The best assets to own as Europe breaks up
The markets are the ultimate regulator. And soon they'll call time on Europe's unscrupulous politicians. Bengt Saelensminde explains how to protect your wealth when all hell breaks loose.
On Wednesday, I showed you Three ways to find a stock you can trust.
I was having a dig at fat cat corporate managers and it seems to have hit the mark with many readers. As EasyJet's Stelios says, get rid of the lot of them if they won't play ball!
These fat cats are supposed to be answerable to shareholders. And when you think about it, politicians are kind of the same, except they're supposed to answer to voters. But when it comes to it, they always seem to follow their own agenda just like those unscrupulous company bosses.
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Today, I want to look at how EU leaders are following their own agenda. But in the end, they'll have to change. The market will demand it. And when that happens, all hell could break loose!
That's why it's essential you have some protection for your savings. I'll show you how today.
How the market will sort out the European mess
If you've been reading The Right Side a while, you'll know I like to have a dig at our politicos. That's because I'm a great fan of free markets. And politicians always seem to throw a spanner into the works of my beloved markets. Our leaders just don't seem able to take the hard decisions needed of them.
I mean, if you're in business and you see that something isn't working, you change tack right? Well, not these guys.
Monday saw another failed summit for the leaders of Europe. The whole project is going the wrong way. Will they admit it? Will they change tack? Of course not!
But that's OK. The market will take charge. The market is the single greatest regulator over the politicos. And just like a powerful shareholder can shake up stubborn company fat cats, the market will exert its influence on Europe's leaders.
This is how it's supposed to work
This is all about good leadership. And I want to show you what I mean with an example from the business world. Then we'll look at how the same thing is true in Europe.
I want to look at Dixons, the electrical goods chain. This week started off badly for Dixons. Its CEO, John Browett, was snatched up by Apple to spearhead the US giant's global retailing efforts.
That's bad news for Dixons because Browett is the kind of guy you want. When your business is going the wrong way, then you need a man to stand up and take action.
When people stopped buying products in the high street, Browett took the tough decision to shut up shop. He shifted operations to out-of-town sheds like PC World. He took on the internet by offering online prices with off-line pick-ups. This was good vision from a good leader and it led to a turnaround in Dixons' fortunes.
This is what good leaders do. They find solutions to problems. But it doesn't always happen that's why shareholders need to be alert.
And it's the same with politicians
Europe's politicians are heading for disaster
Europe has no good leader it has no John Browett. The ship is sinking and the guys in charge are busy bailing out water as quick as they can. There's no time to fix the hole.
The question is: when will they admit defeat?
Well, I suspect it'll be when a new batch of leaders end up in charge. That's what happened here in the UK. The coalition replaced Labour and have shaken things up. Cameron has come across all eurosceptic. He's said "No" to a treaty on further integration. And UK citizens seem broadly behind him... and that's great.
Over in Europe, Sarkozy looks set to get booted out of office in France. His rivals are considering change. And then there's Italy, Spain, Ireland, Greece and Portugal. They've all said out with the old'.
But to manage change in Europe, there needs to be a new team of leaders. That could take years. If the project can hang on that long, a new team may find a way to manage this mess.
But I wouldn't bank on it.
If not by evolution, then revolution
Like I said, the markets are the ultimate regulator. If the leaders can't implement a workable strategy in time (and I think in the case of the euro we can assume they can't) then the markets will call time on the project.
Here's how it happens.
They'll put in place capital controls: Politicians never take defeat lying down. As the markets assert their way, the guys in charge will fight. That means controlling money and where it flows.
Shadow (black) markets: The markets are so effective that they always find ways round political meddling. It's inefficient (often illegal) and it's not the way they're supposed to work; but for those with the inside track it can be very profitable.
The final revolution: In the end, free markets reassert themselves. A system reboot as I like to call it. That could involve a new currency, or it could just mean rebasing the existing ones (as has regularly occurred throughout history). Whichever way it pans out, it's tough on savers.
So then how do we prepare for this?
Three reasons you should own precious metals
Every one of the three stages above favours precious metals. I reckon that's why the metals are on a roll again. My sources tell me that it's becoming increasingly difficult to get hold of physical metal on the continent. People are stockpiling.
How can wealthy savers cope with capital controls? Hold some metal and move it around in physical form.
What currency do you use in the black market? You use a hard currency. And there's nothing harder than gold. Black markets don't just happen on street corners they happen in financial markets too. They're the result of regulatory efforts to fix something that's considered a problem. So when the fixers get fixing, that's when shadow markets crop up. That's why you need to hold a well-regarded currency one that can't be meddled with.
Where's your store of wealth when the system reboot comes? It's in tangible assets. Property and chattels, for sure even stocks. But in terms of tradable security, there's nothing better than precious metals. The politicos will find it very difficult to control these assets. After the reboot, you cash them in.
A couple of weeks ago I said that silver is looking good. And it's continued its upward trajectory this week. I said that buying physical silver is a bit tricky because (unlike gold) you have to pay VAT on your purchases.
Well, I've found a way to circumvent the problem. It's not a financial product. You still get to hold your silver in the palm of your hand.
This article is taken from the free investment email The Right side. Sign up to The Right Side here.
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Bengt graduated from Reading University in 1994 and followed up with a master's degree in business economics.
He started stock market investing at the age of 13, and this eventually led to a job in the City of London in 1995. He started on a bond desk at Cantor Fitzgerald and ended up running a desk at stockbroker's Cazenove.
Bengt left the City in 2000 to start up his own import and beauty products business which he still runs today.