Add the excitement over the forthcoming Olympics to the praise for the Jubilee celebrations earlier this summer and its little wonder London has a bounce in its step these days. It's even withstood the UK's property slump.
But on Wednesday John Stepek explained why current optimism may be misplaced.
The capital is right in the regulatory firing line as "the Libor scandal has rightly breathed new life into the drive to make the vital financial sector more accountable." Worse, politicians can be relied on to get this wrong.
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It might seem counter-intuitive to think that more rules won't make banking safer. Yet "Drachten, a town in Holland, pioneered an approach to road safety that involved getting rid of pretty much all street furniture. So there are no road signs, no traffic lights no safety measures." That's resulted in no fatal accidents and a doubling of traffic flow. It might seem odd but "removing the various signals forces people to concentrate. They have to keep their wits about them, rather than relying on external signals".
The same rules apply in banking. "The illusion of a safety net primarily in the form of a central bank to bail everyone out is one reason why individuals and banks take risks that they shouldn't."
But don't hold your breath waiting for the banks' safety net to be taken away, says John. Odds are we'll be left with a shrunken financial sector, which is just as risky but makes less money because of the onerous costs of regulation.
That's bad for banks but it's also bad for London, says John. "London might even lose its crown as the world's top financial centre. Certainly the number of articles in the press crowing about London's unique status smacks of the sort of hubris you get before a crash."
How Libor affects you
Now's a good time for me to mention deputy editor Tim Bennett's latest video. For anyone still baffled by what the Libor scandal is all about and how it affects you, Tim has prepared his usual concise summary.
Don't buy a retirement flat
On her blog this week, MoneyWeek editor-in-chief, Merryn Somerset Webb, warned about the dangers of a seemingly innocuous investment the retirement flat.
"Around 200,000 people own these. On the face of it, it isn't a bad idea at all. You get to live in a community with other over 55s. You get alarm systems, wardens and various communal areas, all of which should make living independently easier for longer. And you get to keep on owning your own property too. But unfortunately, as with so many things involving money in the UK, while the theory is good and some operators are honest and owner friendly, the practice sometimes isn't."
One of the key issues is that these properties are normally sold as leaseholds rather than freeholds, says Merryn. And often the small print in the leasehold is pretty restrictive.
"Let's say you own a retirement flat but have to move into care, or perhaps that you inherit a retirement flat. They aren't that easy to sell (presumably in part because they can be sold to such a small part of the total market) taking an average of 236 days to get shot of, against 148 for the average property, according to the Sunday Telegraph.
"But while you wait to sell, the service charges (and sometimes ground rent) will still have to be paid. That might not be unreasonable after all, if one flat isn't paying up the others have to cover the difference. But service charges don't come cheap. Think anywhere from £3,000 a year up."
That might seem bad, but it's only the start of your potential problems, says Merryn. "You might also find you are obliged to bring the flat up to 'as new' condition pre-sale, that you can't rent the place out or that if you can you have to pay 'transfer fees' to the freeholder."
"And when you do sell you will usually find that you have to pay another set of transfer fees usually of around 1% of the sale price of the property, but sometimes much, much more. The Sunday Telegraph suggests some freeholders charge up to 5%, but others report up to 12.5% although the worst offenders are now being investigated by the OFT. And if you want to improve the property to sell it faster? You might find you have to pay a fee to do that too."
To cap it all off, says Merryn, they often don't keep their price either. There was some talk that retirement homes would hold their value in the crash, but that doesn't seem to have happened.
Readers soon opened the debate.
Robin' felt that the real problem is the concept of leasehold: "The notion that you have a mortgage on a house that is never really yours... It's a con."
However, 'NeutronWarp9' disagreed: "Leasehold tenure has been around for a long time and for good reason - it conveys a period of time for exclusive possession. How else can you legally sub-divide a building into individual assets (flats) and leave the structure, grounds and common areas to be covered by a service charge?"
If you haven't read the piece yet, click here to get involved.
