What Would Happen To The Markets If Mobiles Did Give You Cancer?

In my Money Week column this week I've been looking at what it would mean for the markets if mobiles did give you cancer. Here's a taster....

There is no shortage of stuff out there to make investors feel nervous. The euro could get blown apart if a long hot summer of protest in Greece and Spain boils over into civil unrest. The Chinese economy might suddenly turn down, removing just about the only source of global growth. Inflation might suddenly rip out of control, provoking central banks to sharply raise interest rates.
But there is one risk that most people probably haven’t thought about at all.
What if mobiles really do give you can cancer?
Speculation of a link between cellular technology and brain diseases has been running for a decade or more. But last week the World Health Organisation said its latest studies suggested there was a possible link between talking on your mobile and cancer.
Leave aside the medical implications for a second – although there are serious enough. This is a huge issue for the markets as well. Just think about the hundreds of billions of investment now tied up in keeping everyone texting and talking on their phones all day. From the operators, to the equipment suppliers to the handset manufacturers, to the computer and software industries, many of the largest companies in the world could be devastated if a meaningful link was ever proved.
Mobile technology has the potential to be another tobacco – a huge and powerful industry that was just about destroyed by the unfortunate fact that it killed people.
Of course, there is still no proven link between mobiles and brain disease. The WHO is not claiming that there is. It’s International Agency for Research on Cancer gathered together 31 experts to meeting in Lyon last week to review the available evidence. It concluded that there was ‘a possible’ link between mobiles and a type of cancer called glioma. The WHO has five rankings of cancer risk, ranging from ‘carcinogenic’ to ‘probably not carcinogenic’. The ‘possible’ ranking is right in the middle of the range. So it is not saying it is definite. And it isn’t ruling it our either.
For anyone tracking the industry, that isn’t particularly helpful. Lots of studies have been done of potential links to cancer, and none of them have been very conclusive so far. Mobiles appear to have some health impact. Against that, there has been no big increase in the rates of brain cancer in the twenty years or so since mobiles became a ubiquitous part of everyday life. And it is difficult for anyone to assess the data accurately because brain caner is a relatively rare condition, so there are not very many people to study.
But just because cancer rates haven’t taken off yet, it doesn’t mean they won’t. People were smoking heavily for a long time before the damage that tobacco does to your health became apparent. Asbestos was widely used in building for decades until the risks with that material were discovered. Right now, all that anyone can say is that there is some form of risk, which the medical experts will need to keep an eye on.
What we do know for certain is that if a link were ever proved, or were simply to move up from possible to probable, then the economic implications would be huge.
This is a massive industry. According to the International Telecommunication Union, there are now 5.3 billion mobile subscriptions. That is 77% of the world’s population. More than a billion handsets are being sold every year. Vast quantities of capital have been poured into building those networks. The rise of smartphones means that even more is being spent each year, and people are doing more, and spending more money on their phones. Tablet computers will only send those figures even higher.
On just about every major bourse, the big mobile players are among the leading companies. Vodafone – with a market value of £83 billion – is a giant of the FTSE. France Telecom, which owns Orange, is one of the largest businesses on the CAC-40. The world’s largest mobile operator, China Mobile, is one of the world’s biggest companies. Nokia may be struggling to re-invent itself, but it is still the world’s major handset manufacturer, and worth $25 billion. Much of the South Korean stock market depends on the mobile divisions of Samsung and LG. New players such as Taiwan’s HTC have soaring share prices (indeed, it recently overtook Nokia in value). And, of course, Apple, which is now critically dependent on its iPhone, is now the third biggest company in the world.
It doesn’t even stop there. Microsoft and Google have invested fortunes in creating mobile software divisions. Chips and other components manufacturers help sustain the commodities boom. Many retailers depend on the sales of phones. So do the new generation of app writers.
In short, mobiles have fuelled much of the growth of the world economy in the past decade. A cancer link would be an economic catastrophe as well as a medical one.
There is not a great deal investors can do about it. But they should be monitoring the medical data, and keeping up with the latest developments. And they should be preparing an exit strategy. If a link is ever decisively proved you don’t want to be holding the shares or bonds of any of the main players in the industry. You might no want to be holding equities full stop – the knock-on effects for the rest of the markets would be severe.
Meanwhile, don’t give up on some fairly old-fashioned technologies. Fixed-line operators such as British Telecom could be set for one of the greatest bounce backs of all time – and with the shares yielding 4%, it might be worth tucking a few of those away. If we all decide to get rid of our mobiles and start calling one another on the landline again, they will soar in value.

