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David Kempton: my eurozone meltdown survival kit

Citywire columnist David Kempton shares his investment picks to survive the worsening eurozone debt crisis.

 
David Kempton: my eurozone meltdown survival kit

As the news from the eurozone gets worse, David Kempton is seeking shelter in technology, high-yielding internationals, resources and non-euro currencies.

All eyes on Italy

Much ink has been spilt about Greece, but it is a sideshow compared with Italy. I fear that Italy will need a bailout in the next two weeks, as the cost of new money rises to 7% and the ludicrous Berlusconi stands down. The bears will then turn on Spain, and the whole eurozone situation will become desperate, with the future unpredictable. The fallout will hit us very hard.

There is insufficient money in Europe to cover the debts, so we are dependent on China to bail us out. Twelve years working with the Chinese in South East Asia has taught me that they are tough negotiators and play a very long game. I have no idea what lies ahead, but do know that they will acquire some of our hard assets and leave us poorer for a generation. We surely deserve it, when we need rescuing by a country whose average annual wage is $4,000.

Investment opportunities

There are no precedents in history for much of what is happening now, but there are still investment opportunities, all of them internationally focused, with minimal dependence on the ‘old world’. 

Recently I have concentrated my investments into four areas: technology; large, high-yielding internationals; resources; and currency (not sterling or euros).

There is no precedent for the astonishing speed of technology advancement, and it is hard to keep up with, but it does offer some exciting investment opportunities. As I can't judge the merits and potential of a particular technology, I happily resort to three excellent investment trusts: Polar Capital Technology , RCM Technology Trust and Herald . Take your pick, but I have gone for Herald, where I have a high regard for the manager, Katie Potts. The current discount of 18%, now well behind its peers, offers a good buying opportunity. 

Or look at Impax Environmental Markets investment trust, effectively a technology stock, on an exceptional discount of 20%. In any investment, you can either bet on the jockey (the fund manager) or the horse (the stock). If you can’t analyse the jockey, you have to become a horse expert, and with technology I have neither the skills nor the time.

Demographic shift

There is no precedent either for our extraordinary longevity. It's a major issue to which people pay lip service, but really it is very frightening. Now exacerbated by no enforced retirement at 65, while we have 1,000,000 people under the age of 25 unemployed.

Many of our lot are now expected to make it into our 90s, and the current generation has no hope of supporting our pensions, public or private. There is no current solution for this, but we all keep taking the pills and topping up our GlaxoSmithKline (GSK.L), which no serous portfolio should be without, together with other big-hitting, high-yielding internationals BG Group (BG.L), Vodafone (VOD.L), Aviva (AV.L) – or RSA (RSA.L) – Royal Dutch Shell (RDSa.L), National Grid (NG.L), SSE (SSE.L) and Fenner (FENR.L).

Meanwhile, our corporate pay structures are in the same mess as the Premier League’s, and I have some sympathy with the genuine protesters at St Pauls, Madrid and New York. In 1970 the CEO of a large company earned 25 times the average wage. In 2006 the figure in the UK was 475 times the average, which feels quite unreasonable. In the past 2,000 years no civilisation has survived long without serious upheaval when there has been such enormous disparity between the rich and the poor.

This growing unrest makes me flee our currencies and mistrust others, so I remain a gold and resources bull. My last purchase was Silver Wheaton (SLW), presented to me by a good friend. He presented this to me as his legacy stock, to hold and forget until he’s back on our shores. SLW is the world’s biggest metals streaming company, and gives money to mining companies in exchange for an annual supply of silver and gold. It is a leveraged bet on those commodities, without the mining risks, and looks excellent value at its current price.

Currency picks

There are only two currencies where I would hold much cash. The dollar, inevitably, even though the economy is awful, as it remains ‘the sanctuary’, and the Chinese renminbi, which has been undervalued for years, but at last looks close to a revalueation as part of our demise.

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10 comments so far. Why not have your say?

Anonymous 1 needed this 'off the record'

Nov 08, 2011 at 11:21

Whilst I agree with the comments over the high levels of executive pay I query why so little thought given to the obscene pay levels of footballers. Does Tevez, for example, not earn!!! more in a week than the Prime Minister gets in a year?

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K S

Nov 08, 2011 at 12:30

And of course, top golfers, basketball players, baseball players, American football players, F1, etc - the clue is in the size of the market that wishes to see such individuals perform. These lucky sportsmen just happen to be in a market that is worth such a lot of money to the T.V. companies these days, who in turn sell more beer/cars/etc via adverts, for the companies that want the public to buy such products. So blame the beer & car companies for spending millions on adverts, that drives a large chunk of the sports industries, leading to individuals earning such vast sums.... On the other hand, most professional sportsmen earn nowhere near such princely amounts in their career.

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seahound

Nov 08, 2011 at 14:42

BG high yielding ?

Surely shome mistake.

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roger

Nov 08, 2011 at 15:16

I'm sure it will be the Chinese that underwrite the Euro debt in the end. What will they want in return ? Suggestions please.

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nickle

Nov 08, 2011 at 16:03

** There is insufficient money in Europe to cover the debts, so we are dependent on China to bail us out. **

Far from it. There is no need for China. There is insufficient money to cover the debts.

The solution is to default. So the question, is who loses?

For that you need to know who the debtors are. The main debtors are the public. However, governments don't admit to those debts in their books, for the same reason as Bernie Maddoff. It's pensions, and their are running a Ponzi. The main losers will be pensioners because the state pension will go. Frozen, inflation kicked off, and then means testing for those who are too poor. In other words, lets get the cash from pensioners so the fat cats in government can carry on spending.

Next will be Gilts. That hits banks, insurers and anuitants. ie. Lets hit savers again.

Then will come the raid. The smash and grab phase. 10% raid on pension funds, 'for the public good'. Wealth tax on property. 250K or more, lets have 2% per annum. 25% tax free lump sum? Nope, you have to buy an annuity (which is buying gilts), because we need the cash.

No need for China.

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colin wilson

Nov 08, 2011 at 16:36

Fenner high yield ?

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Edmond Jackson

Nov 08, 2011 at 18:21

Surely if you believe the eurozone will disintegrate, with all the financial disruption that implies, then you would be weighted in cash rather than much if any equities - and in sterling rather than US dollars, as a UK investor, in order to be ready to snap up the equity bargains arising amid the chaos.

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nickle

Nov 08, 2011 at 19:31

What cash? GBP is going to be hit hard. USD will suffer too.

Far better to load up on gold.

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Malcolm Gliksten

Nov 09, 2011 at 09:13

And lets not forget that US and British tax men are now on to their citizens with Swiss and other offshore bank accounts- who will be let off provided they own up. And where will all that vast amount of money go once the taxman has taken

his due ?

A lot will surely go into Gold ?

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brian livesey

Nov 12, 2011 at 15:55

Fenner isn't high yielding, nor is BG . Scottish & Southern isn't international, has 98.6%gearing although interest cover of 10, a cluster of directors sold in July, good yield, National grid isn't international and has very high gearing.

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