POPULISM HAS SQUARED-UP TO DEMOCRACY HEAD-ON!

“POPULISM HAS TAKEN A VICE-LIKE GRIP IN REPLACING DEMOCRACY! – PRENEZ-GARDE!

 

I have just finished Edward Luce’s book – ‘The Retreat of Western Liberalism.’ The title sounds rather intellectual and erudite. However, it is a riveting, illuminating and rather frightening read. In plain language, what he is telling the reader is that democracy and liberalism are dying on their feet and have in the last 25 years been replaced by populism! When one thinks about that title, I think that has been very self-evidence by what has happened in the US in the last three years, where Trump has turned out to be a highly effective standard bearer for populism even though his personal ratings across America are ‘low.’ What the likes of Messrs Blair, Clinton, Bush and more recently Obama and Cameron have failed to grasp is ‘why’ and ‘how’ the establishment has become less acceptable and in places is being consistently rejected. It is interesting to note that at the last Presidential Election 91% of Washington voted for ‘Hillaryland!’ Washington is a city of government and is the epitome of a crumbling ‘establishment.’ Yet the Mid-West, the Bible-belt and the US’S industrial heartland saw Donald J Trump all the way to 1600, Pennsylvania Avenue, Washington, DC, despite Mrs Rodham-Clinton winning the popular vote. They wanted change and my word they have it in spades.

 

It appears that Theresa May has also failed to grasp a similar nettle that the U.K. electorate is equally fed up with the establishment and even though Labour could be financially disastrous for the U.K, a significant number of voters aged between 18-50years of age are prepared to pay the price for change to find out. Let’s face the surprising decision made by the UK electorate to leave the EU had little to do with trade and more to do with the disenchantment of the ‘establishment’ and in many parts of the North a major concern about immigration! The UK’S balance sheet only seemed to play a ‘spear-carrying’ role.

 

In all fairness the popularity of democracy has been on the wane since the fall of the Berlin Wall in 1989. Another bit of data that is worthy of mention is the fact that there is not one democratic country on the African continent. India has been a text book example of the democratic process, but many will be amazed if the status quo will remain so in a decade’s time.

 

In this book Luce refers to President Trump’s contempt for China’s President Xi Jinping and his inability to understand or show any sympathy for his problems. Luce believes that President Trump could lead the US into a war with China due to his belligerent attitude. He also would not rule out the possibility of the mother and father of all conflicts between the US and the Middle East. We should not forget that at the time of the Cold War there were 5 nuclear powers. There are now nine, with India, Pakistan, Israel and North Korea added to the club, with Iran waiting in the wings.

 

Trump quietly respects Russia’s Putin. Angela Merkel is the only world-class leader in Europe, but she is unpopular in her fourth term, having just yielded some vitally important support in recent local elections. If she fails to improve relations not only with Russia, but also with dissenting members of the EU, such as Italy, Greece, Poland and Hungary, her ‘sacred cow’ or club will start to break-up, following in the footsteps of the U.K.!

 

Blame for the continued fragmentation of liberalism and democracy must also be levelled at Barack Obama for failing to engage with Russia, China and Congress during his two administrations, leaving the west vulnerable to Russia’s and China’s increasing military strength.

 

To add fuel to the explosion of populism’s firebrand behaviour, there is no doubt that the banking crisis of 2008/9 seriously turned many liberal minded people into supporters of populism, since no one in any authority in these offending banks and other members of the financial sector on both sides of the Pond, went to jail for criminal activity.

 

Many now believe that, despite his falling popularity within the liberal and democratic community, President Trump will win the mid-term elections in November and if Mrs May does not pull a few rabbits out of the hat, Jeremy Corbyn will be on his way to Downing Street post the next General Election.

 

Two other major issues were pointed out by Edward Luce in his excellent book. He was totally underwhelmed by the DAVOS WORLD ECONOMIC FORUM. He felt that as a major political or business jamboree, it was a complete waste of time. Most of the main speakers were windbags who were very fond of their own voices (he did not say that; it’s my interpretation). Until the WEF starts listening to the needs of the world instead of telling them what they expect from the world of business and commerce, the delegates and politicians would just continue to waste millions of dollars on a useless event for their own self-edification.