Is Now The Time To Sell Gold?

I've kicked off a new column on the Wall Street Journal's Marketwatch site today with a piece about gold. Seems to be getting plenty of hits and feedback from readers. you can read it here.

How Risk Got Turned Upside Down...

In my Money Week column this week, I've been discussing how accepted ideas of financial risk are getting turned upside down. Here's a taster....

Every investor who has ever filled in one of those seemingly pointless ‘know your customer’ forms churned out by the bank or their stockbroker will be familiar with the way they have to tick a box describing their appetite for risk as high, low or medium.
We all think we know roughly what it means. Say you are low risk, and you’ll be offered some bank deposits, occasionally spiced up with a few gilts. But describe yourself as high-risk, and you’ll be offered a diet of Vietnamese software companies, Nigerian bonds, and Kazak yak hide futures.
That, however, is based on a spectrum of risk that is accepted right across the financial markets. At one end, there is a set of ‘safe’ investments: developed market equities, government debt, the dollar. At the other, there is all the flaky stuff: emerging markets, corporate bonds, commodities. How investors perceive and classify those different types of assets determines how money gets allocated around the world, and how much is charged for it. As a rough rule of thumb, the ‘safe’ assets get lots of money cheaply. The risky ones, much less, and have to pay more for it.
But what if that gets turned upside down? There is a good case to be made that everything the markets have traditionally thought about risk is about to become redundant. The flaky stuff has started to feel secure. The solid assets are looking a bit flimsy.
Let’s start with equities. Plenty of analysts have started to argue that the emerging markets are a lot safer right now than the traditional developed bourses. “While many Developed Markets are witnessing rapidly rising public debt, large fiscal deficits and slower growth, most top-tier Emerging Markets weathered the global crisis much better in terms of public-debt sustainability and the short to medium-term growth outlook,” argued Deutsche Bank in a research note this month.
Indeed so. The developing countries of Asia, Eastern Europe and Latin American look in far better shape than the old industrial giants of Europe and North America. Their economies are growing a lot faster. With the exception of Russia and parts of Eastern Europe, they have far better demographics. And they are in much better fiscal shape.
Of course, there are caveats. They have shallow and sometimes untrustworthy capital markets. They don’t have much in the way of experience. Nobody is sure if they trust the legal systems. Those are all reasons to be cautious. Still, it is looking increasingly odd to regard India as high-risk compared to Spain, or to view Vietnam as dodgier than Greece. On balance, there is a compelling argument that what’s risky has been turned upside down. Indeed, investors appear to have already recognised that, piling into the emerging markets far more enthusiastically than Europe or the US.
The same could soon happen to bonds. Government securities have always been regarded as safe, compared with corporate bonds. And the bigger and richer the country issuing them, the ‘safer’ they are rated.
But does that really make sense any more? Governments have run up massive debts, and show little sign of recognising the need to bring them back under control. Plenty of people are now reckoning in the prospect of default, either blatantly, or covertly through letting inflation rip. It’s certainly possible. Beyond about 100% of GDP it becomes virtually impossible for a government to pay off its debts either through growth or higher taxes, and plenty of governments are getting close to that. Some are way past it.
So who would you rather lend money to, BP or the British Government? One has tons of oil in the ground, and decades of experience of refining and distributing it. The other has a mass of liabilities, a spendthrift government, and a stagnant economy that is already taxed up to and beyond its ability to pay. In reality, corporate bonds may very soon look like a safer bet than government bonds.
How about currencies? The dollar has, for decades, been reckoned to be the most rock steady of safe assets, the ultimate haven. It was closely followed by the euro and the yen. And whilst those are all big currencies, backed by massive economies, it’s hard to believe they will be ‘safe’ over the next decade. The dollar and the yen suffer from massive fiscal deficits. With the growth of new economic powers, they will inevitably dwindle in importance. It is hard to see other currencies taking the place – not, at least, unless the Chinese decide to up the status of the yuan. But commodities could easily replace them. Gold would be the most obvious candidate. But oil could do the job just as well, or else a basket of industrial minerals.
The important point is that in every area of the markets, old ideas about risk are being turned upside down. That has two important implications.
The first is that is will change the price of everything. The riskier the investment, the higher the premium usually demanded to put money into it. So once your risk assessment changes, it follows the price of everything changes as well. Emerging markets will become more expensive than developed ones, corporate bonds pricier than government debt, and so on. As an investor, you don’t want to get caught on the wrong side of that shift.
Next, the flow of money changes as well. Traditionally, more money goes to the ‘safe’ assets, less to the ‘risky’ ones. So that is going to change as well. Everything we used to regard as risky will be drowning in cash. All the old ‘safe’ assets will be desperately short of it.
Once that trend gets established, it may well be unstoppable. And, by 2020, if you tick that box describing yourself as risk averse, you should expect your broker to offer you some Indonesian equities, some telecom bonds, and some oil futures – with, possibly, a few high-risk German government bonds or American equities thrown into the mix just to spice it up a bit.

