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Beware the bubble #finance #investments

Sometimes an economic bubble will form and sometimes they are created purposely. Ponzi schemes are a type of bubble and they rely on greed but bubbles can also form because of shortages such as a property price bubble when housing or commercial property is in short supply. There is a property bubble in London and the south-east but the cause isn’t just a shortage. It is also higher incomes in the south-east compared to the rest of the UK.

large cap company investments creating a bubble?

Anxiety and the bubble

Anxiety can also create a bubble as investors pile into assets that appear safe. With the credit crunch of 2007-8 still fresh in the minds of many investors they are tending to look for safe harbours. Some share prices have risen since the Brexit referendum because of fear. Confidence amongst foreign investors fell and with it the relative value of the pound against the US dollar. Investors have also become used to low-interest rates and are settling for lower returns. Many investors are investing on behalf of pension funds and so any return is better than none. The FTSE 100 companies with a high market value are the ones being favoured such as the big pharmaceuticals and oil companies. If the anxiety about Brexit subsides then the value of the pound could appreciate and those share prices could begin to fall. A bubble has formed consisting of FTSE 100 companies with large market capitalisation.

Looking for returns

The big investors could start looking for better returns as inflation and interest rates start to rise. To add to the uncertainty corporation tax in the US will be cut and that could be the beginning of a global trend to cut corporation tax. Companies that are out of favour now could attract investment and many might become takeover targets.

This week

The bid price of Immupharma went from 127.25 last week to 144 last Friday and then shot up to 163.25 this Monday. The market makers seemed to be taken by surprise and increased the spread which seemed to depress volumes and that together with profit taking sent the price down on Tuesday and Wednesday. It has been recovering since Wednesday and is now up to 163.25. I bought at 51 and so I am very pleased with the progress. Some brokers are predicting it will go to over £3 a share and one pundit even suggested that £8 a share could be possible as their new lupus drug goes into production. I can think of lots of different scenarios for the company. They could go it alone or be subject to a takeover or sell the licence to produce to a larger company. Whatever happens, the future looks good for Immupharma. Investors in the large-cap bubble are now looking to invest a little in companies like this because they offer real returns.

Solo Oil

Solo Oil sometimes looks like a Ponzi scheme with investors money going in for no real return but confidence in the company was boosted this week when Neil Ritson, the chairman and CEO, bought a further 3 million shares in the company. Is an update imminent? I think we could get a positive update in the new year and so many of their investments could come good. This is another share that is a speculative one but could soar just like Immupharma.

Verona Pharma

My other pharmaceutical, Verona Pharma is a  share that could soar like Immupharma, too. It has also been given a ‘buy’ rating by brokers N +1 Singer who gave it a 327 target. Jeffries Group also gave it a ‘buy’ rating with a target of 250. Verona Pharma is also on the US NASDAQ market and gets quite a lot of interest from US investors.

Tesco

Tesco’s share price has been depressed for a while and isn’t on that list of companies that make up the bubble. In the past few weeks, there has been renewed interest in Tesco as a result of the Booker takeover and I’m very pleased with their share price rise. I look for at least a 10% increase in the share price over and above what I paid and Tesco is currently giving me a return of about 18%. I think it will probably appreciate further and it could be time to sell in the new year.

The rest of my portfolio is in the doldrums but I am hoping that Premier Foods will have a good Christmas. This cold weather could boost sales of soups, gravy and stock cubes. I just wish Premier Foods would see there is a big market for free-from foods too. They are making the most of their partnership with Nissin and exploring new markets, so I’m fairly positive about PFD.

That’s it for this week. Overall, my finances are doing very well and I look forward to 2018 being debt-free with an appreciating stock market portfolio.

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