 

Finally, technology may well provide the most innovative development of the modern age. However, no contingency plans have been made to deal with its effect on employment and business and most important of all, the damage technological crime could have on world security and its survival. There is no doubt that Russia and China are dangerously ahead of the game with the west languishing in their wake in terms of effectiveness. In August this year the Bank of England’s chief economist Andy Haldane gave the most brilliant speech to the Guild Society at Oxford University flagging up the dangers that artificial intelligence and machines that have the potential to make a huge number of jobs obsolete, with thousands of UK workers facing unemployment due to new technology.

 

Mr Haldane said the “Fourth Industrial Revolution” would be on a “much greater scale” than the previous three, and said the UK will need a skills revolution to avoid unemployment on a mass scale. He said that previous industrial revolutions had “a wrenching and lengthy impact on the jobs market, on the lives and livelihoods of large swathes of society”. He went on to say;

 

“Jobs were effectively taken by machines of various types, there was a hollowing out of the jobs market, and that left a lot of people for a lengthy period out of work and struggling to make a living” heightening social tensions.

 

Also, within that space the spending on robots is seen rising to $67 billion by 2025 from an estimated $25 billion this year, according to Boston Consulting. Most of that spending is expected to be done by four industries—computer, electrical, transportation and machinery. The countries buying most of these robots will be those with higher labour costs. including South Korea, Japan, the U.S. and Germany. China is also a rapid adopter.

 

In closing, suffice to say that social media is playing a massive role in shaping ideological political thinking. Whether much of this change in mood has any merit in it, is probably irrelevant. The fact remains social media is hugely influential. You only need to remember how effective Labour’s visceral ‘Momentum’ social media campaign was at the last General Election in June 2017. I wanted to share some of Edward Luce’s comments and from his ‘thought-provoking’ book to your attention. You may well be more than aware of some of the pitfalls of life.  There is a powerful message for those politicians, who believe in the democratic process – “START LISTENING TO THOSE, WHO CAST THEIR VOTE AT THE BALLOT BOX, RATHER THAN JUST PAYING LIP-SERVICE IN LECTURING TO THEM.” If not, rest assured the world looks as if it will become an increasingly dangerous place to bring children up in!

 

David Buik

Communications

Mobile – 07788 144 877

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Financial spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Click here to read the full risk warning.

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Market Activity & European opening calls 18/10/18

Hello again everyone!  It is Thursday 18th October 2018. I am David Buik of Core Spreads bringing you an update on market activity in London, Europe, the Street of Dreams in New York and Asia, culminating with the opening calls for the main European bourses.

 

There was nothing cheer about from the EU/UK BREXIT negotiations in Brussels.  The talks appear to have hit deadlock with the PM rumoured to have held out an olive branch by way of extending the transition period for another year to 2020 in an attempt to avoid a ‘NO DEAL SITUATION!” Few in the UK will welcome this idea. Mrs May appears to have no power base at present, which has resulted in no flexibility from the EU

Yesterday FTSE 100 -4 at 7054, DAX -0.52%, CAC -0.54% – Inflation – Britain’s top stock index turned tail on Wednesday, tracking European shares lower as airlines took a dive and slumping crude prices dragged on oil majors. EasyJet suffered the biggest fall on the FTSE 100, down 5.1 percent amid a broader selloff in airlines.

Traders pointed to a profit warning from Flybe which sent that stock down 40 percent, and more gloomy forecasts from Ryanair CEO Michael O’Leary who said a hard Brexit could ground UK flights for up to three weeks.

Tour operator TUI fell 3.2 percent while mid-cap peer Thomas Cook tumbled 7.7 percent.

