Is RBS a Buy?

01.12.2016 • Central Banks

From Nick O’Connor – Capital & Conflict (Great Britain) –

It’s eight years since the global financial crisis and some banks are still suffering.

Most of those banks are in Europe, specifically in Italy. If you’ve been reading Tim Price you’ll know he’s been warning of a loss of confidence in the Italian banking system all year, based on the “non-performing loans” ratio shooting up.

But yesterday we got a warning that not all UK banks are 100% out of the woods yet.

Yesterday it was announced that the Royal Bank of Scotland (RBS) had failed its annual “stress test”. This involves simulating a particular kind of crisis and using it to predict if a financial institution could withstand it. It’s similar to an insurance firm running catastrophe management software to predict damage to a location in the event of a natural disaster.

This year RBS failed. It was the only UK bank to do so. That means it is required to raise more capital – the buffer used to withstand financial shocks.

So how does that fit in with the fact that Charlie Morris, Eoin Treacy and Akhil Patel were all bullish on UK and US banks in our 2017 Wealth Summit last week? Does it change anything?

Charlie Morris has been particularly focused on UK banks. Remember his thesis: a bank is the opposite of a bond. As bond prices fall – which looks like it could be the key trend of the coming years – he expects banks to prosper. I spoke to Charlie about the RBS results. Here’s what he had to say:

RBS narrowly failed a stringent stress test. It is clearly the riskiest UK bank so this news is no great shock. They need to boost their reserves by £2bn, which is roughly a year’s earnings. In the great scheme of things, that’s more disappointing than worrying. It could be that RBS was a bad call. But one has to weigh that against the value on offer which is significant. I shall follow events closely and inform The Fleet Street Letter readers if any action is required.

Which, by the way, is a key benefit of following Charlie’s advice. You don’t just get fully researched investment recommendations from one of the best investors in the business. You also get ongoing help and guidance. You’re not on your own.

To me that’s as important as getting a recommendation itself. It helps you manage your position and understand when to ultimately sell and redeploy your money elsewhere.

As I showed you yesterday, Charlie’s put a “2017 Money Map” together with his key recommendations for next year (right down to the ticker symbols of the stocks he’s backing). If you want to get ahead with preparing your money for 2017, you should take a look at Charlie’s work. Find out more by following this link.

Oil leaps on Opec announcement

So, Opec managed to pull itself together. It will cut production by 1.2 million barrels a day.

Oil jumped as much as 10% on the deal, which – as we looked at earlier in the week – had looked unlikely. Last night it broke through the $50 barrier. I’ll have analysis on how to trade that move from Charlie Morris and Eoin Treacy next week. Yesterday Charlie told me that, “oil stocks are a ‘patient hold’ on value grounds”.

Of course, there’s an argument that it is high prices that will ultimately be the end of Opec, and the end of oil itself. Look out for my note about that tomorrow.

How robots will save us from a demographic crisis

What’s a bigger threat to the economy – too many people on the planet or a demographic imbalance (too many old people vs young)?

Yesterday saw the release of a study that suggests it’s the latter.

The global fertility rate is 2.5 children per woman. That’s half what it was 50 years ago. And it’s only a fraction above the 2.1 needed to keep the population stable. Forty-six percent of the world’s population lives in countries that are below that level.

It’s a trend that will only continue. The United Nations predicts that by 2100, 30% of the global population will be 60 or older. It begs the question – who will look after all of those people?

I wrote about this a couple of weeks ago in MoneyWeek magazine:

The only viable solution to this problem is robotics – and that’s going to lead to a major opportunity for investors.

Robotics can help us address the imbalance between the young and the old, by taking over many of the “menial” tasks we just won’t have enough young people to perform. Put another way, you may worry about robots taking people’s jobs, or you might worry about demographics, but it’s illogical to worry about both. They’re opposing forces and – hopefully – will cancel one another out. Robots won’t put millions of people out of work; they’ll free people to retire. 

That’s one of the key reasons why robotics is expected to be one of the biggest tech growth industries in coming years. According to the Boston Consulting Group, spending on robotics is going to more than double from $25 billion to $67 billion over the next ten years. It will also lead to an increasing number of specialised robotic funds launching, such as the Pictet Robotics Fund, which has 1.2 billion euros under management.

The vast majority of this money won’t be spent on robots that try to replicate humans. Instead it’ll be invested in robots with highly specialised skills that help people work more efficiently or care for themselves.

How so? Think of Adam Smith’s theory of the division of (robotic) labour. The technology doesn’t yet exist to create a robot with all the abilities and skills of a human. But it doesn’t need to. Robots can specialise in particular tasks around the home and the workplace. A surprising number of jobs can be done this way: hoovering, cleaning, washing dishes, even preparing and cooking food are just a few tasks that can easily be done by robots already.

A collection of robots around the home may sound strange. But don’t let that distract from the fact that the demographic crisis creates a genuine opportunity to commercialise robotic technology. It’s an opportunity that several companies are pursuing aggressively.

It may sound strange now. But the demographic challenges aren’t going to go away. For as long as that’s the case, there’ll be an economic imperative to develop robotic technology. That means opportunity. It’s an opportunity I dedicated a lot of time to researching when I wrote The Exponentialist. Find out how to get a free hardback copy here.


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