MoneyWeek roundup: Flee the falling pound
James McKeigue Mar 09, 2013
This week Merryn Somerset Webb tackled Scottish independence in her blog and it soon proved one of the most popular – and controversial – posts on our website.
“If you don’t live in Scotland, you might not have noticed the beginning of the fight back against Alex Salmond’s plans for Scottish independence”, says Merryn.
“On Saturday, the Times kicked things off with a cover that claimed that independence would threaten university research cash.” Every year UK gives £3bn to universities for research. A newly independent Scotland may no longer receive the same share of that investment.
The Saturday Mail warned that pensions could be at risk. Steve Webb, the UK pensions minister, told the paper that around 40,000 people move both ways across our “porous” border at the moment. If National Insurance numbers and pension entitlements are stored in separate places it is going to get much, much harder to keep track of everything.
The media storm continued on Sunday. “The Sunday Times joined in with a story about how the uncertainty surrounding independence is “scaring off” European property buyers in Scotland.” Then the Mail on Sunday came out all guns blazing with a “Death of all that is British” headline. It had a list of all the things that might be lost to Scotland on independence. The Royal Mint, MI5, the National Lottery, the Met Office, the Royal Mail, the Student Loans Company were all on it.
“It is quite an onslaught of media attention”, says Merryn, “but thank goodness for it. For some time now it has looked as though a pro union movement was never really going to get off the ground – despite the fact that the majority of Scots poll as pro union.”
“That matters, because whatever you think is the right way to go on this one, the arguments have to made properly and openly. If the SNP wins the referendum, even by one vote, everything in Scotland will change. There will be no way back. If I were a member of the SNP I would, I hope, welcome this step up in the debate – much better to go into the referendum with the arguments for and against independence made properly than not really made at all.”
The post opened up a debate about the pros and cons of independence in the comments section below the article.
For many commenters the loss of “all things British” couldn’t come soon enough. Indeed Aff believes “Independence does not go far enough. Scotland should have its own money, backed by gold get rid of the pound sterling, get rid of the BBC and get rid of the queen.”
However, Dave, a fellow Scot, is a fan of the union. “I want to continue to be subsidised by the rest of the UK, thanks very much. The status quo suits me fine though I do wish the little Englanders would stop agitating against these damned foreigners in the EU.”
Read the piece and have your say.
How to deal with a sliding pound
Judging by its performance in the last few weeks it’s no wonder some Scots may not want the plummeting pound. In Thursday’s Money Morning, John Stepek investigated the outlook and explained how it would affect your investments.
“The pound has fallen hard since the start of the year”, says John. “It started 2013 at around $1.63; it’s now hovering around the $1.50 mark. Yet it looks very much like it could have further to fall.” The reason, says John, is that “Britain’s government seems to be all out of ideas on how to boost growth. Instead, George Osborne would rather dump the hard work on the central bank. And there’s only one thing a central banker can do in these circumstances. Trash the currency…”
If George Osborne really wants to ‘fix’ the UK economy he must rebalance it away from the heavy dependence on banks and the housing market. But that’s not on his agenda, says John.
“The only strategy the government and the opposition have is to try to return to the days of the boom. ‘Austerity’ as it currently works, is designed – at best – to trim our deficit and keep markets from selling our debt en masse. Loose monetary policy is meant to boost inflation, and help the banks get back to square one, so that the days of easy lending and cheap mortgages can return. So Bank of England monetary policy is only going to get more inflationary. And that means more bad news for sterling.”
Investors need to diversify their currency exposure, says John. “If you agree that sterling - for now at least - looks like the lame duck of the foreign exchange world, then as long as you buy cheap overseas assets, any gains you make shouldn’t be too badly hit by currency effects. Indeed, in many cases, the currency impact will boost your returns.”
John has a couple of interesting suggestions on how to do this, including Japanese, American and European shares, so make sure you read the piece in full.
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Do you have to be mad to invest in Ecuador?
Another, far more risky, destination for your money is Ecuador. I’m not saying that a weak pound should encourage you to plough all your savings into Ecuador. But in this week’s New World I explain why Ecuador could be about to open up to investors.
On the face of it, I admit, “you would have to be nuts to invest in Ecuador”. After all, “firebrand socialist leader Rafael Correa has just secured another four-year term and vowed to carry on his ‘citizens' revolution’. And so far, that revolution has been a painful one for Western investors. Since coming to power in 2007, Correa has voluntarily defaulted on the country’s debt, rewritten terms for natural resource companies and steadily pushed up taxes for imported goods. Unsurprisingly, most multinationals have taken the hint and left the country. Foreign direct investment now stands at less than 1% of GDP – the lowest in the region apart from Venezuela.”
But there are early signs that Correa may be changing his stance towards foreign investors. That could create plenty of opportunities in the resource-rich country.
Until now, Correa has been able to do without Western investors, be they multinationals or bondholders, as the economy has benefited from high oil prices. But with oil production falling, and mining production nowhere near its potential, Correa now seems keen to boost investment.
“Officials from the Hydrocarbons Secretariat of Ecuador (SHE) are launching a worldwide charm offensive. They’re halfway through an international roadshow that is stopping off in Colombia, the US, France, Singapore and China. It’s a remarkable turnaround for a country that has spent the last four years fighting international investors.”
Another encouraging sign is a flurry of mining deals and new legislation to make life easier for companies in the sector. It’s still early days but, as I say in the piece, “Western companies operating there are likely to trade at a discount… which will create opportunities for brave investors.”
It’s the type of frontier investment we like to cover in The New World. To find out more, sign up to our free email here.
The next stage of the ‘Asian Century’
I should also mention that Lars Henriksson, my co-writer on The New World, has just brought out an exciting new report on a place so ‘frontier’ I had to double check where it was on the map. If Lars is right we’re going to be hearing a lot more about this part of the world in the coming years. In fact, our children will probably be going for job interviews there. It’s a fascinating glimpse of the next stage of the ‘Asian Century’ and well worth the read.
How to find a ‘fallen angel’
Value investors want cheap, good quality stocks. But finding them can be tough. That’s where a stock screen comes in handy to help you whittle down your selection. In this week’s video tutorial Tim Bennett explains a simple one that uses just two ratios to help you find 'fallen angels' – solid stocks that have been unfairly market down.
Before I go here’s an exciting new development – MoneyWeek TV. These are early days and we’d love to know what you think. In this week’s show Merryn Somerset Webb discusses US government debt with James Fergusson; Tim Bennett introduces spread betting; and Dominic Frisby gives his views on gold.
• This article is taken from the free investment email Money Morning.
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