was also on Panorama this week by the way – if you missed it, you can check it out here).
They asked her why the government hadn’t done anything to prevent the bubble from building in the first place. Well, of course the answer is that it’s not in the government’s interest to do so – you can read Merryn’s take and comment on it, on our blog.
• With markets this volatile, what does an ordinary investor do? In Wednesday’s Money Morning, John tried to spell it out.
“Ignore the noise, and look at what’s cheap.” Long-term, large blue chips are a ‘win-win’ investment, he says. “If the economy recovers from here, then “that’ll be good news for big companies along with the others. Profits and sales will go up.
“If we’re heading into another slump, most shares will suffer, but defensives will bear up a lot better than the riskier stuff. At a recent Roundtable, we had a group of investment experts tip their top stocks for volatile times – subscribers can read it here: 13 stocks to protect your wealth in volatile markets”.
• Talking of experts… one of the nice things about writing this Saturday roundup is that I get a good excuse to read, from cover to cover, all our newsletters. I don’t always agree with their take on things, but there’s lots of thought-provoking stuff you won’t find anywhere else.
Like this from Bengt Saelensminde, author of The Right Side email – “The secret weapon to beat the City Professionals”.
“As private investors, we have one massive advantage over fund managers“, says Bengt. “And it’s so counter intuitive, you’ll probably think it’s not an advantage at all; in fact you may think I’ve lost my marbles… but here goes: we’re allowed to make bad investments”.
“Let me explain how you can use this to your advantage. It’s a benefit that isn’t available to most professional investors. Fund managers have to justify their every investment decision. Clients and colleagues question their every move. They wear the same suits, they read the same papers and they make the same conservative investments – and the same mediocre returns. The last thing a fund manager will do is make an ‘off the wall’ investment that could leave him with egg on his face. Yet it’s the ‘off the wall’ investments that can make fortunes”.
I like his thinking. What’s more, Bengt’s advice is completely free. If you’d like to receive The Right Side every day, simply sign up here.
• Speaking of off-the-wall investments, Tom Bulford in Penny Sleuth was talking about how to profit from golf this week. Not in Britain or the US, but in Asia. Why Asia? Because while golf has lost its elitist reputation in the UK to a great extent, it’s still very much an aspirational sport in Asia.
“Many years ago I was on a flight to Hong Kong. Due to a typhoon, the flight was diverted to Taipei. We were obliged to stay overnight before being taken back to the airport the following morning. At first light, the bus passed a golf course. To my amazement, even then, the course was packed with golfers, desperate for their fix of this maddening and challenging game. In the 1970s there were fewer that 50 courses in the whole of Asia. Now there are over 6,000. In Asia, golf is booming.
“So there’s plenty of money in the golf business. One firm that’s recognised the possibilities and invested heavily in Asian sport is the French media giant Lagardere. But a penny share company that has its eyes on Asian golf is AIM-quoted Parallel Media Group (PAA).
“What Parallel does is to negotiate a deal with a host golf club, put up a prize fund, probably pay a few stars an appearance fee, find sponsors and then set about selling tickets, concessions and attracting corporate hosts. Done well, and with a little bit of luck with the weather and the quality of the field, this can be a real money spinner”.
You can read the rest of the story here. And if you haven’t already, then sign up for Tom’s Penny Sleuth email, absolutely free.
• What’s the best-kept secret in modern finance? Tim Price reckons he has the answer. “I want to tell you about a small cabal of investors and economists who have a remarkable record of calling the top of the market before a major crash. Many consider this group to be a bunch of lunatics – a fringe element.
“But I think they’re probably the best-kept secret in finance – and right now, they’re telling us exactly who’s to blame for the crash. And how we can protect our wealth for the rough years that lie ahead”.
So who on earth can he be talking about? The answer… is the Austrian school of economists. Now this may sound at best rather arcane, and at worst, very dull. But let me assure you, if you’re interested in knowing more about what’s gone wrong with the global economy over the last three decades – and how everything could yet get much worse, it’s fascinating stuff.
“A stock market bubble, tends to have three features: one of them is fundamental (a new technology, say, like the internet); one of them is financial (a surge in the availability of money and credit, for example); and a key one is psychological – we all believe we can get effortlessly rich, and traditional valuation measures then get thrown out of the window. The 1990s stock market bubble represented all three.
“Why do I cite the Austrian warnings issued before the Millennium Crash? Because nothing has changed. In monetary terms, what has changed has got worse. An unsustainable problem has become doubly unsustainable. Debt, leverage, deficits, the ballooning of central bank balance sheets…If these were urgent problems back in 1999 and 2000, they are multiple times worse now.”
Here at MoneyWeek, we’re firm believers in Austrian thinking. I’ll not give you the rest of Tim’s piece here – that wouldn’t be fair to his subscribers – but there’s one clear conclusion which you won’t be remotely surprised to hear: keep buying gold.
• Just before I go, one final word for those of you who want to keep your financial life nice and simple. If you just want to leave your cash in the bank, but are worried about your buying power being devastated by inflation, then take a look at our free email MoneyWeek saver. This week Ruth Jackson has been looking at the best savings rates around. And she reckons she’s found a “sneaky way” to beat inflation.
Category: Economics