I'm going to share a little secret with you. One that my colleagues in the world of investment newsletters would rather not see blurted out.
The promotions you receive from investment newsletter publishers can be - if seen as a group - a great contrarian indicator. If you see an investment theme advertised in half a dozen or more newsletter promos, chances are, I've found, that the opposite is going to happen.
Just like highly paid City analysts, the majority of investment newsletters just get it wrong...
As an industry, investment newsletters are a pro- cyclical bunch. I myself have subscribed to about 20 of them. On top of that, I read two digests that sum up the essence of several hundred newsletters. And of course, further still, I receive and read the promotions of too many newsletters to actually count them.
Over the years, one thing I've often noticed is that once a topic has been firmly established as promotional material, the opposite is likely to happen.
There's just too much of a consensus
Let me give you a very current example. I cannot remember a time when bashing the US Dollar was more fashionable than today. It started out with a few lonely voices... and then snowballed into an avalanche of dollar doomsayers. And investment newsletters are at the forefront of it.
It's being predicted that the American currency will be dumped into the dustbin of history by a record current-account deficit... by a war-mongering President running up huge budget deficits to finance his military campaigns... and by a Federal Reserve chairman willing to throw new Dollar bills from airplanes in order to prop up the economy.
Currency predictions are not my home-turf, but...
I've never considered myself an economist or a currency expert. My beat is picking ground breaking stock recommendations before people have even heard of them. But watching closely which ideas are being promoted to the greatest degree has turned into a reliable indicator for me. By doing just the opposite, I have more often than not made money on the market (or, equally important, avoided a loss).
We focus on equity investments which is why I am not going to feature a currency speculation. But with my service featuring US shares, I've been approached by readers asking if they should actually invest in America if the dollar was going to be beaten to smithereens. So I thought I'd share my views with you today.
My personal take of the situation is that - once again - much of what you can read in most investment newsletters is not going to happen. In my mind, the reason why the next 12 months are going to bring about a huge surprise on the exchange market lies not with the Dollar... but with the European Union.
Will 2005 be the year that the Euro-zone falls apart at the seams?
It has so far been ignored and overlooked by most commentators, but 7 July 2004 may go down into history as the day the Euro-zone started to fall apart.
Italy's national debt was downgraded by the rating agency, Standard & Poor. And if you analyse the growing spread between Europe's economic performance and its government spending, it doesn't take an economics degree to figure out that other mainland European countries could be close behind with a similar downgrade.
With several European governments having reached a state where you could say that they are fighting for financial survival, it'll soon be every man for himself. This in turn is preparing the centre-stage for a story that the media has long claimed could only even be contemplated by a tiny bunch of anti-EU nutters: the demise of the Euro and a return to national currencies.
Most Europeans are still unwilling to support tough economic reforms, and the only way to prop up the economies will lie in devaluing the currency.
Individual Euro countries will not be able to devalue the Euro, which is why talks of a re-introduction of national currencies are bound to happen.
An easy move, with potentially huge political profits
Surprisingly, the hurdles for such a move will be lower than one would expect. The national central banks still exist and they are fully operational. The bulk of currency reserves still reside with the national central banks, and payment systems in the Euro area are still national.
Last but not least, the Euro coins have been issued by the 12 national central banks and they could easily be traced to their origin - and then taken out of circulation. In the meantime, a country could just use its existing Euro coins and notes as legal national tender until the new national money has been minted and printed.
Unthinkable? Politicians will always do everything it takes to win the next election. They peddled the Euro with the promise that a united European economy would create growth and prosperity. But the promises never materialised, and the voters are growing restless. New ideas are needed to win votes, and reintroducing national currencies is the promise that would virtually guarantee to get millions of voters back.
Always question extrapolations of existing trends
Most of the media lacks the perspective to report events before they happen. Instead, whatever the hottest current trend is, the media talks about it as though it will continue to happen forever. The US Dollar fell for two years in a row... and most media reports would have you believe it's set to fall further.
But things do change, sometimes even in a big way. My job at Fleet Street Platinum Service is to locate such changes before anyone else writes about them.
Mark my words: in a year's time, talk about the demise of a currency will be focussed on the Euro, not the US Dollar. It will once again hit the majority of investors, commentators and analysts by surprise - just like the strength of the Euro did two years ago. And hasn't it always been like that? But remember where you heard it first.
Petrel soars to 129% gain on speculation
Now that's off my chest, let me bring you bang up to date with all your open positions. The rising oil price has hit the world's markets, which has negatively affected some of my recommendations, too. But the fundamental stories are still in place. Let's take a look.
*** My highly speculative oil play, PETREL RESOURCES (PET.AIM), temporarily soared to 61.5 pence yesterday - representing a 129.9% gain since my original recommendation - after the Sunday Telegraph reported that "industry executives believe that a decision has already been taken by Thamir Al-Ghadhban, the Iraqi energy minister, to hand contracts worth hundreds of millions of dollars to the small Irish-based company and its partners."
The newspaper also quoted Petrel's CEO, David Horgan: "Three weeks ago the Iraqis suddenly sarted giving us a lot of detailed technical information and asking us for detailed plans. Formally no decision has been taken but the vibes are very good."
The next 8-12 weeks will show if the Irish company has managed to succeed in its bids for Iraqi oil fields - but already the developing situation looks very much in our favour. The stock has drifted back since yesterday's excitement and is now at around 50p. HOLD.
*** UNIQUE FLUGHAFEN ZURICH (UZAN.ZRH) continues to defy gravity. Despite the airline sector being under heavy pressure due to the rise in fuel costs, shares in Switzerland's largest airport operator hold steady. This relative strength makes me believe there is more to come. HOLD.
*** CLARCOR (CLC.NYS): No news since I last reported. BUY
.*** Managers of EG LAUFENBURG (EGL.ZRH), our Swiss utility stock, must be keeping their fingers crossed for the spell of hot weather in Europe to continue. Each additional day of sweltering weather drives up the demand for energy. HOLD.
*** WYNN RESORTS (WYNN.NAS) fell back to $34/35, largely because of concerns that the increased oil price is going to hamper prospects for the travelling and leisure industry. Whilst this is certainly true in the short-run, the mid-term prospects of conquering the vast Chinese gambling market via the projects in Macao are largely unaffected. BUY.
*** The share price of BERLINER EFFEKTEN (BFV.FSE) has stabilised in the 4.30 Euros to 4.50 Euros area after the recent unexpected sell-off. BUY.
*** LEUCADIA (LUK.NYS) published its figures for the first half of fiscal year 2004. Net income was $22.02m or $0.31 per share compared to $1.63m or $0.03 per share last year. But with investment companies, such figures are only ever a momentary snapshot. The market's focus now lies on Leucadia's bid for the troubled telecom operator, MCI. The case is currently being reviewed by the US antitrust authorities. Leucadia's shares have held up steadily during the recent weak market period and the share could be in for a 10-20% gain if the MCI deals goes through. HOLD.
*** I am awaiting the next round of quarterly figures for the Argentinian land company, CRESUD (CRESY.NAS). BUY.
*** SBM BAINS MER MONACO (SBM.PAR) announced that during the first trimester of fiscal 2003/04, revenues rose 16%. Revenues of the gambling business, which accounts for 57% of group revenue, rose 22% on the back of a healthy stream of visitors. I just tried to book a room in one of the four SBM-run hotels in order to attend SBM's annual meeting on
September 24th, only to find out that not a single hotel room is available for that period. SBM shares have just surpassed their old all-time high of -285 and from a technical perspective they could well rise beyond -300 during the weeks to come. BUY.
Until then...
Sven Lorenz,
Special Situations Analyst
