MoneyWeek roundup: The rise of the robots
James McKeigue highlights the week's best pieces from the MoneyWeek team, including: profit from the rise of the robots; things look bad for US stocks; and Britain has lost the plot.
Europe was saved this week yet again.
Markets cheered as European Central Bank (ECB) boss Mario Draghi took another step closer to all-out money-printing. My colleague Matthew Partridge covered it in detail here: What the new European bond-buying scheme means for your money.
If you're anything like me, you'll be getting a strong sense of dj vu it's not the first time Europe has been saved', and it probably won't be the last. But as my colleague John Stepek mentioned in Money Morning on Thursday, we'd still buy into Europe mainly because it's cheap.
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The robots are coming
And while Europe goes round in circles, the rest of the world isn't standing still. One of the most exciting new developments is robotic technology, says John in Wednesday's Money Morning.
Robots have been used in factories for decades, says John. But now there's "a far bigger, longer-term change taking place in manufacturing. And smart investors should be looking at how to profit from it now".
In short, "robots are getting cheaper, and better at doing things". According to some analysts, says John, "the coming transition could be comparable to the collapse in US agricultural employment over the last century. That's a big claim. About 40% of the workforce worked on farms in 1900. Now it's 2%."
One major impact could be on the US-China relationship. "China's big trump card for the last decade or so has been cheap labour", says John. "But if you remove cheap labour from the equation altogether as happens with automation then energy, rather than wages, becomes the major issue. You need a supply of cheap electricity to run these factories on." And as MoneyWeek readers will know, thanks to the shale gas bonanza America has plenty of cheap electricity at the moment.
Aside from the investment angles there are lots social implications. For example, the rise of the robots could lead to much higher unemployment. Indeed, in the comments section below the piece a debate quickly broke out between those for and against robots: give us your view here.
And for more details on how to play robotics, check out this week's edition of MoneyWeek magazine where we investigate other ways to profit from the rise of the robots. If you're not already a subscriber, subscribe to MoneyWeek magazine.
Make money from rogue traders
Dr Mike Tubbs is a man who knows his technology. In last week's edition of Mike's newsletter, Research Investments, he identified an emerging technology with great growth prospects.
As most of us are all too aware, investment banks have a habit of making costly errors, says Mike. In May, a JP Morgan trader "nicknamed the London Whale', made a massive loss on a complex energy trade".
And it's not the only such mishap in the commodities field, says Mike. It's part of a trend. Indeed, "it's likely that we will see more expensive errors like this. The global trading turnover in energy, metals and agriculture is huge. Just the top 16 companies trading in these commodities have combined annual revenues of $1.1 trillion".
Unsurprisingly, banks are desperate to stem the losses. It's not just the money. New regulations are putting them under pressure to improve their management. And that, says Mike, is the key to a huge investment opportunity.
Mike and the Research Investments team have found a company that serves this market with "sophisticated software platforms" that "achieve lower costs per trade while providing global risk management and streamlined, efficient business processes".
The firm has already built up a diverse set of customers, including "banks, brokerages, traders, producers, fabricators and hedge funds involved in metals & minerals, energy and softs (eg coffee, cocoa, sugar, grains, rice, cotton). A large number of London Metal Exchange clearing members are amongst the firm's clients. And its 250 clients include big names such as Dubai Cables, Engelhard, Eon, Glencore, HSBC, Mitsubishi, N M Rothschild, Statoil and Xstrata."
I can't give awaythe tip here, but Mike's got a free report out at the moment. It explains his investing strategy and gives out some handy tips. Read it here.
America could struggle
The one bright spot in the world economy this year has been America. While Europe and China have struggled, the American economy has continued to grow. Its stockmarkets have done even better and been stellar performers.
Depressing then, that signs are emerging that even American optimism could be starting to fade. In her blog, Merryn Somerset Webb notes that analysts are starting to lower their forecasts of how much they expect US companies to earn.
"Forecasts have now fallen around 15% in the last year," and are still falling, says Merryn. So does that mean that share prices will soon plummet too?
"There's nothing new in forecast downgrades", says Merryn. "Analysts are institutionally optimistic. They start the year with their rose tinted glasses firmly on, and then over the rest of the year slide them off as they scramble back into the real world."
