John Stepek highlights some of the best bits that we've published in the past week.
I'm sick of the Budget and I'm sure you are too. If somehow you were blissfully spared the coverage and still need a round-up of what happened, you can have a look on the website here https://www.moneyweek.com/features/budget-2010.aspx. If you want the short version nothing happened, the real action will come after the election, and it's not really worth wasting much of your time worrying about it until then.
A lot more consequential was the US healthcare bill. We've more on the actual contents of the bill and its implications here: Obama's big reform goes through. But it's good news for at least one group big pharma.
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You might have thought that any sort of consumer-oriented healthcare reform would result in lower drug prices for consumers. But it seems not in fact, consumers are going to end up paying $3.5bn a year extra for drugs. More importantly, with reform now a known quantity, rather than a cloud hanging over the market, this should provide a catalyst for the astonishingly cheap pharma sector to get a lot more expensive. We'll be looking in more detail at the healthcare sector and who could profit from reform in next week's magazine. (If you'renot already a subscriber to MoneyWeek, you can subscribe to MoneyWeek magazine.)
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Israel has been another of the big news stories ignored in favour of the Budget. Relations with the US are a little frosty at the moment. But one of the most interesting pieces on Israel I read this week had nothing to do with its spat with America. Instead, Joss Smith at The Zurich Club newsletter was writing about why Israel looks a fantastic place to invest.
I hadn't read much about the history of Israel, so I hadn't appreciated what an economic basket case it once was. "It wasn't long ago that Israel looked like an economy stuck in the Dark Ages. As late as 1965, the ratio of research and development spending in Israel as a proportion of its overall GDP was under one percent nearly the lowest for any country in the OECD," says Smith.
"Wars and heavy defence burdens combined with an agrarian socialist ideology to stifle the economy. Communal experiments such as kibbutzim put intellectuals to work picking oranges. It was almost a voluntary version of Mao's Cultural Revolution in its misuse of education and talent."
As a result, the country's smartest and best-educated students went to the US. Many found jobs in the tech sector. But in the late 1980s and 1990s, things began to change. For one thing, the collapse of the Soviet Union saw many highly trained, smart people enter Israel from the former USSR. Meanwhile, their tech-savvy migrs returned from the US to set up businesses. And more investment capital began to flow into the country.
"In the space of a decade, the entrepreneurial side of Israel's economy exploded. A 2008 Deloitte survey of the world's venture capitalists revealed the extent of the transformation. The survey showed that in six key fields telecoms, microchips, software, pharmaceuticals/biotech, medical devices and clean energy Israel ranked second only to the USA in terms of innovation."
But the good news is, there's plenty of growth to come. "Israel's economic numbers are still only a tiny fraction of those of the United States. Tel Aviv has a sophisticated and thriving stock exchange but there are relatively few deeply liquid and mature companies. That is a great plus. If we manage to make our investment before entrepreneurial vigour gives way to the bloated complacency, we can make a lot of money. Which means acting now on Israel."
Meanwhile Greece got its promise of a bail-out from Germany (helped by the IMF), which rather suggests that the whole eurozone is now at threat of going bust, rather than just a few dodgy peripheral countries. Yet amid all the chaos and risk, global stock markets just keep rising.
It can't last, reckons Riccardo Marzi. "The average British investor must have the memory of a stunted goldfish. That's the only way to explain the wild rally that we've seen in the last few weeks." Riccardo has his finger poised over the 'short FTSE' button. It hasn't quite hit his 'sell' target yet, but he's already primed readers of his Events Trader newsletter on exactly when to go short.
I can't tell you his target as it wouldn't be fair to his subscribers, but if you're tempted to try short-selling yourself and bearing in mind that you can lose an awful lot more money than you stake in the first place then you can find the right spread betting provider for you, using our spread betting comparison service.
Last week I asked why banking hadn't been outsourced overseas, while many science and engineering jobs had. I got an interesting response from an ex-investment banker who suggested several reasons, none of them flattering to the banking business:
"Banking is a highly regulated oligopoly. On the face of it, it's open to competition. But in reality, large parts of the industry are so complex to enter from a regulatory perspective (endless rules, no uniformity, masses of different regulators) that the banks are unmoveable unless they blow themselves up. As an example, practically all global investment bank and securities revenue goes to six or seven investment banks. Sure, WITHIN the oligopoly, competition is fierce. But globalisation from outside competitors doesn't come into play."
He also, he points out that"Bankers are a pretty coddled lot." When they want a PA or an IT assistant, then they'd rather pay full whack and get 100% of the service, than pay maybe 10% of the money for a slightly poorer quality service. After all, it's not their money they're spending. "Hence they fight tooth and nail to delay or avoid offshoring or outsourcing to places like India."
"The big money (say $5m or $10m per year) goes to a very small group of people, and the really big money ($20-100m per year) goes to a handful of top traders. Because investment banks are convinced that these people are in short supply they pay them bonuses based on a percentage of revenues. So someone with a PhD in Asia might in theory do the job just as well as someone with a PhD in the UK or US, but the banks will ensure that their pay gets bid up over time, so they wouldn't be cheaper anyway. Doh!
"I had a great time when I worked in this industry. But it's shockingly badly managed from a shareholder perspective, and needs bringing down a peg or three."
Financiers feel free to bombard me with responses defending your industry at the usual address: johns@moneyweek.com.
Let's move on from banking now, to the sort of profession that you can still discuss in polite company working with toxic waste. The other week, Paul Hill,who writesthe Precision Guided Investments newsletter, met up with the boss of what he reckons is an incredibly cheap firm in the waste disposal sector.
Hazardous waste is a big deal in the UK, says Paul. "Between 2003 and 2008, the market grew at an average rate of 6.7% a year. Medical waste, bags of blood, syringes and old computers all of this has to be disposed of by specialist waste handlers."
But the biggest opportunity of all is set to arise as Britain's ageing nuclear reactors are shut down over the next 15 years. "At one end of the contamination spectrum are the highly dangerous radioactive materials which will be stored for centuries in high tech containers with 150-ton concrete and metal cylinders to seal in the spent fuel." Then there's the "low level nuclear waste the shoes, plastics, soils, equipment and ancillary buildings that possess only traces of radiation and pose little risk to the wider community."
It's a mucky job, but someone has to deal with all this stuff. And Paul's found just the company to potentially profit.
We've had a bit of a running discussion on ethical investment going on in these round-ups. That makes a recent psychological study from Canada rather interesting.
Apparently, people who buy 'ethical' products are more likely to lie, cheat, steal and generally be unkind. At least one pundit concluded that this is because everyone has a 'finite' amount of niceness. So if you buy a green fund, that uses up your 'niceness' quota, and then you don't feel bad about kicking the dog when you go home.
Nonsense, says Bill Bonner in The Daily Reckoning. "Where the researchers and commentators go wrong is in the beginning. They think that buying an 'ethical' mutual fund... or a 'green' car... is a form of being nice. It is nothing of the sort. It is a substitute for being nice. Nice people don't have to pretend to be nice by buying supposedly ethical products. They are nice; that's what counts to them."
David will be back on Monday, where he'll be taking Money Morning readers on a quick trip Down Under, to see what Australia's market has to offer for the yield-hungry investor.
Oh, just before I go. If you're a trader in the financial markets, and would like to share your insights, trades and tips with a wider audience, then we'd be very keen to hear from you. We're looking to launch some new trading services for our readers. Get in touch at johns@moneyweek.com.
