It was the usual doom and gloom when I opened the paper this morning. The Bank of England predicts a protracted slowdown. It’s revised its growth forecast for next year to 1.5%, down from a 2009 forecast of 2.8% made last year.
Chancellor Eyebrows is going to have a private meeting with some supermarket men to talk about rising food costs. But the Treasury won’t give any specifics — it’s all a bit hush-hush...
Airlines cower in fear as oil hits a new high of $135 a barrel. I argued last Tuesday that high oil prices are set to wreak havoc on the UK economy.
It’s all very depressing. So, to cheer us up, let’s talk about something shiny!
Gold!
"The recent correction in gold appears to be over for now," says my colleague Garry White. "Now is most definitely a time to buy gold."
The reason is that inflation is on the rise. Last month’s monthly US inflation figures came out at 0.2%. But few people believe the true figure is anywhere near that low.
The same is true this side of the Atlantic. Between April 2007 and April 2008, consumer prices rose 3.0%, according to official figures. We all know that’s unrealistically low.
So, more and more investors are buying gold as a hedge against inflation.
Last Friday, Garry tackled the question of which made a better inflationary hedge — oil or gold. As he sensibly pointed out, you don’t actually have to choose, so why not have both? The signs are bullish for both commodities.
But with oil passing $135 a barrel yesterday, you may be starting to worry that a bubble is forming. There’s certainly a strong case to be made for taking a second look at gold, even if you are already invested.
As Garry explains today, some experts reckon gold is the trade to be in right now.
But you need a strategy. No market goes up in a straight line, so what’s the best way to play this?
Garry suggests setting a sensible level and ‘buying on dips’ below that price — a tried and tested way of maximising your gains.
Banking shares — a perspective
As we’ve mentioned before, Theo Casey, my number-crunching right hand man, is wary of the banking sector. He smells a value trap...
But here at Fleet Street Daily we like to present more than just the one view. Our penny share guru Tom Bulford disagrees that it’s a trap. The value in shares like Royal Bank of Scotland looks genuine to him.
"One thing I was told when I was a young fund manager," he says, "was to buy shares when the yield exceeds the price earnings ratio."
That is the case for the Royal Bank of Scotland (RBS) even if it halves the dividend.
Tom gives us three reasons why he’s warming towards the banking sector. Firstly, nobody seriously doubts that the banking sector will remain more or less in its current form for the foreseeable future.
Secondly, banks are already rebuilding their profitability. White the Bank of England has cut the base rate of interest retail banks have actually raised their rates. So there’s scope for wider profit margins.
Thirdly, banking shares are beaten down because banks are carrying out rights issues. RBS is raising £12 billion, HBOS £4 billion, and there is speculation that others will follow.
But Tom points out that this is just a technical problem. It will pass, and the financial positions of the banks will be strengthened by the extra funds raised.
We’re not saying you should go out and fill your boots with finance stocks. But it’s an interesting point of view — the value that’s been uncovered could well represent a genuine buying opportunity.
But Tom himself isn’t especially interested in the big name financial shares. They’re far too mainstream for him!
He’s a penny shares man — going after small, undiscovered shares trading for pennies, the ones that tend to make the fastest and largest gains.
Tom’s hunting ground is a tiny arm of the London Stock Exchange called the Alternative Investment Market.
The turning point is coming for Asia...
Manraaj Singh is a sentimental guy. I don’t mean he likes walks in the rain and the poetry of Byron. Manraaj is far too busy researching his investments for that sort of thing!
What I mean is that Manraaj knows the importance of sentiment in moving a market. For the best part of a year, sentiment across the world has been heavily bearish.
But now, a rebound seems to be on the cards... in Asia at any rate.
"As I’ve pointed out before, the sharp falls we saw in most Asian markets went beyond what can be economically justified," he says.
Manraaj is confident that the investment case for Asia remains intact. All he needs now is a change in sentiment.
"The evidence for that is growing," he says.
With hedge funds preparing to get back into Asia, the region could be about to get a much-needed boost.
Here’s why Manraaj believes this could be your last chance to buy in on the ground floor!
Until tomorrow
Ben Traynor
