Mellon on the Markets: this might just be the start of something really bad

Inside the mind of the Master Investor: influential British investor Jim Mellon reveals his latest thoughts on the markets.

This month’s submission was almost sabotaged by an exploding banana. If there is one good piece of advice I have for you this month, it is to never ever put a banana in your rucksack, especially if it is in close proximity to a laptop and/or an iPad.

In my case, it was both devices, and the last week has seen me trudge around various branches of Curry’s PC World, plaintively asking for help. I now have a new PC and iPad, both of which require hours of time and patience to set up. Luckily, I had backed up the long-in-the making second edition of my book on longevity, and that is now progressing slowly towards publication.

I have also managed to retrieve the hoard of interesting stuff I have been accumulating for my talk at this year’s Master Investor show, which is fast coming up on the rails. Please join us on 28 March,  in London. It’s going to be great and comes at an interesting time for us investors.

Firstly, I am sure you have all loaded up on gold and silver and the like, and if you have taken this advice over the last year or so, then you should be happy − possibly, very happy indeed. My current thinking is that investors should maybe top slice one third of their physical gold and move that into silver, which will surely catch up. My year-end target for gold is over $2,000 per ounce, and around $25 per ounce for silver. There is therefore huge continuing upside, and in a way, you could almost forget all other investment opportunities.

Everything is aligned with the precious metals: the debasement of money by central banks almost everywhere; coronavirus (as advised, much worse than most commentators thought just a month ago, and destined to be much, much worse in my opinion); negative interest rates, which makes the holding cost of gold irrelevant compared to historical costs; and to add a marron glacé to the top of it all, political uncertainty in most places.

But I do think that there are other opportunities, both in the short and longer term. In the not so distant certainty are the twin metathemes that I have been banging on about for so long: Juvenescence and a world where we will be living much longer; and agronomics, the new clean- meat agricultures and auxiliary industries around new ways of replicating animal products without animals being involved. This nexus of two fast-changing industries which will revolutionise the world are a must for all investors, and I urge you all to investigate them for your own portfolios as soon as you are able. There will plenty of discussion of them at the upcoming Master Investor show.

One area I will be looking at is energy. Although I would never buy coal stocks, I think some oil majors are worth looking at. The relative price of energy in the US stock market is lower than at any time since the 1930s, and although oil surely will be of less import in the future, I think the disinvestment mania for anything related to oil and gas may be providing investors with an opportunity to pick up representation of a still vital part of the world economy fairly cheaply. I will be discussing this, and other matters related to the new world of energy in my speech. In fact, I have just been in the Gulf region for a few weeks, which I have to say is very impressive in terms of economic development as well as the sophistication of the finance industry, and oil is obviously one of the key talking points there. Just throwing out a couple of names, Shell (LON:RDSB) and BP (LON:BP.) look particularly cheap to me and both have excellent dividends which I don’t think are imperilled.

The dollar has been strong of late, possibly because the US is relatively unaffected by Asian worries over coronavirus, and indeed, US-made goods may be selling better because of disruptions to the Far East supply chain. The euro has been badly hit by continuing poor continental economic performances (Brexit anyone?) and it’s interesting that the European “partners” are currently fighting like ferrets in a sack over their diminishing budget and differing ideological objectives. Meantime, the UK is by all accounts doing well, though that comment has to be tempered by the fact that European economic weakness isn’t good for us either.

I met the chief executive of a large City institution last week and he told me that money is flooding into London from Europeans worried about the state of the EU. I expect more of these sorts of stories and I think that the UK remains very undervalued, and that investors should load up on sterling assets. I also think that the Japanese yen has been beaten up too much and that buying it against the US dollar at around the 112 level is a good move. My target on the yen is 108 before year end and on cable (GBP/USD) is 1.40 from about 1.30 now. I also think that the Australian dollar is a bit undervalued and should be about AUD 70c to the US dollar.

I watched a programme recently on UK migrants to Australia, and I found if fascinating. This was made before the recent ‘biblical’ fires and floods, which underline the vulnerability of the previously ’lucky’ country to climate change. Half of all people who emigrate from the UK to Australia return to the rainy mother country, and although property prices are lower in Australia and salaries somewhat higher, the cost of everyday living is noticeably much higher, eroding any economic gains made by upping sticks. I love Australia but I always feel terribly remote when there. My recent acquisition of permanent residency in the UAE suits me better. Oh, and by the way, there is no finer airline than Emirates!

On that subject, air travel is being devastated by coronavirus (I am afraid I can’t bring myself to describe it by its new fancy name) and similarly, cruises are being given a bad name also. These will bounce back, and it’s worth keeping an eye on Delta Airlines (NYSE:DAL) in the US, BA owner IAG (LON:IAG)  in the UK and Carnival Cruise Lines (LON:CCL), also listed in London. They are very good companies.

In the short term, the virus is going to get much, much worse, and current outbreaks might just be the herald of something really bad. If you want to get panicked, Google the pandemic of 1918.

I continue to load up on Gilead (NASDAQ:GILD) shares in the US (they have a potential drug) and to bang the big gong again: it’s gold and silver.

Happy hunting!

Jim Mellon