Jim Mellon, author of The Top Ten Investments To Beat The Crunch, talks to Merryn Somerset Webb about his current investment passions and why he’d advise investors to take a keen interest in bioscience.
I meet Jim Mellon in Edinburgh at 11.45am. We haven’t got long for a proper interview. Why? Because he has just come from some meetings, he has a lunch date, and he’s expecting me to meet him again at 2.30 so we can see some shows.
Jim comes to Edinburgh every year for the festival and, unlike most adults, he actually does it properly. He books tickets well in advance, he meets endless friends for lunch and drinks and, in the name of keeping an open mind, he sees up to six shows a day. I’ve been in Edinburgh for three August weeks and I’ve seen a total of two shows by the time I meet Jim. One of those was put on by The Amazing Bubble Man (“the child in everyone loves bubbles”) and the other was a lunchtime performance in the Aga shop. Last year when we met I hadn’t managed to see any at all. It is a difference in focus and approach that pretty much explains why Jim owns a private jet and summers in Ibiza and I do not.
We start with the only thing that really matters: inflation or deflation?
Jim says he is a “temporary deflationist”. He can’t see us going into a “Japan long grind down”. Our politicians are bound to panic soon and “print money in very, very large quantities; much, much larger than we have seen so far”. I tend to agree, but I point him towards James Ferguson’s work. James, in a nutshell, says that it doesn’t matter how much money is printed; if the transmission system – the banking or credit-creation system – is broken, due to the ongoing losses the banks are making on commercial property and so on, deflation is inevitable.
Jim says he doesn’t buy it. He has (like the rest of us) been reading When Money Dies, Adam Fergusson’s story of German hyperinflation. It can’t tell us exactly what will happen to us, of course. But it does make it clear that if you print too much money, deflation can turn into inflation in a “matter of months”, says Jim.
At some point the banks will “feel sufficiently recapitalised that they will go out and lend in the conventional fashion”. That will be the trigger for the shift – “and it is going to happen in the next two or three years”. I mention that there might be evidence this is already happening. We wander around this for a while, but the truth is that we really aren’t sure. We are both, as Jim puts it, “a bit sort of up-in-the-air about what is going to happen”. At least it isn’t just me.
On the plus side, while we can’t absolutely decide whether we will see deflation and then inflation, or skip the deflation bit altogether, there is one thing we can agree on – the double dip. “There is no traction in the US economy… it is not a typical recovery… there will almost certainly be a double dip.”
He feels the same about Britain, although he is a fan of “brutal cuts”. Something has to be done about our “bloated client state” and by the end of the coalition’s first term something has to be done about “reducing regulation and reducing taxation” too. All this needs “stable bond markets”, and getting those means reducing the deficit.
Can they really carry it through?
He thinks so. The Lib Dems, “loving their first taste of power”, will agree to pretty much anything, so that gives David Cameron five years to get going. The reassuring thing about Britain is that “we are unlikely to have social unrest” along the way.
That’s not the case in Spain where some areas have “50% youth employment” and the banks are still going to need huge recapitalisation. Santander “could be the one that is the poster child for the double dip” in the same way Northern Rock was for the first round of the banking crisis.
Due to the group’s UK, Spanish, and Latin American exposure, Jim can “easily see” Santander’s capital wiped out in a double dip: “you could be seeing queues outside Santander branches in the next year or two”. This is the kind of thing that keeps Jim bearish on the euro and saying we should all “keep on buying the US dollar”. There will “be a shock at some point and the euro will go below parity with the US dollar at some stage in the next few years”. In a world with very few clear trades this is a “reasonably good one”. The only other currencies Jim would hold are the Singaporean dollar and the Swiss franc.
So what else can we buy? In an environment where people think there is deflation coming, “high-yielding stocks with defensive qualities”. Also gold: “whether it is deflation or inflation, gold is always going to go up”. Hmmm. I just can’t write that again, I say to Jim. You’ll have to come up with something else.
