At no point in my life has tempus seemed to fugit more than now. This year is nearly half over. I am at my house in the Isle of Man, a glass-fringed old café, and the place is boiling. Is this climate change or just an early summer? Who knows, but all this extraordinary weather will undoubtedly further propel the green energy revolution, especially as oil prices have recently been on the rampage.
A slick trade
My colleague Anthony Chow wrote an article last year on writing options to generate income on favoured (or unfavoured) shares and I think now might be a good time to sell (i.e. to go long, or neutral) calls on stocks such as BP (LON:BP.) and Shell (LON:RDSB), which surely are significantly undervalued at these oil prices.
What is certain is that although US production of shale oil is rapidly rising to match rising prices, the overall productivity of fields in the US is declining, and political “stuff” like Venezuela and Iran doesn’t help. Energy costs as a percentage of world GDP have been rising sharply, and although that in itself – plus the fact that we are at the latter stage of world economic recovery and that interest rates are rising – should mean a slowing world economy, oil demand should still be pretty good for a while.
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So, I would load up on oil majors for a good 10% or so bounce, and I would also look at the providers of services (Schlumberger (NYSE:SLB), etc.) as opportunities. There is so much scepticism about fossil fuels that these types of laggards are interesting in a tech-concentrated market. My chum Will Nutting is a believer in this and boy, he’s a great commentator who I take very seriously indeed.
Although there is roaring interest in all things green as a result of the oil price surge and aberrant weather in various places (as well as the life choking pollution in China), there isn’t a lot to choose from that makes sense stock market wise. So, I would just stick to the oil sector. Coal isn’t a great idea, nor is nuclear, as there are too many risks.
The Italian question
I went to my friend Dan Hannan’s dinner for the anniversary of Edmund Burke, the conservative philosopher, at Tate Britain recently. The whole of the Tory establishment seemed to be in attendance. The mood music around Brexit was fairly positive; something will turn up, a la Micawber, and there will be a muddle through. This is my view too, and always has been.
Of greater cause for concern is the patchwork of quasi-clowns being put forward as the next government of Italy. Regular readers will know that my view has always been that Italy is the fault line in Europe with the capacity to chuck the whole Euro Project into the sea. Even arch Europhile Martin Wolf of the Bremaniac FT is of like mind, though coming at it from a very different angle.
I think the British pound is a screaming buy at these levels.
The result of any Italian debacle is clear to see; spreads on Italian bonds over German Bunds are at record levels, and although Italy’s situation is slightly improving, it is still dire. Italy has seen no improvement in living standards for nearly thirty years and the younger generation has been sold down the river. No wonder the Italians vote as they do, although their candidates leave a lot to be desired. Anyway, watch this space.
My call recently has been for a dollar rally, but now I think it has gone too far. I think the British pound (as opposed to the Egyptian pound, the only other one) is a screaming buy at these levels of 1.33 or so against the US dollar.The economy in the UK will improve later this year, and I am optimistic.
I have been very bullish on Japan and still think that 25,000 on the Nikkei is in near sight, but actually the UK market looks cheap. Yes, the FTSE is at an all-time high but its move there has been tortuous and without conviction. Generally, the US is expensive, and the UK is cheap, so take note.
UK property – looking for a discount
There has been a lot of talk of poor property markets in the UK recently, and this is definitely the case, especially in London. Although the providers of indices are always bullish, I really think many London properties are off 30-40 per cent from their peaks. It is an unheralded fact, but all those empty shiny new blocks are discreetly on sale at much less than advertised prices. A friend of mine, who sold at the top – and sold quite a lot – thinks a 50% correction is possible, and that it’s not that far away.
I’m now looking at listed property companies to get a toehold in. Why bother buying direct when you can buy at a discount via the stock market and get a dividend? I know, you can get leverage on property, but that works both ways, as many property developers will now be discovering. I will report on UK companies in property soon.
I keep praying for gold and silver to break through – I remain convinced (memo to self: keep challenging this view!) that they will.I’m a real fan of Mark Child, who runs Condor Gold (LON:CNR), and despite a few local difficulties in Nicaragua, I would be loading up on that stock.
Patience pays
Sometimes, patience pays. Last week, Webis (LON:WEB), which I have been funding for years, and in which we have a majority interest, went up 7.5x – yes, that’s 750%! – on the back of good news regarding sports gaming in the US, where Webis has a carefully assembled series of licenses. My 89-year-old father, Sir Jimmy, who is on the board, brings luck to this enterprise, I’m sure.
On the subject of longevity, my excessive travel in recent months has been down mostly to this, and I am glad that we have raised our dough. It’s going to great use, and the team is now amazing, with special thanks to Drs Greg Bailey and Dec Doogan.
We are all (or most of us) going to live – yes, I mean it! – to over 100, so read Master Investor and start taking the investment medicine – we will need the money to sustain us in what will be a much, much longer and healthier sojourn on this planet than the one that most people currently anticipate.
Happy Hunting!
Jim Mellon