Euro Survival

I have always been inheritantly wary of large entities such as business conglomerates and in particular the European Currency Union. How can it be possible, even with the best management available, to drive and manoeuvre these unwieldy entities towards a common goal? Especially as in the case of the E.U. this task is being attempted by politicians. So surely the Euro must be doomed to failure. Who in their right mind would contemplate trying to orchestrate the people from the Mediterranean regions to walk in step with the people and their work ethics from the Northern climes?

I mean, have currency unions ever been attempted before and if so were any successful? Well the answer to that is yes and yes. The Latin Monetary Union in the late nineteenth century failed as did the Scandinavian Monetary Union attempted at around the same time. Both struggled on for about sixty years before throwing in the towel and admitting defeat. The German Zollverein was launched in 1834 and although it had its ups and downs until the Weimer Republic was established in 1919 it must be considered a success. Of course the obvious success was that of the United States and the American dollar which even survived the Civil War during its seventy years of becoming established.

So history says that it is possible to achieve a Currency Union, but it is likely to take a long time and it’s not guaranteed to be successful. In today’s world where information passes instantaneously and politicians are subject to tribal self- interest abuse from opposition parties can the Euro succeed? As the Union is formulated today the answer is probably no. However loosening the strings by letting some countries leave and give more financial help to those struggling countries that wish to stay, may help it to succeed. After all there is a huge political will to make the Euro work and the majority of Europeans are still in favour of it so perhaps it will fudge its way to a lasting solution.

If one assumes that the Euro remains in existence then along the way there will be more pyrotechnics with accompanying Bank collapses and country crises. These events will provide great opportunities for investors to buy as the markets rise and fall whilst the Euro struggles to become a stable currency. Certainly watching the stronger German stock market may reveal Fund Managers capable of taking advantage of these fluctuations as German stocks become artificially cheap. This should show in the Saltydog numbers. We will have to wait and see.

Shale Gas

Natural Gas is the Earth`s greenest fossil fuel. In the U.S.A. it now costs 20% less than oil to produce the same amount of useable energy. It has the ability to replace oil, be it for engines, heating houses or simply producing electricity. Shale gas can be found in all the continents, but is particularly prolific in America and Great Britain. As the means of extraction improves and technology advances, it is quite feasible that these countries’ energy needs may be satisfied for the 150 years.

So what`s not to like? Well the new method for extracting this gas from deep below the earth`s surface is called “The Fracking Process”. It involves pumping water, steam and fluids at very high pressure into the layers of shale and this releases the trapped gas. (A bit like taking Epsom Salts.) The concern with this process is that it could release “nasties” into the water table and could also cause minor earth movements. The Extraction Industry is well aware of the problems and undoubtedly will come up with the solutions. The financial gains are so huge that this must be a certainty.

If this all comes to pass, then it does beg some interesting questions of the future. If the demand for oil drops and the price collapses as the West converts to gas where will the Middle Eastern Arab states sell their oil? Will a falling income see these States return to the conditions of a century ago? If they do, what happens to the West`s Armament Industry? Perhaps they will have to fall back on manufacturing peaceful products like washing machines and desalination plants.

These are questions for the future. Today we are interested in how we might take advantage of this changing energy scenario. The price of natural gas has already tumbled in the USA and is likely to harmonise across all users. It is after all a simple commodity. You recover it, transport it and then use it. However for this to happen vast sums of money will have to be spent in a number of industries – the gas recovery industry, the engine conversion and electrical generation industries and finally the means of getting it to the customer. All of this expenditure will have to be recovered through the pricing structure. So just maybe the price of gas will not fall further and may in fact have to rise to allow these industries to make a profit.

At Saltydog we must locate the Fund Managers that are investing into those companies which are on the supply side of these new Industries.  Coal had its day and now it looks as if Oil maybe going to hit the buffers. Perhaps we are now about to enter the Age of Gas.

Gold drops below $1400/oz

In the last six months there has been an avalanche of advice from the financial industry telling you, as the private investor, to hold some gold in your investment portfolio. If you are one that has followed this, then today you must be feeling a bit sick. During this time the price of gold bullion has dropped by 25%. The argument for holding gold was good. If the financial world was to collapse again, then gold is an insurance against the destruction of paper currency. Even if there were not to be a collapse then the demand for jewellery from the growing Emerging Market populations should cause the price to rise. I do not have any disagreement with these arguments. The question is, just when should you make your purchase?

Why would you buy when the price is falling? How do you know when it will stop? Why would you try to guess the bottom of the market? Last week an acquaintance of mine said he was going to buy because it had fallen so far, surely it could not fall further. Well in the next three days it has fallen a further 10%!  I would suggest that you simply watch the numbers on a graph and stick it out until the price of gold makes a positive upwards move. Leave prophesy to Gypsy`s, members of the Church and Politicians. Better still why not follow the numbers produced by the Saltydog Investor.image

Australia and the ASEAN economies

Over the last few months we have produced a number of articles high lighting the potential for growth in the Mekong region, Korea, and the surrounding countries. This region forms the basis for the ASEAN economy. In order to support future growth they are pouring money into the infra-structure of their cities and the logistical links between their countries. They intend to be independent, but still trading with their big brothers in India and China. The bigwigs from America, China, India, Japan and even our own David Cameron have been touching the skin and kowtowing for all their worth to leaders of this region. All of the above is well known and can be witnessed by the colossal amount of fund money that has flooded into the Emerging markets over recent months. At Saltydog we launched our new Speedboat portfolio three months ago on the back of ETFs tracking these regions. A very happy move as the portfolio has risen 18% in this short time and certainly has much further to go, especially if the current revival in world markets continue.

So how does the above connect with Australia? Very simply, it supplies much of the hard commodities that are needed for this growth to take place. Also as these nations develop a middle class their demand for meat and grain will soar and Australia will confirm itself as the “bread basket of Asia”. Pre 2008 the Australian stock market and the Aussie dollar rocketed upwards on the back of the phenomenal growth in China, but since then they have fallen away and then levelled off as China`s economy has slowed. China`s economy is now said to be going to enjoy a soft landing as opposed to the predicted hard landing. Put this with the future ASEAN market growth and the Australian economy should enjoy a double whammy for growth.

If you agree with the above, then one way to take advantage of this potential windfall would be to invest in the ETF MSCI Australia (IE) ticker SAUS. This has risen to the top of the Saltydog ETF charts as it has been in the top two deciles for the last four weeks. The other obvious routes are to choose Emerging market and Australian commodity funds. This must be an area worth some thought and investigation.