Keep faith with Fenner
Elsewhere, my colleague Phil Oakley had reassuring words for anyone holding shares in engineering firm Fenner (LSE:FENR).
The shares have dropped 19% since Phil tipped them in February. However, he believes the firm is still a sound investment.
"Investors have started to fret about global economic growth. The fear is that formerly fast-growing economies such as China and India are running into trouble, and so won't buy ever-increasing amounts of raw materials such as coal, iron ore and copper. There's also concern about what cheap US shale gas will do to coal demand in North America. All of this could mean that mining companies might buy fewer of Fenner's conveyor belts."
But Phil thinks that in its rush to dismiss the sector, the market has overlooked Fenner's promising fundamentals.
"The conveyor belts business needs high levels of mining production in commodities such as coal and iron ore. But unlike mining companies, the price of said commodities is largely irrelevant to its profitability.
"The rates of growth in demand may well slow. But to be really bearish on demand for Fenner's conveyor belts, you have to believe that the absolute amount of coal and iron ore demanded by countries such as China and India will start to fall. I'm not saying it can't, but very few people are making those bets now."
Fenner has other strengths too. It makes innovative products that are hard to copy. Indeed, the firm's profits are rising, as are its returns on investments. These are "the hallmarks of an excellent business", says Phil.
"At 369p, you can pick up the shares for 10.2 times earnings today. The dividend yield of 2.8% is not stellar, but it's covered 3.5 times by profits, which gives the scope for decent growth in payouts. So as far as I'm concerned, Fenner remains a good long-term investment."
Profit from little black boxes
The record of Dr Mike Tubbs, one of our newsletter writers, is pretty impressive. On average, his closed out positions are up 66% so far, so when he gets excited about a stock it normally makes sense to listen.
"In a few days' time a black box will go on sale in the UK that will change the way you use your TV set. It won't receive BBC, ITV or Sky, but it will offer you full internet access on your TV. You will be able to watch streamed films, videos and TV as well as update social networks, shop online and play war games or poker. It will cost only £199 and the remote control will look very much like a smartphone."
In other words this little invention will completely revolutionise the way millions of us watch TV. But the interesting story is not the box, but the company behind it, says Mike. It "invests heavily in R&D and has delivered a whole series of enormously lucrative innovations in recent years. In fact this company is a household name that you use every day from the internet to your TV and mobile".
With a wide-ranging business in fast-growing areas it's little surprise that the firm is expanding quickly, says Mike. "It is forecast to show double-digit revenue growth and high margins for at least the next five years. Or that its cash flow is predicted to grow at 25% per year!"
As usual I'm not about to get myself in a lot of trouble by giving away Mike's top tips here. But what I can do is point you in the direction of one of Mike's free investment reports. Given his record, I'd say it's well worth a read.
Two solid income plays
Before I go I'd like to mention an article for income seekers. My colleague Matthew Partridge likes the defencesector, and this week he looked at its best buys.
"The papers have been filled with news about the latest defence cuts. Many have complained that the cuts will make it harder to wage operations. However, at a time when governments are looking to reduce overall spending, defence is a relatively easy target", says Matthew.
But Matthew reckons that BAE Systems (LSE: BA) and Lockheed Martin (NYSE: LMT) may still do well. "Both companies also have close, longstanding relationships with both the Pentagon and the Ministry of Defence. This means that even if the military scales back, it may do so by buying less from small suppliers, rather than cutting back heavily on deals with the two larger companies.
"Indeed, the outlook for high-end equipment may not be that bad. While officials talk of having a smaller army, they also talk about using technology to make it smarter'. Of course, much of this is rhetoric to make the cuts seem less bad."
Moreover, both firms have diversified into other markets such as cyber security, says Matthew, while demand from customers like Saudi Arabia should also help.
And best of all, says Matthew, is that both firms look cheap and pay a decent dividend. Click here to read the article in full.
This article is taken from the free investment email Money Morning. Sign up to Money Morning here .
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Have a great weekend!
John Stepek
Tim Bennett
James McKeigue
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