What's scary though, is the timing of the downgrades. A report from Albert Edwards at Socit Gnrale notes that "usually it is the September to April period that has seen analysts forced to slash and burn their forecasts. That makes an almost 2% downgrade in August both rare and very serious indeed."
Other indicators also look gloomy, says Merryn. "New capital goods orders are falling fast and have been falling for four months a trend that is likely to accelerate." Meanwhile recent numbers from Fedex show that fewer businesses are sending express deliveries. And this is before America has even tried to correct its deficit.
When you take all of the above into account, the US stock market, which is on a cyclically adjusted price/earnings ratio of 20, compared to around 12 in the UK and France, looks a bit expensive.
The Nanny State is taking over
Back to our newsletters, and Tom Bulford, who writes Penny Sleuth, thinks "Britain has totally lost the plot". Probably best if I let him explain
"The Saturday before last I went to watch my beloved Bristol Rovers at Wycombe. All was going well. At half-time we led 3-1 but as soon as the second half got under way a torrential storm struck. Thunder growled, lighting flashed and the monsoon rains beat down.
"After negotiating these conditions for twenty minutes the referee took the players off, and ten minutes later the game was abandoned."
Why? Because "the health and safety inspector determined that there was a risk of lightning hitting the stand in which myself and my fellow gasheads (the collective noun for Bristol Rovers fans) were housed."
"Never mind that we had been huddled there for the previous half hour without any attempt to protect us from the alleged mortal danger. Never mind that there was no effort to shuffle us urgently from the stand before it was struck by a lightning bolt. And never mind that by the time the decision was made the storm was past and clear skies were approaching. Health and safety must come before all else, and if it is administered with crass stupidity, then, all the better..."
Unfortunately the Nanny State isn't just restricted to football matches now she's taking on the entire financial services industry as well, says Tom.
"To protect witless customers from their own greed and stupidity and from the gasping incompetence of the industry, new layers of regulation are being introduced."
For example, anyone who gives financial advice is being forced to take tedious courses and sit exams. After 20 years as a fund manager and plenty more writing his newsletter, Tom doesn't think the courses are much use.
But what's really stuck Tom is the changes to the fee structure for independent financial advisers (IFAs).
"Instead of scraping their fees out of the funds that they recommend to their clients, in a practice known as trail commission', they are from the start of 2013 actually going to have to state their advisory charge up front.
"So customers who might not have otherwise realised that the IFA is making a couple of thousand pounds out of them will now have a bill for this amount thrust squarely before them.
"They don't like the idea at all. According to a YouGov survey of 2,000 people, 54% of them said that they would refuse financial advice if they had to pay a fee."
We happen to think that more transparency is good news. But as Tom points out, it does mean that if people want to make the most of their money, they will have to "bone up, learn a few basic facts about investment options, charges and DIY investing, and try to ensure that they can look forward to a comfortable retirement".
Needless to say, Tom is there to help anyone planning to do so. Penny Sleuth is a free, twice-weekly email filled with Tom's views and investment advice. Click here if you'd like to sign up.
Can you trust Beta?
As always, before I sign off I want to point you in the direction of deputy editor Tim Bennett's weekly video tutorial. This week Tim examines beta'. Its fans say it's a great way of measuring a stock's risk - but can you really rely on it?
To hear about other bits and pieces on the internet that have amused us or made us think, sign up for our Twitter feeds we've listed them below.
Have a great weekend!
John Stepek
Tim Bennett
James McKeigue
This article is taken from the free investment email Money Morning. Sign up to Money Morning here .
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James graduated from Keele University with a BA (Hons) in English literature and history, and has a certificate in journalism from the NCTJ. James has worked as a freelance journalist in various Latin American countries.He also had a spell at ITV, as welll as wring for Television Business International and covering the European equity markets for the Forbes.com London bureau. James has travelled extensively in emerging markets, reporting for international energy magazines such as Oil and Gas Investor, and institutional publications such as the Commonwealth Business Environment Report. He is currently the managing editor of LatAm INVESTOR, the UK's only Latin American finance magazine.
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