MoneyWeek Roundup: Why the pound is tougher than it looks
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Associate Editor
David Stevenson Sep 04, 2010
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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.
• This has been yet another rollercoaster week in the financial world. As John Stepek said in Thursday's Money Morning, it's more than a bit confusing.
"A couple of days ago, the world was ending. We were mere inches away from the entire Western world turning Japanese", he says. "Yet now it seems everything's hunky-dory again. US manufacturing data released yesterday were less awful than expected. And the same went for China's manufacturing sector". Meanwhile shares have plunged, then bounced back almost within hours.
So how should you handle such volatile markets? In a nutshell, do what we've been advising for months.
"Stick with the stocks of big, solid companies that will at least pay you a decent dividend income as you hold on to them", says John. And on that score, I wrote yesterday about the current market volatility – and how it's presenting a great chance to make some good profits.
• There's been plenty of action on the foreign exchange (forex) front too. The pound has rallied since the election. But several pundits now reckon it could head south again as the government's austerity programme kicks in and knocks back growth.
Indeed, yesterday's CIPS/Markit report on the British service sector – everything from hotels to hairdressers – showed the lowest growth since April 2009, which did send the pound down. So should you start worrying about our currency again?
No says Dominic Frisby. "Don't bet against sterling". Bloomberg data shows that forex forecasters are at their most bearish on the pound since May 2009 – but that's no cause for alarm.
"Of the 21 trading days in May 2009, the pound rose against the dollar for 16 of them. It began the month at $1.48 and ended the month at $1.64. So let's hope, for the sake of their yachts, these forex forecasters didn't put their money where their mouths were… If they're as pessimistic now as they were then, the pound is due a pretty strong rally".
And while "the pound has problems, so do many of the alternatives", says Dominic. That's not to say that he's rampantly bullish on sterling either. "The only currency I have any real faith in is gold." You can read more about Dominic's latest thoughts on gold and gold stocks to buy in the new report that he's just published. You can find out more about it – and his guide to trading silver as well - here.
• There are, though, some very good reasons to worry about a double dip here in the UK, says Tom Bulford in his Penny Sleuth e-mail (if you're not already a subscriber then you can sign up here – it's entirely free of charge).
"Everybody's looking forward to the 2012 Olympics", he says, "except the architects, builders, electricians and PR gurus for whom this massive jamboree represents the last fling of the old economic era.
"This government has made a commitment to cut the budget deficit. And it's made no secret it intends to do so by cutting spending rather than raising taxes". So "it's cutting ties with state-backed industries, which is already causing serious ructions in the stock market".
Tom has spotted six warning signals – six stocks where the bosses have got big-style jitters about state spending cutbacks – "that no investor should ignore. So don't wait for George Osborne to drop his axe", he says. "You should take action to protect your wealth now".
How do you do that? To start with, have a read of this Penny Sleuth article. What's more, in his Red Hot Penny Shares newsletter, Tom spotlights two stocks that are "NOT dependent upon UK government largesse and the building trade. They're in industries that are currently booming". In fact, "they've nothing to do with the UK whatsoever". You can find out more about Tom's newsletter here.
• It's not just stock prices that will take the strain from a double dip in the economy. As a reflective blog by our editor-in-chief Merryn Somerset Webb points out this week, financial belt tightening could seriously stress out the middle classes even more than they are already.
"How many of us really have the leisure we associate with middle classness?" she asks. "How many women work all day and then fit in more email-answering after their children are in bed? Or men who don't get home until long, long after their children are in bed? Even those members of the middle class who might be making money often aren't getting a good life out of it".
Mind you, for savvy investors there may be a silver lining – in eating habits. In 2009, "fast-food chains and mid-market restaurants actually did well", as James McKeigue points out in a piece for this week's MoneyWeek magazine, as time and cash-strapped consumers "looked for value and to eat out for less".
James goes on to explain – as subscribers can read here how you can "make a quick buck" from this trend. If you're not already a subscriber to MoneyWeek magazine, get your first three copies free here.
• Staying on the subject of economic gloom, this week's cover story is a 'face-off' between James Ferguson – Merryn's "favourite deflationist" and MoneyWeek's resident misery guts, and another extremely smart friend of ours, Dr Peter Warburton of Economic Perspectives.
They're debating over whether or not government bonds are the latest investment bubble. James reckons yields have further to fall – hence bond prices would rise – as the double dip develops. And he's been pretty much bang on the button so far.
But Dr Warburton thinks there's currently a fixed-interest market "feeding frenzy". And that this could end very rapidly, "perhaps even within the space of a week" as and when investors become more bullish about growth prospects. This would push up long-term interest rates, so bond prices would slump.
Some of the discussion gets a bit technical. But it's well worth a read. The 'bond bubble' debate cuts right to the heart of one of the biggest questions in investing right now – are we going to end up like Japan, or is inflation a bigger danger?
• Of course, when many of us think bonds, we also think about things like annuities – and retirement, too.
Nice idea, you may say. But "to ensure your savings deliver the retirement you're expecting" says Bengt Saelendsminde in The Right Side, can be fraught with problems.
Indeed, "it's one of those subjects that gets me hot under the collar. Many financial advisers give so much duff advice on this subject that it really makes me mad", says Bengt. But "there are a few simple steps you can take to reduce risk, without giving up any rewards. This is far too important to leave up to an adviser. I guarantee that only you have the knowhow required".
What's Bengt on about? Asset allocation – how your savings are split between bonds, shares, property etc. This may sound dull, but as he explains, it's crucial to how much retirement cash you'll end up with.
So why not give the piece a read – it's completely free, and could make a big difference to the size of your pension pot. If you're not a subscriber to The Right Side (did I mention it's free?), and you'd like to receive it on a regular basis, just sign up here.
• Before I go, just a mention of another piece worth a look. Our personal finance specialist Ruth Jackson has been doing some online sleuthing this week. Here she explains how to dodge some internet rip-offs and also "how to research your family tree without spending a fortune".
And finally, thanks for all your posts on our articles, particularly this week – it's great to hear all you views, particularly when we get a bit of a debate going. To be alerted when new articles are published – and 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.
• MoneyWeek
• John Stepek
• Tim Bennett
• Ruth Jackson
• James McKeigue
• David Stevenson
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