ASOS +16.8% at 5844p, PEARSON +2.8% at 838p

Inflation fell to 2.4%, from 2.7%, which was largely driven by lower prices for food and non-alcoholic drinks. Wage inflation at 3.1% is an encouraging sign for the UK economy

The Consumer Prices Index figure surprised economists who had been expecting inflation to fall to 2.6%.

 

 

DJIA -0.36% a5 25706, S&P 500 -0.03%, NASDAQ -0.04% – 3 indices took stock after Tuesday’s massive gains thanks to early stellar 3rd quarter earnings. However, FED minutes point to rate hikes

ALCOA +3% despite an expected drop in earnings, ABBOTT LABS -1% and NETFLIX added over 5% after hours on Tuesday with 2 million more subscribers added –

 

This morning in Asia – ASX -0.13%, Shanghai -1.99%, Hang Seng +0.03%, Nikkei -0.62%. China was uneasy about further rate hikes in US

 

Bonds – Japan 0.14%, Germany 0.46%, France 0.83%, UK 1.59%, Spain 1.64%, Portugal 1.94%, US 3.17%, Italy 3.58%, Greece 4.28%

 

Cable $1.3098, €/£0.9776, €/$1.1499, $/Y112.53 – Gold $1226.90 – Nymex $69.75, Brent – $80.07 

 

 

UK companies posting results this week – Thursday – Unilever, National Express, Vue International, Friday – Lloyds of London, Intercontinental Hotels, Provident Financial, Acacia Mining

 

 

US companies posting results this week – Thursday – Bank of New York, Mellon, Travelers, Snap-On, PayPal, American Express, Phillip Morris, Friday – Procter & Gamble

 

Economic data posted this week – Thursday – UK Retail sales, US Initial Jobless Claims, ADP Employment Index, Friday – UK PSBR, BOE Carney Speech, US Existing Home Sales

 

 

Opening calls FTSE +6 at 7060, DAX +3 points at 11718, CAC unchanged at 5144, DJIA futures -41 points at 25665

 

75% of retail investors lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

MARKET ACTIVITY & EUROPEAN OPENING CALLS

Yesterday the FTSE 100 7,059.40 +30.18 (0.43%), DAX 11,776 (+1.40%), CAC 5171 (+1.53%) Britain’s top stock index tumbled on Tuesday, lagging European peers as sterling’s climb dragged multinational exporters’ shares down, while weak results weighed on Legoland owner Merlin, Diageo, BATS also down. BREXIT clouds hung over London, whilst Frankfurt and Paris took their lead from the start of an upbeat session on Wall Street.

Pay in the UK rose by 3.1% in the three months to August, compared with a year ago, while inflation for the same period was 2.5%.

Last week, Bank of England chief economist Andy Haldane said he saw signs of a “new dawn” for wage growth.

The latest official data also showed unemployment fell by 47,000 to 1.36 million in the three months to August. The jobless rate remained at 4%.

 

On the Street of Dreams markets took a massive leap of faith and really selected another gear, dismissing for the time being the fears on valuation, growth, inflation, rates and debt – with third-quarter earnings season under way in earnest this week. DJIA +2.17% at 25798, S&P 500 2.15% at 2750, NASDAQ +2.89% at 7645. A round of upbeat results Tuesday from heavyweights including Johnson & Johnson, Goldman Sachs Inc., UnitedHealthGroup and Morgan Stanley helped set the tone.

This morning in Asia – ASX +1.18%, Shanghai +0.10%, Hang Seng +0.07%, Nikkei +1.41%. Stocks took a lead on the back of overnight bounce in New York

 

Bonds – Japan 0.15%, Germany 0.49%, France 0.84%, UK 1.61%, Spain 1.64%, Portugal 1.93%, US 3.16%, Italy 3.47%, Greece 4.23%

 

Cable $1.3173, €/£0.8774, €/$1.1563, $/Y112.28 – Gold $1225.20 – Nymex $72.01, Brent – $81.44 

 

 

UK companies posting results this week –Wednesday – ASOS, Salamander Energy, Hochschild Mining, Pearson, Thursday – Unilever, National ExpressVue International, Friday – Lloyds of London, Intercontinental Hotels, Provident Financial, Acacia Mining

