I was in the middle of typing up my intended topic for today: Why now is the time for investment in antiques. It was looking like an interesting piece. But then I started listening to something I downloaded over the weekend. And I was simply transfixed. For the best part of five hours, I simply sat there and listened. I was immediately compelled to change tack and tell you all about it.
Now I warn you, today's Right Side is a fair bit longer than normal. But there's a lot to say and you'll see exactly why in a second.
I wish I had been there!
On Friday, MoneyWeek held their first ever investor conference. Unfortunately, a long-standing commitment to a charity golf day meant that I couldn't be there. But I downloaded the whole conference to my phone and was totally captivated by it.
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For those five hours I listened without a break. And that's why I want to report back to you all the best bits.
The conference was titled Investing in 2011 - Crisis or opportunity.' And there was a fair bit of discussion around the crisis side of things. But some great ideas and tips also came out of the discussions.
The themes included interest rates, the banking crisis, Greece, equities, bonds, commodities, house prices, currencies; yes, just about all the subjects that captivate us here at The Right Side.
Today I want to talk about the bits that interested me.
Let's get straight in at the deep end.
"I wouldn't touch a bank stock with a bargepole"
I've got a healthy cynicism for banking stocks right now. And James Ferguson (Head of investment strategy at Arbuthnot Securities) is probably the best banking and macro-economics analyst I know. He's followed banking crises from Asia, to Scandinavia and now back here on his home turf.
Here's the gist of what he had to say.
Right now we know the banks are hiding massive losses and are technically insolvent. This is how all banking crises play out. Banks lend out vast sums of money and create balance sheets of eye-boggling magnitude. And then things go wrong. They always go wrong.
In short, don't touch banks with a barge-pole.
James' explanation of how QE works was also riveting. He says it probably saved us from depression. But it won't save us from more money printing.
The fact is we've thrown everything (including the kitchen sink) at our looming depression. And yet, as James argues, QE and fiscal policies here and elsewhere haven't worked.
He shows exactly how QE cash went straight into commodities and stocks. Though of course, that still left a decent slug for the bankers bonuses along the way.
James was hardly likely to offer a stock tip in the banking sector. But he did suggest a very interesting pairs trade on two banks (that's where you short one stock and go long another). More details on the audiotape (there is a link at the end of today's issue).
Suffice to say that this macro-economist is a bear. And he set quite a scene for the next couple of speakers.
"The West is bust!"
Probably the most important recurring theme of the afternoon is the very same thing I said would be the story to watch out for in 2011. And that is a rise in the yield curve. When rates finally go up, expect everything else to come down.
Simon Caufield, the editor of True Value was quite explicit. The sovereign debt markets are exceptionally distorted. And that's because many of the emerging markets have been forced buyers of Western debt in an effort to hold their currencies down.
As they bought debt, it pushed rates down.
But Simon sees demand for these bonds evaporating. As emerging nations allow their currencies to float, they won't need troublesome Western bonds. Trouble is brewing.
"How does someone go bankrupt? Slowly at first, then all of a sudden" says Simon (a quote he pinched from Ernest Hemingway).
We're at the slow phase now and that can take an awfully long time to get through. But then all of a sudden things can spiral downwards.
And Simon was by no means alone. Tim Price (Investment Director of PFP Wealth Management) fanned the flames. Tim talked about a lunatic fringe' of nations that are even worse off than the likes of the USA, or UK. Tim's analysis of Nation debt shows exactly which countries look safe against those most at risk.
He produced a couple of charts (also available to download) and to me, provided one of the most important insights into how investors should allocate money safely in the years to come. As he pointed out, for him and his clients, the name of the game is now preserving wealth.
Both Simon and Tim offered funds to profit from this severely distorted market. These and all the rest of the tips are all on the audio below.
The general idea came across loud and clear. Bank policy rates may stay low, but in the end the market is going to push up interest rates. And that's already started with the periphery nations of Europe.
And when market rates go up, it's going to hit us hard. It's going to have massive repercussions for the UK's most beloved asset: houses.
