Japan quake rocks the uranium investment case

It was supposed to be another big "can't fail" commodity play like oil and precious metals, but since the Japan earthquake sent powerful shocks through the nuclear power industry investors who bought into uranium have cause to regret.

Before the horrendous disaster in Japan and the subsequent radiation leaks, I was seriously thinking of getting some, er, exposure to uranium. The bull case seemed pretty much irrefutable the more I looked into it:

- emerging market energy demand is growing remorselessly

- in particular, growing car use is making it ever more likely that the oil price will go stratospheric and usher in the age of the electric car

- if the world pays any attention at all to global warming fears, some of the new generating capacity will have to be nuclear. Many countries including the UK, India and China have nuclear expansion slated.

- once nuclear power capacity is built it will consume uranium for decades - the economics and science of nuclear practically lock in demand for uranium whatever the price (as was shown in 2007 and in the 1970s when the price was more than double its current level).

- one of the key sources of uranium to supply nuclear plants today is recycled material from decommissioned warheads. This is a finite source and will need replacing by new mining within a couple of years.

Lucky I did not pile into a uranium investment such as the large Canadian producer Cameco. The uranium price fell by 27% after the nuclear emergencies in Japan became news and Cameco's share price dived. Unsurprisingly given that nuclear has always been vulnerable to safety fears and is in any case always going to be a controversial choice of new power given how expensive it is and the issues surrounding nuclear waste disposal which have never been resolved. Germany has resolved to get rid of its nuclear capacity much earlier than planned and even China has paused its building of new plants.

Some sense a buying opportunity and indeed the uranium price has since rebounded somewhat. China and India are unlikely to scrap their nuclear plans altogether and in some ways Japan was the supreme "stress test" of nuclear power: if a Chernobyl was avoided in such extreme circumstances maybe that shows they are a risk worth taking. Just don't built them on the coast in an earthquake zone!

The real long term winners will be natural gas and renewable energy investments. The disaster will also underpin the already sky high oil price. Shares such as Shell, which is expanding and gets half its output from oil and half from gas, should be good long term plays even though their share price is close to an all time high.

From the Advoco website Contracting in Spain

Good news: the FTSE's falling!

For anyone thinking about what to do with their ISA allowance or are just looking for an alternative to the depressing returns available at their local building society, recent stock market events should have given plenty of food for thought. On the face of it, with the FTSE (and most world stock markets) falling, one thought would be - don't bother with shares, they are too risky. Look a bit closer though and you might come to a different conclusion.

The FTSE 100 has had a good run since the financial crisis, up 69% (84% if you include dividends reinvested). Share prices have fallen sharply though over the last few days perhaps on fears that the oil price rise, goepolitical instability and Europe debt fears will drag on markets. The Japan earthquake has taken share prices lower too. That suggests share prices have had a good run and the risks are on the downside going forward.

Maybe, and I don't propose to go into all the arguments here but I would highlight some other bits of recent news from the UK stock market concerning dividends:

** Morrisons announced it would be increasing its divi by 10% for each of the next three years and returning 1 billion £ to shareholders via a share buy back.

** Prudential announced a 20% rise in its dividends

** AMEC, the energy services and engineering company, announced a 50% hike in its dividend

If you focus on the underlying income that shares generate rather than share prices, the news is mostly excellent and actually has been very good over the last decade.

People often make a comparison with share dividend yields and bond or bank deposit interest. Currently you could get 2.5-3% from bank accounts and around 3.5% from the FTSE. The argument goes that shares are risky so they should be yielding considerably more. On that basis you should wait until share prices fall back and yields rise; in the meantime "play safe" in cash.

But I would argue that the comparison is false. Interest on bank deposits is static (or falls when unscrupulous deposit takers quietly lower their rates and hope you don't notice) whereas dividends should rise over time, if you pick shares in the right companies.