 

 

US companies posting results this week – Wednesday – Abbotts Labs, US Bancorp, Alcoa, Thursday – Bank of New York, Mellon, Travelers, Snap-On, PayPal, American Express, Phillip Morris, Friday – Procter & Gamble

 

Economic data posted this week – Wednesday – US MBA Mortgages, US Housing starts, Thursday – UK Retail sales, US Initial Jobless Claims, ADP Employment Index, Friday – UK PSBR, BOE Carney Speech, US Existing Home Sales

 

 

Opening calls FTSE +25 at 7084, DAX +48 points at 11818, CAC +15 points at 5186, DJIA futures -28 points at 25771

 

75% of retail investors lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

WEEKLY FAYRE

TODAY’S FAYRE – Tuesday, 16th October 2018

 

“Now is the winter of our discontent

Made glorious summer by this sun of York;

And all the clouds that lour’d upon our house

In the deep bosom of the ocean buried.

Now are our brows bound with victorious wreaths;

Our bruised arms hung up for monuments;

Our stern alarums changed to merry meetings,

Our dreadful marches to delightful measures.

Grim-visaged war hath smooth’d his wrinkled front;

And now, instead of mounting barded steeds

To fright the souls of fearful adversaries,

He capers nimbly in a lady’s chamber

To the lascivious pleasing of a lute.

But I, that am not shaped for sportive tricks,

Nor made to court an amorous looking-glass;

I, that am rudely stamp’d, and want love’s majesty

To strut before a wanton ambling nymph;

I, that am curtail’d of this fair proportion,

Cheated of feature by dissembling nature,

Deformed, unfinish’d, sent before my time

Into this breathing world, scarce half made up,

And that so lamely and unfashionable

That dogs bark at me as I halt by them;

Why, I, in this weak piping time of peace,

Have no delight to pass away the time,

Unless to spy my shadow in the sun

And descant on mine own deformity:

And therefore, since I cannot prove a lover,

To entertain these fair well-spoken days,

I am determined to prove a villain

And hate the idle pleasures of these days.

Plots have I laid, inductions dangerous,

By drunken prophecies, libels and dreams,

To set my brother Clarence and the king

In deadly hate the one against the other:

And if King Edward be as true and just

As I am subtle, false and treacherous,

This day should Clarence closely be mew’d up,

About a prophecy, which says that ‘G’

Of Edward’s heirs the murderer shall be.

Dive, thoughts, down to my soul.”

 

William Shakespeare – Playwright & poet – 1564-1616

 

The gossip on the street suggests that Theresa May’s BREXIT negotiations are going badly, despite protestations in the Commons yesterday afternoon, when she asked for patience and forbearance. These negotiations seem to be taking place through the media, with everyone chucking their two cents worth – from the Cabinet to the EU to Messrs Blair, Major, Campbell, Brother & Sister Rudd to Messrs Davis, Johnson, Rees-Mogg, Patel, Patterson and Duncan-Smith, not forgetting Messrs Foster & Dodd and the wee SNP Lassie Sturgeon! Frankly it looks like a complete shambles! For those not in the loop it seems highly unlikely that the ‘Chequers’ will work for any party/faction except for PM May and her negotiators. ‘NO DEAL’ is staring everyone in the face. Time is running out for the opposing sides to find common ground. Or is this just grand standing at the 11th Hour? Maybe we shall know more by Thursday evening! However, I will not hold my breath!

