MoneyWeek Roundup: Is the smart money cashing out of commodities?
David Stevenson highlights the week's best pieces from the MoneyWeek team, including: Is the smart money cashing out of commodities? Will the gold standard make a comeback? And wedding costs go 'completely nuts'.
America's politicians have been squabbling about the 'debt ceiling' that's the total amount the US allows itself to borrow. So far the lawmakers have cobbled together enough of a deal to keep USS United States afloat. But for how long? John Stepek has been analysing how serious the problem is.
"A government shutdown isn't as dramatic as it sounds", he says. "It's happened in the past" as James McKeigue has written about here. And for now, the government "would still be able to pay interest on its bonds". Though longer-term, "if the US can't borrow more money, it'll either have to slash spending or stiff its creditors".
"Now the latter's very unlikely it really would be a global disaster". But "the more wrangling there is, the less confident investors will become in the US political process". So the US will end up paying more to borrow. And "if the price of getting the debt ceiling raised" is the government having to make "hefty spending cuts", Federal Reserve boss Ben Bernanke will be "even more determined to prime the pump for QE3" ie more quantitative easing.
"That would add even more inflationary pressure to the mix, pushing commodity prices higher".
Nasty. Meanwhile inflation in China has just hit a near three-year high. But what about the other side of the commodities coin? Money Morning has been looking at that too.
Giant commodities trader Glencore has just said it's planning to list its shares in London and Hong Kong to raise up to $11bn. That would be the world's biggest IPO (initial public offering) this year and the UK market's largest-ever. As John Stepek notes, this "could result in more merger and takeover mania in the mining sector".
But as he also says, "when big companies go public, it's often a bad sign. Goldman Sachs went public in 1999. The tech bubble, which produced lots of lovely fees for investment bankers, burst shortly after. Private equity giant Blackstone listed in 2007. The credit bubble, which helped the private equity industry scale the heights with bigger and bigger deals, had already started to collapse".
"So does the Glencore float mark the top of the commodities market? Is the smart money cashing out before the boom ends?"
Glencore's boss has scoffed at such a notion as "totally incorrect". But as John says, "he would say that, wouldn't he". Watch this space!
This week also saw our latest national inflation numbers published. The consumer price index (CPI) was up by 4% year-on-year, which compares with the Bank of England's official 2% target. Meanwhile the old-style RPI the retail price index which includes housing costs was up an annual 5.3%. By the way, you can keep tabs here on what's really pushing up the UK's inflation rate.
But here's the really scary bit: last month's figures were seen by the experts as 'better than expected' after February's even worse numbers! But there still won't have been much 'feel good factor' around the country. Wage growth dipped to just 2% a year and UK retail sales saw their biggest annual drop since British Retail Consortium records started in 1995. Ouch!
Back to John again: "no wonder British consumers are facing the big squeeze". What's more, he reckons, "the pain for consumers is going to continue" as the weak pound makes our imports more pricey whatever the likes of oil prices do.
How can you protect your savings from rising inflation? Try this: National Savings & Investment is re-launching its inflation-linked bonds. We'll tell you when the full details are announced.
And of course I almost can't believe I've got this far without mentioning it there's always gold.
Whatever the financial weather, it keeps climbing. This week saw another record high at almost $1,480/oz. The way the yellow metal is going, a new peak in pound terms isn't far away.
Our precious metals man Dominic Frisby is, as ever, on the case. Not everyone agrees with Dominic as he says this week, he's "been branded mad, insane, lunatic, barking and a lot worse" for suggesting gold "will eventually regain some kind of 'official' status".
What's he on about now? In a nutshell, that the world's financial system "might return to the gold standard".
What would this mean? Read Dominic's piece to get the full story. He's includedthe usual great set of charts, one of which goes back to 1713. the bottom line: we're talking even more good news for the gold price.
How should you buy a slice of gold price action? This week, Penny Sleuth editor Tom Bulford has come up with another way in "elephant country".
"Alexander Betts began smelting and refining precious metals in Birmingham's jewellery quarter in 1760", he says. "Remarkably, the business is still there today. If you're tempted to answer Dale Winton's plea to 'cash your gold', the items you trade in for the rock-bottom rates offered will probably find their way there. They'll be melted down by what's now the 'Stephen Betts Group'."
It's the start of a fascinating story that switches to Africa rather like a Wilbur Smith novel and as I couldn't attempt to recount this as well as Tom does, I'll leave him to tell it here.
And Tom's search for junior gold miners doesn't end here. In his Red Hot Penny Shares newsletter, another of his sector top picks is a company sitting on a potential four-million ounce deposit neighbouring the gold-hungry Chinese.
Still on gold sort of because it's still the most-used material for wedding rings. And this month's royal nuptials have been under the microscope of our editor-in-chief, Merryn Somerset Webb.
Fresh from starring in Channel 4's new personal finance programme Superscrimpers where she's trying to help make the country a bit more money-savvy, Merryn's "worried about the royal wedding".
"Why? It's resulted in my inbox being filled with even more stupid press releases than normal. It's so bad I might announce the worst wedding-related press release just after the big day. And add any entries of your own below".
That offer is still open, by the way, in the 'comments' box on her blog the posts keep coming in.
And the other worry? Cost. Not for the royals they're still "rolling around in money, and William's new in-laws-to-be are doing just fine too". But amongst the rest of us, "brides often lose their minds in the months before their big day. With the average wedding already costing around £20,000, brides around the country are letting themselves be conned into destroying their finances for the sake of 'one perfect day'."
In fact, she says, wedding costs have gone "completely nuts. One in ten couples ends up paying for much of their wedding on credit cards. This is particularly horrible. Relate will tell you that nothing ruins a marriage faster than financial pressures. Let's hope a fairytale princess wedding doesn't lead a generation of brides to create them".
And finally in his latest video, my colleague Tim Bennett offers a short guide to one of the most important financial statements the balance sheet.
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Have a great weekend!