The Lessons From The Dot Com Crash

In my Money Week column last week, I was looking at the lessons to be learnt from the dot com bubble ten years on. Here's a taster....

Ten Years On, Investors Should Make Sure They’ve Learned The Right Lessons From the Dot Com Bubble:


It is a statistic to make any investor feel sober. On March 10th, 2000, the Nasdaq index in the US hit the giddy heights of 5,132. Dot come mania was at its peak, and the key American technology market just kept on soaring.
Until, like all bubbles, it suddenly burst. After reaching that peak, the Nasdaq went into a steep decline that made even the drop in the Japanese Nikkei index in the 1990s look relatively benign by comparison. By 2002, it had plunged all the way back down to 1,300 wiping out three quarters of its value in around eighteen month. The dot com bubble, of which the Nasdaq was always the best measure, had well and truly burst.
A decade on, what should investors learn from that?
Two lessons are important. That bubbles, for all the madness and hype that gets associated with them, usually contain an important grain of truth. And that just because something is over-hyped, it doesn’t mean you can afford to ignore it – a lesson that clearly applies to China and the rest of the BRIC economies right now.
The dot com bubble was one of the greatest investment manias of recent times. Future economic historians will no doubt cast it along with Dutch tulips as one of the best examples of a capitalist system going completely haywire.
And, in truth, there was a lot of madness around. For a time, it seemed like any vaguely plausible young man or women, with smartly pressed chinos, an open-necked shirt, and a convincing patter about ‘eyeballs’, ‘land grabs’ and ‘first-mover advantages’ could load themselves up with a few million in venture capital, and turn that into an IPO a few months later. Mundane matters like actually having any revenues, or indeed any real knowledge of how to build a website, could be conveniently forgotten. In the ‘new economy’ everything seemed possible.
It is no great surprise that many of the dreams turned to dust. Investors, inevitably, lost a huge amount of money. And yet, looking back with the perspective of a decade, it is striking not just how crazy it all got, but also how much truth there was in many of the claims made at the height of the bubble.
The internet genuinely was a disruptive technology. Take a look at the way that newspapers are starting to close around the world. Observe the plight of once mighty record labels like EMI. Scan your high street for a CD store, a bookshop, or a travel agent. They are all gone. Big industries have been consigned to history. Others have been changed completely. Nor has the process stopped. Internet-enabled mobile are only just starting to reach the mass market. Plenty more industries will be changed forever before the impact of the web has played itself out.
Likewise, it really was a ‘land grab’. Want to launch a web book store against Amazon, an auction site against E-Bay, or a search engine against Google? Forget it. Those companies completely dominate their space, brushing aside all competitors. They will be the great monopolists of the twenty-first century – and precisely because they got in their early, and, if necessary, spent big money to establish themselves.
The only thing the evangelists for the ‘new economy’ really got wrong was the timing. It all took a bit longer than they predicted – and even on that they were only out for by a few years.
In reality, the dot com boom was more like the railway boom of the 1880’s or the mania for electrical stocks in the 1920s, which led up to the great crash of 1929, than the tulip craze. Railways had a huge economic impact. So did electricity. Just like those bubbles, the dot com boom took something of genuine importance, and magnified it to ridiculous proportions.