So he does. It turns out that Jim has just bought a flat on the 47th floor of a block in San Francisco (no, he isn’t scared of earthquakes). He hasn’t done it because he likes US property (he doesn’t), but because he is “very excited about biosciences”.
Having just finished a book by Ray Kurzweil, a man described by Reed Business as “technology’s most credibly hyperbolic optimist”, he thinks that within the next ten years “all known diseases will be curable if not cured”, thanks to “the alliance of raw computing power with medical knowledge”.
Indeed, due to the fact that by next year you’ll be able to sequence a genome for $50, everything is being revolutionised. Compounds and treatments that once took years to test can be brought to market much faster than before, for example. Not long now and scientists will be able to “change your genetic code” and “inject stem cells into parts of your body to regrow vital organs”.
The effect of this would be that average life expectancy (“assuming that you don’t get run over”) will rise to “130, 140, 150 years”. That’s important because the longer people live, the fewer children they have – note that in societies where people have long life expectancies, you “already get reproduction levels below the rate of replacement (2.1)”. Think of Japan.
That in turn has huge implications for global economies. Right now we are all geared up to think that China will keep growing, that India will keep on growing, and that you can invest in any companies geared to a rising global population – “McDonald’s, Coca-Cola, Unilever, or whatever”. But what if, instead of having a global population of nine billion in 2050 (the officially forecast number), “we are down at four or five billion again”? There’s something for everyone bored with worrying about inflation and deflation to think about over the weekend.
Still, Jim isn’t moving to America because he is worried that McDonald’s has its long-term strategic thinking wrong. He’s moving because there is going to be big money made in bioscience. Think of it like this, he says. Say you’ve got £20,000 and you suddenly find yourself with the choice of spending it on a new car or on ten more years of life. Only those who haven’t quite understood the point of living will choose the former. “So the money that will go into this is phenomenal.” Right now everyone’s looking for an oil or gas strike to make them rich, but they are probably looking in the wrong place. Bioscience is where the real gold rush should be.
I couldn’t get any tips out of Jim on this quite yet – it is early days – but I did manage to extract a promise that he’ll write up his early San Francisco findings for us after his first few months there. Look out for that in February.
We go back to Jim’s current holdings. He still owns a lot of Charlemagne Capital (LSE: CCAP) and would buy more if he could. “It’s got lots of cash, no debt and the dividend yield looks like it is over 10%.” He has just paid a huge dividend to investors in his Aim-listed Emerging Metals (LSE: EML) after a successful uranium deal, but points out that he is looking for a new deal for it and that the shares currently trade “below their cash value”.
He also still loves Billing Group (LSE: BILL), a payment company he tipped in our Roundtable earlier this year.
Then there is coal company Polo Resources (LSE: POL), which he claims is a “very, very good buy” at the moment.
And finally there is Amazon (Nasdaq: AMZN). Why? Because Jeff Bezos is amazing. He has “taken that little book idea” and “turned it into the world’s largest retailer”, leaving “Wal-Mart for dust” along the way. Today, the fastest growing section and soon-to-be-biggest category at Amazon is clothes. It is “unbelievable”.
But here’s the interesting thing about Amazon: Jeff Bezos is on record as saying that if he were a young man today he wouldn’t start an internet retailer. Instead, says Jim, “he says he would go and do bioscience”.
Who is Jim Mellon?
Jim Mellon started his career as a fund manager at Griffin Thornton (GT). When he left he did so with Richard Thornton to set up his own firm managing Asian funds. He picked up a few million on the sale of that four years later and moved to base himself on the Isle of Man. From there he launched Regent Pacific (of which he still owns a large percentage) and later the now listed Charlemagne Capital to invest in emerging markets. He is also heavily invested in German property, has run over 20 marathons and is the author of The Top Ten Investments To Beat The Crunch (Capstone 2009).