"It's Chelsea 5, Blackpool 0"
Merryn Somerset Webb, editor-in-chief at MoneyWeek is well known for her bearish stance. And she didn't disappoint.
Merryn dealt with just about every counter-argument railed against her during her years as houseprice uber-bear. Suffice to say, she's got this market sussed. And as for the question from the audience why not borrow now and just inflate away the mortgage?
That idea was met with short shrift. You can forget about homeowners inflating away their debts. With wages stuck in a rut, precious few people are in a position to profit from that particular chestnut!
The other panellists weren't going to be left out of this discussion. James made the point that every economy that took part in the great credit leverage of recent decades saw a massive bull market in house prices. Yet, what went up across the board, certainly hasn't come down the same way.
For the US and Ireland - yes they've suffered crushing property busts. But the UK stands practically alone in fighting off the bear. Again, his analysis on the effects of QE here in the UK was exemplary. It's left us with a massive schism in the housing market. In his words, "it's Chelsea 5, Blackpool 0".
A point our resident gold expert Dominic Frisby seized upon.
Money printing always benefits the first recipients. And in this case that's been the bankers and the wealthy. Of course the Kensington and Chelsea prices have gone up. It's a con. While the masses from Blackpool to Bognor suffer, the bankers splash newly minted cash closer to home. Is that money filtering down to the masses? No chance. It goes straight back to the banks.
And it aint coming back out. As Merryn says it's all very well the banks offering all those nice looking mortgages you see in the papers; But how many people can actually get hold of them? Not many!
But make no mistake, forced foreclosures will come as soon as rates head back to normality.
As Merryn was keen to point out, it's most certainly not a question of if, but when rates resume normal service.
So what about Merryn's favourite investment? I guess it just wouldn't be a MoneyWeek conference without a mention of gold.
Wow there are some real gold-bugs here!
I know Simon's allocation to gold as we've discussed it before. He's been talking about a 10-12% holding to insure against catastrophe. I always thought that was a tad high. But wait until you hear this
Tim declared that he holds about half his own personal wealth in precious metals. Wow, half! Though for clients he recommends nearer 20%.
Of course I wasn't so surprised to see resident gold-bug Dominic Frisby announcing a 75% weighing to gold and gold related assets.
They're not all gold bugs though. James doesn't hold as he reckons the price has been bid up by early investors looking for inflation protection. James is a deflationist, and seemed pretty aggrieved that those inflationists had undeservedly made gains off the back of a new brigade of currency vigilantes.
My own convictions tell me there's a lot more mileage in gold. And I was inspired by those massive personal weightings in Dominic and Tim's portfolios. Here's what Dominic had to say about when he's looking to cash in his winnings.
Basically, he's got six indicators he's watching to let him know when to call time on the yella stuff.
Dominic's been working on gold ratios for years. We all know that you can't value gold in the normal ways, so work with historical ratios. His presentation made for some audible gasps from the audience. As I can't go into detail here, nor show you the charts, you'll want to download his presentation for yourself.
Dominic points to legendary gold investor Jim Sinclair who sold at the very top of the seventies/eighties bull and how he did it.
I'll leave you with one thought from Dominic though I'm not sure if it was meant tongue in cheek: If the Bank of England's massive sale of bullion at the bottom of the market is anything to go by, then you should watch out for when the Bank of England comes looking to buy back in. It'll be a sure sign of the top of the market!
I can't go into the full details here about Dominic's 6 point plan. But if he's right, then there's quite a way to go for this bull market yet.
An interesting question from the audience asked whether, if things turn nasty, we'll ever see the authorities confiscate gold.
Dominic can't see it. Though we've seen it in the States during the depression period, it's never happened in this country before. Tim Price, himself a massive (and to me surprising) gold bug was less sanguine. He's certainly not ruling out confiscation by the authorities.
Well, that really would be crisis! I think we need to prepare for the worst!
This article is taken from the free investment email The Right side. Sign up to The Right Side here.
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