There is an important lesson in that for investors.
Take a look around the world right now and there are plenty of bubbles. British house prices, for example. Or government bonds. Or equities in China, or any of the other emerging markets giants, such as Brazil, Russia and India.
Some of them are just bonkers. It is hard to see why British house prices are higher than they were before the credit crunch hit – when they should be much lower. It is equally hard to believe that it makes sense to lend money for ten years to a practically bankrupt Spanish or Italian – or indeed British - government at rates of around 4%.
Those are just bubbles. You don’t want to go anywhere near them.
But the BRICs? That’s different. Sure, it’s hard to value stock accurately in China. We’re not sure we really believe the growth figures the government in Beijing publishes, never mind the price earnings ratios that appear on the Shanghai bourse. We have no real idea whether Brazil can grow in the next decade the way it did in the last, whether Russia is at long last a stable democracy, or whether India can complete the journey to modernity. We may well look back on the mania for the BRIC stock markets in 2020 and wonder what on earth we were thinking.
It is however unlikely we won’t think anything of significance was going on. In truth, the BRIC economies have passed the point of no return. They may not turn into Switzerland in the next decade, but they are too far along the path of industrialisation to go back to being agricultural, resource economies. With combined populations of 2.8 billion, that is going to have a massive impact on the global economy.
They key lesson is very simple. Don’t get fooled by the bubble. But also don’t get blinded by the fact it’s a bubble into thinking that nothing of importance is happening. The lesson of the dot com bubble – like the railway and electrical bubble before it – is that just because a trend is oversold, it doesn’t mean it isn’t significant. And right now, that is most obviously true of the BRICs.

Those Green Shoots....

The phrase 'green shoots' is starting to get on my nerves (almost as much as 'the current climate'). Hence my column for Bloomberg today, which you can also read in The Times, or over at Real Clear Markets.

Why Did So Few People See The Crash Coming?

In the Spectator this week I've been writing about the relatively few people who managed to get the markets right. John Paulson famously got the US housing market right, and a small number of London hedge funds made some good calls, yielding big profits. But by and large very few people in the markets saw this catastrophe coming down the tracks. Of course, most fund managers have to stay fully invested because that is their mandate. And plenty of private investors, I suspect, had become very suspicious: I sold most of my portfolio of shares in 2005, and I'm sure I wasn't alone. But the hedge funds and investment banks failed spectacularly - and they may well never recover from that.

Financial Suicides

In The Spectator this week, I've been writing about the number of financial suicides. It is a fascinating subject, not least for the way it covered by the mainstream media. Every time a financier kills himself after losing a pile of money, it is reported as normal, explicable event. But of course it is not normal at all. Juts because you are suddenly poor doesn't mean life is no longer worth living. Nor does it fix anything, as Michael Lewis pointed out in a piece for Bloomberg. It just adds to the sum total of misery that a financial collapse creates.