As an example, look at Tesco PLC which in 1998 was paying around 4p a share in dividends. Since then the dividends have grown 10% a year on average to stand at around 11p in 2010. Tesco yields around 3.25% but the key point is that if it continues to grow its earnings and dividends by anything like the rate it has achieved in the past, the yield (particularly with dividends being reinvested in more shares) will easily beat interest bearing accounts.

But will companies like Prudential, AMEC and the supermarkets continue to grow particularly if recession returns and some serious global crises unfold? I would argue that certain companies with pricing power (strong brands and competitive positions) and in key sectors (utilities, energy) should continue to grow their earnings even in an uncertain economy. Partly this is because they are good defensive companies we can't live without, and partly because the dividend only gives part of the picture. Back to Tesco - they may pay a dividend just over 3% but actually they earn more than twice that amount and that additional money is invested back into the business to underpin future growth.

So when you see share prices falling remember that it could just mean that a great source of growing income has just got cheaper. This certainly is the view of The Sunday Times Money editor Kathryn Cooper who wrote on Sunday: "high quality blue chips with solid dividend yields have been out of favour for three years; surely their time has come".

Spanish tax forms explained

Is Spain nuts to tax online gaming?

The Spanish government is to start taxing online gaming which has up until now got off extremely lightly. Do they risk driving the industry underground or offshore?

The Spanish Gambling Act pulls no punches and covers all forms of online gaming: poker, bingo, sports betting and football pools. Considering that these activities have not formerly been taxed at all, the proposed tax rates are extremely punitive. The rates vary between 10% (for poker played between individuals) and 30% for certain sweepstakes. Most activities are taxed at 20% of the gambler's stake.

The online gaming industry is most upset that these rates apply to the GROSS amounts wagered; they had lobbied for a tax only on net income after winnings had been paid out. The government turned a deaf ear to their requests (Internet gambling must also pay tax) more concerned about the loss of an estimated 315 million € tax than the feelings of the profitable website owners.

Of course the move could backfire in more ways than one. Experience of other countries, including Britain, shows that taxing online gambling portals drives the business offshore to places like Gibraltar. Also the government risks gaining a reputation for being "anti gambling" or "anti business" just when a big new casino investment is being proposed: Sands bonanza likely to prove a mirage.

What is it with governments these days? Can they not see that the correct way to deal with deficits is spending cuts and not tax increases. If tax levels were not sky high to begin with I could see the sense in it perhaps, but at the actual levels we have in the West most tax rises (certainly on incomes and corporations) is bound to prove counterproductive i.e. reduce revenues by destroying economic activity. As the UK government is now discovering with the 50% tax band and the "fee" on non doms which is driving away taxable wealth from Britain every day.

New article on our website Spanish tax rates for 2011

Sands jobs bonanza likely to prove a mirage

It makes quite an attractive and beguiling thought for all of us in Spain concerned about where economic growth and especially jobs are going to come from : gambling will come to the rescue!

Papers last week were full of talk about a proposed Euro Vegas supposedly to be opened in Barcelona or Madrid. The Las Vegas Sands Corporation which operates casinos in Nevada, Macau, Israel and Singapore is talking about a new mega-gambling development which it says could create 180,000 jobs.

The corporation's boss Sheldon Adelson said the project was being "actively pursued" with both contractors and architects. The scale of the proposal is enormous - 20,000 plus rooms and acres of shopping, exhibition and conference real estate. To put that into context there are only 70,000 hotel rooms in the whole of New York and these are to be built from scratch by one company.

Not surprisingly the corporation thinks it will need the "support" of the Spanish government (i.e. subsidy money) for such a big project. The foreign investment, jobs potential and tourist pulling power of such a venture is going to seem very attractive to the national government in Spain not to mention the cities involved who are likely to compete fiercely for the project.

All the press in Spain and indeed in the US and Europe, reported the news like the project was a certainty and that the jobs were practically in the bag. However these grand plans have to be taken with a pinch of salt particularly the promises of hundreds of thousands of jobs which just raise hopes which will more than likely be dashed.