 

 

INDEX 8/10/18 15/10/18  % gain/loss  
FTSE 100 7318 7029 -3.94%  
XETRA-DAX 12044 11614 -3.57%  
CAC40 5339 5095 -4.57%  
DJIA 26399 25250 -4.35%  
 S&P 500 2877 2750 -4.41%  
NASDAQ 7747 7430 -4.09%  
Hang Seng 26717 25445 -4.76%  
Nikkei 23781 22271 -6.34%  
Shanghai Comp 2738 2568 -6.20%  

 

I must admit I am not a great fan of the IMF, apart from the incredible work they do for third world nations, which of course, like it or not the U.K. qualified as, back in 1976. In the UK’s hour of need the IMF hovered over this ‘Sceptred Isle’ like the ‘Sword of Damocles.’ In Nusa Dua recently, the IMF gave the market its best shot in attempting to bring it to its knees. All the main indices surrendered significant value in hair-raising circumstances, thanks to discouraging comments made by the IMF on global growth and excessive debt. Even investors are starting to sit up and take notice about the gargantuan level of debt. Also, in recent days $7.5 billion of decent grade corporate debt has been withdrawn from the market. Most of the major indices gave up between 3.9% and 6.5% in value from 8th-15th October 2018.

 

The IMF dropped its global growth forecast from 3.9% to 3.7% for 2018 and 2019. President Trump’s demeaning comments about FED Chairman’s insistence that rates will need to continue to go up, helped to exacerbate the level of negative volatility. Of course, the parlours state of Italy’s economy which triggered sharp bond yield increases in parts of Europe, added further fuel to the equity market’s fire, in terms of the strength of its pullback. Italy’s MIB has fallen 21.5% since 7th May 2018 and it’s 10-year yield has risen from 1.3% in January to 3.6% on Friday. We are not talking about short dated money, we are talking about the massive increase in cost to the Italian government and taxpayer over TEN YEARS!

 

Is this correction over? There are too many imponderables to be sure of that. Italy’s financial spat with the EU has more juice in the tank. One day folk will wake up and realise that the EU is a club for the benefit of Germany and France. Italy is getting close to arriving at that decision. Also, whilst US Treasury Secretary Steve Mnuchin, on behalf of Trump, keeps needling the Chinese government by warning it against ‘going competitive devaluations. These issues are not going to go away as if Aladdin were to rub his lamp! Though Wall Street regained some poise on Friday, it seemed to have a ‘dead-cat-bounce’ flavour about it. In the 6 day’s trading to last Friday, US stocks declined by just over 4.4% – the largest correction in Trump’s Presidency.

Though equity markets have seen some quite marked corrections, some of the major bourses have seen less than a 10% reversal; So, it may be too early to suggest that the worst is over. Inflation, the threat of higher rates, trade spats and gargantuan global debt still prevail as cumuli nimbus clouds of concern.

 

Friday saw the start of the US earnings season with some stellar results from three major banks, much of the success was courtesy of Trump’s tax cuts. – Well Fargo profits up 33%, JP Morgan +24% and Citibank +21.8%. Otherwise losses were across the spectrum with tech stocks tanking in the early part of the week, though some regained some ground on Friday.

 

Here in Old Blighty, most of the market activity was dispiriting, but there was some good news from WH Smith, Dunelm and Man Group. Mark Wilson resigned as CEO of Aviva. He was the 18th CEO from the FTSE 100 to be changed. Apart from the tragic loss of Compass’s Richard Cousins, most have moved on, in what appears to be tighter corporate governance controls by shareholders and directors. In Germany VW diesel sales were down 37% in September, thanks to changes in emission rules; globally including Porsche and Audi, sales were 18% lower. Softbank announced its intention to IPO its mobile operation, valued at $20 billion, in December, with Goldman, Deutsche and Nomura advising.  As everyone quite rightly throws up their hands in horror at the disappearance of Mr Koshoggi from the Saudi embassy in Istanbul, However, please remember that Saudi Arabia is easily BAE Systems largest client and BAE Systems employs 3000 people in Riyadh. Saying goodbye on moral grounds has serious ramifications, which even President Trump seems reluctant to face. 

 

Chairman of Patisserie Valerie, Luke Johnson tells us that he has experienced the worst week of his life. It appears that 2 spurious bank accounts were opened – HSBC and Barclays – which accounted for £9.7 million of borrowings. CFO Chris Marsh has been charged with fraud. Johnson has had to find £20m to shore up 206 units and 2800 staff jobs, whilst the shareholders are tapped up for £10 million at the deeply discounted price of 50p a share. PV was valued at £446m – now £68m.