Banks, Banks and More Banks

I appear to have been either writing or talking about banks all week. On France 24 I took part in a pretty good discussion about the bonus culture, which you can see here. In the Spectator, I've been writing about the problems with the private banks. Over on Bloomberg, I've been looking at the run of mistakes and misjudgements that led to the collapse of Royal Bank of Scotland. From the Bloomberg column I got lots of response from former RBS bankers about just how badly the bank was run. My favorite was a story about how the head office in Edinburgh decided the receptionists around the world had to wear tartan uniforms, ignoring the fact that in countries like Singapore and Malaysia it was far too hot. That perfectly illustrates how little they understood the markets they were operating in.

Sinking Pound, Sinking Brown

On Ladbrokes you can get 40/1 on Jack Straw being Prime Minister by the end of this year. I reckon that is a pretty good bet. The pound is sinking like a stone, and the markets have turned negative on the UK economy. It doesn't look like Gordon Brown understands just how dependent on foreign cpaital the British economy, or indeed his own government, has become. And who wants to lend money in a currency that is collapsing?

In my Bloomberg column at the start of the year one of my predictions for 2009 was that Britain would have to call in the IMF to bail it out. I was, to some degree, kidding around. Now it is looking more and more likely all the time.

If it happened, I don't think Brown could stand the humiliation. He'd have to resign as part of the rescue package. In those circumstances, Jack Straw would be the most likely person to takeover as a caretaker Prime Minister, holding the fort until an election the following spring. So, in effect, the bet is 40/1 against the UK going bust. Those odds look too generous to me. After all, the figures say we are.

Panic by Michael Lewis

I just received a copy of Michael Lewis's anthology 'Panic' from the publishers. Michael included one of my pieces, so obviously I liked it: it's flattering to be included in a collection of the best writing on the financial markets of the best quarter-century. Lewis makes an interesting point in his introduction, arguing that the 1987 crash was the start of a long period of periodic financial crisis. He is certainly onto something. My own view is that for a long-time we swapped a business cycle for a financial cycle: there was occasional financial collapses, but underneath it, the real economy sailed on largely unscathed. It seemed to me that was improvement. Now it looks like we may have broken the pattern, and the financial crisis is going to trigger an economic crisis. But we can't be sure of that, of course.

The Rich Are Useless With Money

Plenty of pick-up for my Bloomberg column this morning on why the rich are so useless with their money. It is reproduced by The Times and Real Clear Markets.

Sorry About That Hedge Fund

Both the Wall Street Journal and The Times are running my Bloomberg column about how hedge funds need a better class of excuse. Ypu can read the original here. I got a lot of feedback on that piece, mixed as usual, but mostly positive. Quite a few hedge fund managers e-mailed me. I suspect they know the industry is in trouble because the performance all through the credit crunch just hasn't been good enough.

Has The Oil Price Turned

Probably the most interesting question in the financial markets right now is whether the oil price has turned. The fall in the past couple of weeks has certainly been dramatic: oil has shuttled back down to $126 a barrel from its peak in June of $145. Lehman Brothers are predicting that it will be back down to $90 by the start of next year, which may well be the new long term price. What happens to oil matters because it may well signal a turning point for the global economy. If oil falls, inflation will drop back, and central banks will start cutting rates again, helping out crumbling property markets and flagging consumers. So, if you only want to watch one price, watch that one.

London's Next Bonanza

London has taken a lot of blows as a financial centre in the past few months. It has been hit by the credit crunch, by the non-dom rules changing, and by the collapse of Northern Rock. But now there is a stroke of luck. The Americans are angry at hight oil prices, and blaming specuators. Seneator Lieberman is planning a tax on investments in commodities, according to a story in the New York Times. In Europe, the French and the Austrians are preparing bans on futures trading. Nothing could be more certain to drive business to London. You can't stop speculation by banning it or taxing it - you just send it somewhere else.

Oil Prices

We keep reading that the world is running out of oil, as if that explains why the price has gone crazy in the last few months. But Russia's Lukoil announced today a new oil find in the Caspian Sea with 3.8 billion barrels of oil and 91.7 billion cubic meters of gas. Don't listen to the peak oil nonsense. It's a bubble.