The plans seem very vague and the figures plucked out of thin air by Adelson (who was speaking to the press in Singapore not even Spain) probably to see if the government or city authorities will bite and hand him billions in subsidies or free land. He was talking airily about a resort 10 times the size of the Marina Bay Sands in Singapore which cost 5.5.bn$ In this climate is he seriously talking about raising over 50 billion to spend on a green field project with no proven demand? I suspect it is pie in the sky - the same corporation was in discussion with Valencia two years ago about a big project but nothing came of it. A similar project has been touted (by a different group) in the province of Huesca promising :

"An investment of 17,000 million euros and include the construction of 32 casinos, 70 hotels, 6 major theme parks (and 12 small), museums, golf courses, shopping center and a racecourse" (Gran Scala Deadline)

But surprise, surprise nothing has been built yet and barely a million euros has been paid over for the land. Like casinos themselves it seems the gaming developers promise a lot but deliver mostly disappointment.

From our website Autonomo Social Security

Resist the oily logic on interest rates

It doesn't seem so long ago that petrol was under 90 cents a litre in Spain and the international oil price had slid below 40$ from its peak of over 140$ Actually that oil price low was around 2 years ago and prices have climbed steadily since until, with the crisis in the Arab world, crude went close to 120$ yesterday - Oil prices hit fresh high on Libya fears

Nomura are warning of oil prices above 220$ I am not in the oil price guessing game - who knows? All sorts of things, good and bad, could come out of the crisis in North Africa and the Middle East. Who can predict what discoveries will be made on the supply side.

But one thing I would take odds on is that many commentators and policymakers will use the oil price spike to justify interest rate cuts or, in the case of most countries, to justify delay raising them from near zero.

I have long argued that the deeply negative real interest rates (the UK rate is 0.5% versus inflation of 4-5% depending on the inflation measure you use) is a weapon to be used in extreme circumstances only and for only short periods to get through a crisis. Holding rates too low for too long is extremely dangerous and asking for bubbles and bad lending which store up future crashes and disaster - just ask Spain and Ireland.

The oil price rise will strengthen the hand of the oil price doves on the Monetary Policy Committee of the Bank of England who have been under pressure of late. They will be able to blame high inflation on this "one off, temporary" factor and will point to the danger of raising interest rates when the economy is struggling to deal with an oil price shock. Rising oil prices drain demand from the rest of the economy and higher rates risk doubling the demand shock - households get hit at the pumps and the monthly mortgage statement.

There will be a lot of this kind of talk in coming weeks and no doubt many will refer back to 2008 when many Central Banks raised rates during the last oil spike which some blame for precipitating the economic crisis.

There are several reasons to resist this pernicious logic. One is technical: if monetary policy is to be used at all to control inflation it should be aimed at a general level of prices across the range of sectors which make up our cost of living. Specific rises in one area - energy for example - are not should not be inflationary in general terms. They are a signal that we should use less energy and find more sources of energy to reduce its price. In the meantime we will reduce our spending on other things which should then fall in price. IE a rising oil price should be neutral overall but be a powerful incentive to do the right things to correct the problem (e.g. invest in energy saving ideas).

If we constantly "fight" oil price rises which owe more to long term issues of supply and demand (particularly from the developing economies) with low interest rates we will stop this natural market process from occurring and risk a very serious bout of stagflation like we saw in the 1970s when the biggest ever oil price shock occurred.

Think of the main cause of oil price rises - China. That country's incredible growth (e.g. doubling of car sales in 5 years) is driven by loose money both at home - negative real interest rates while growing at 10%! - and in its main markets in the West. That wild and unsustainable growth in turn causes oil price inflation which causes, um you guessed it, more calls for loose money policies. And it goes on.

We need to recognise that low interest rates are not a panacea. If anything is going to get the Western economies in particular through the economic and energy problems it faces it is more saving and investment, less consumption and debt. Ludicrously low rates are not the answer.

From our website Authorities tackle tax avoidance in Spain

Electric cars: pie in the sky or investors' heaven?

