Squeaky Clean
Every time the FTSE 100 index slips below 5,800 points it comes straight back. It looks as if we really do have a floor that squeaks like the ones in an old building but does not give way.
My persistent argument that investors should buy on the dips likewise continues to hold. With the latest eurozone agreement - another creaky floor - boosting sentiment, the Footsie is heading back towards 6,000 points.
This is, admittedly, no picnic and if the eurozone does unravel then shares could take a pasting. Equally, the intransigence of Republican representatives in the lower house of the United States Congress could result in a default on U.S. sovereign debt that would send shock waves round the world.
However, with gold already priced at record levels and interest rates on savings remaining derisory, there is no better investment at this stage than shares in companies that pay dividends.
While gold may rise further if there is a further flight from currencies, I think that most of the bad news on sovereign debt is priced in and there could be a fallback over the next few weeks. U.K. interest rates will certainly not be rising in the near future, so savings will remain a very poor option, one that is certain to lose money in real terms.
The Bank of England has been consistently overoptimistic about inflation falling back to the 2% target. Now it admits that inflation will peak ‘a little higher’ and sooner than the monetary policy committee had expected.
Higher, yes, although the word ‘little’ may prove to be an understatement. There is still a hint of overoptimism in the implication that inflation will start to fall back soon. Perhaps that is why the committee is still voting overwhelmingly to keep interest rates on hold. For as long as they do so, shares remain the best investment.
Another Drink in the Last Chance Saloon
After Gordon Brown’s appointment as Prime Minister and right up to his election defeat, left wing journalist Polly Toynbee wrote from time to time in the Guardian of ‘Labour’s last chance’ to win re-election. There were so many last chances that the satirical magazine Private Eye commented: ‘In Polly Toynbee’s last chance saloon, there is always time for another drink.’
If you want something badly enough, you will always persuade yourself that there is one last chance. And so it is in the eurozone, where the French and German leaders, the ones who have most clout because they are putting up more of their taxpayers’ money, have bought another round in the last chance saloon.
Thus Greece has had its last pint for the third time, and is, to all intents and purposes, defaulting on its debt. Quite why the European Commission President Jose Manuel Barroso blamed Germany and France for the impasse ahead of the agreement is hard to understand. They are not obliged to pay for the excesses of another country.
So the euro lives to fight, and drink, another day. As I have repeatedly written in this column, the European Union is determined to keep the single currency alive, with more rather than fewer members. There will be more drinks over the coming months in the last chance saloon.
Vodafone’s Numbers Ring OK
Quarterly growth at phone operator Vodafone (VOD) has slowed, from 2.5% in the first quarter of 2011 to 1.5% in the second.
Vodafone has been suffering from falling prices of calls in Europe, particularly in Spain where revenue is down almost 10%, and that is going to continue as the European Union stamps down on the outrageous charges for calling from one country to another.
However, revenue is soaring in Turkey and India and should continue to do so in what are comparatively underdeveloped markets for mobile phones. Thus Vodafone has been able to reaffirm previous indications for full year profits.
I bought shares in Vodafone more than a year ago. If I had not done so I would be buying now. The historic yield is 4.7% with the likelihood of much better to come. Hemscott Premium suggests a prospective yield of 6%. That is very good for such a solid company.
Rupert and Out
A short post script on the Murdoch travails. The faltering performance by Rupert Murdoch confirmed my suggestion last week that the News of the World crisis is overwhelming him.
James Murdoch, on the other hand, looked much more assured than I expected. He may have got where he is through nepotism but he is no fool, although he too may well be overwhelmed by events.
My view remains that News Corp (NWS) shares are not worth touching at any price. It is not too late to get out. BSkyB (BSY) shares have bounced back this week and if you failed to get in around 700p you have missed the best chance. I would not buy now unless there is a dip in the share price. Anyone who did buy, well done. Hang on for the fun.