Electric cars have been the stuff of fiction and speculation for as long as I can remember but, in practice, have posed little threat to the standard gas guzzlers. There are over 600 million combustion engine cars in the world but only a tiny number of electric cars, a fact which is unlikely to change dramatically despite an apparent surge in interest from governments and carmakers.

There are issues of consumer resistance, battery technology, recharging infrastructure, price (including uncertainty over government subsidy) and economies of scale. But there are plenty of interesting initiatives out there : Denmark and Israel are building a network of charging points and "switching stations" where you swap your flat battery for a charged one in less time than it takes to fill a tank. The 2011 Car of the Year was the electric Nissan Leaf which the UK government is trying to get manufactured in the UK. Spain is aiming for 1 million electric or hybrid cars by 2015 though there are doubts about electric car sales in Spain taking off to this extent. One of the main issues in scaling up electric car fleets in Europe is the lack of a common standard for plug sockets.

But despite all the doubts, there is a future for electric cars simply because the alternative of burning through the planet's oil is not going to be viable for much longer. Exhibit 1 - oil price back over 100$ despite a weak economic recovery in most countries. Exhibit 2 - China. Already the world's biggest car market and growing at 50% (and it has a long way to go - only 2% of Chinese own cars). Exhibit 3 - other emerging markets. As India and the rest follow China's path their middle classes will want cars just like everyone else.

Yes, there are bio fuels, hydrogen cells, liquified gas and other alternatives but I suspect that electric will be the biggest part of the solution. In 2010 the Chinese government threw its weight behind the electric car and aims to be the world's biggest producer by 2012. This will be decisive. Which of course means a massive increase in the need for electric power generating capacity which in turn suggests some investment themes:

- forget the prospect of windturbines and solar powering all the new cars; the world will have to turn to the fuels it has in abundance to achieve the necessary scale. That means coal and gas whatever the carbon consequences might be.

- the electric grids themselves will need expanding and upgrading and will be even more important to the economies they serve. This will mean governments have to allow these monopolies to charge inflation-beating prices for decades. Great if you think like me that stagflation is the main threat and need to find good dividend payers (see what do with your savings in 2011)

- presumably controversial nuclear power will have a role. Uranium miners should benefit though their share prices have already surged in recent times.

- battery makers and battery technology companies but you need to do your research. Warren Buffet, the greatest investor of all time, is a fan - see http://www.rationalwalk.com/?p=11079

This is just a thought to tuck away for the long term (and a fairly obvious one at that) not specific investment advice - a lot of related shares in this area have shot up recently any way. One FTSE share that I would be quite keen on for a variety of reasons as a long term play is National Grid.

Latest from the Advoco website: Spanish income tax rates 2011

Big brother is watching your Spanish bank account

The Spanish authorities must be getting desperate for money - the papers have been full of scary stories about the tax office (Agencia Tributaria) saying how they are going to raise billions of Euros by cracking down on tax fraud. News of last year's haul even made the New York Times as everyone worries about the prospect of Spain struggling to finance its budget deficit (Spanish fraud crackdown nets 10 billion). This year's priority is to cooperate with the Social Security department to catch people operating in the, erm, "informal" economy without registering for tax. The intention is to use new powers to demand information from utility companies, credit card providers and banks.

The full story is on our website Authorities tackle tax avoidance in Spain but a couple of aspects to all this are worth highlighting. The first is a new rule in force from 2011 but applying to transactions that go back to 2010, that all banks report all transactions over 3.000 with the following details:

- name and NIE (or company name and CIF) of payer/recipient

- amount

- whether deposit, withdrawal or transfer

- date account

Worth bearing in mind if you are paying for a property partly in cash or making a gift transfer which should be declared for gift tax (see explanation Spanish Gift Tax).

Also the Agencia Tributaria are keen on catching more people who don't declare rental income. Already they boast of trapping 200.000 shifty landlords by simply requiring that anyone claiming a tax deduction for rent paid has to state the catastral reference (Land Registry number) of the house or apartment on their tax return. This is used to check the owner's tax return to see if they have declared the income. The once sleepy Spanish tax authorities are waking up!