 

UK companies posting results this week – Tuesday – Bellway, BP Marsh, Wednesday – ASOS, Salamander Energy, Hochschild Mining, Pearson, Thursday – Unilever, National Express, Vue International, Friday – Lloyds of London, Intercontinental Hotels, Provident Financial, Acacia Mining

 

 

US companies posting results this week – Tuesday – Morgan Stanley, Comerica, Blackrock, Johnson & Johnson, Omnicom, UnitedHealth, Goldman Sachs, Netflix, Wednesday – Abbotts Labs, US Bancorp, Alcoa, Thursday – Bank of New York, Mellon, Travelers, Snap-On, PayPal, American Express, Phillip Morris, Friday – Procter & Gamble

 

Economic data posted this week – Wednesday – UK PPI, CPI & RPI, US MBA Mortgages, US Housing starts, Thursday – UK Retail sales, US Initial Jobless Claims, ADP Employment Index, Friday – UK PSBR, BOE Carney Speech, US Existing Home Sales

 

David Buik

Communications

Mobile – 07788 144 877

 

Financial spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Click here to read the full risk warning.

MARKET ACTIVITY & OPENING CALLS 18/10/18

Reasons for pullback – markets have come a long way on the back of QE – US earnings may be good

DEBT, IMF, INTEREST RATES, ITALIAN FINANCIAL CRISIS, US/CHINA TRADE SPAT

 

INDEX 8/10/18 15/10/18  % gain/loss  
FTSE 100 7318 7029 -3.94%  
XETRA-DAX 12044 11614 -3.57%  
CAC40 5339 5095 -4.57%  
DJIA 26399 25250 -4.35%  
 S&P 500 2877 2750 -4.41%  
NASDAQ 7747 7430 -4.09%  
Hang Seng 26717 25445 -4.76%  
Nikkei 23781 22271 -6.34%  
Shanghai Comp 2738 2568 -6.20%  

 

 

Yesterday the FTSE 100 7029 +33 (+0.48%), DAX 11,614 (+0.78%), CAC 5095 (-0.02%) stock regained a little composure with little conviction

DJIA -0.35% at 25250, S&P 500 -0.59% at 2750, NASDAQ –0.88% at 7430

 

Losses for the week might have been greater but for outstanding performances from JPM, Wells Fargo and Citibank on Friday. Morgan Stanley & Goldman Sachs post numbers today which should be good. Sears files for bankruptcy in Chapter 11 with 142 units closing, leaving over 600 outlets vulnerable.

Wall Street pundits on Monday continued to urge caution, predicting that the stock market turbulence is far from over. Yet many of them ended their commentary on an optimistic note, suggesting that the bullish backdrop for stocks remains intact.

 

This morning in Asia – ASX +0.40%, Shanghai -0.15%, Hang Seng -0.02%, Nikkei +0.23%.

 

Bonds – Japan 0.14%, Germany 0.50%, France 0.87%, UK 1.61%, Spain 1.68%, Portugal 1.99%, US 3.16%, Italy 3.57%, Greece 4.35%

 

Cable $1.31.45, €/£0.8802, €/$1.1572, $/Y111.97 – Gold $1229.70 – Nymex $71.80, Brent – $80.95  

 

 

UK companies posting results this week – Tuesday – Bellway, BP Marsh, Wednesday – ASOS, Salamander Energy, Hochschild Mining, Pearson, Thursday – Unilever, National ExpressVue International, Friday – Lloyds of London, Intercontinental Hotels, Provident Financial, Acacia Mining

 

 

US companies posting results this week – Tuesday – Morgan Stanley, Comerica, Blackrock, Johnson & Johnson, Omnicom, UnitedHealth, Goldman Sachs, Netflix, Wednesday – Abbotts Labs, US Bancorp, Alcoa, Thursday – Bank of New York, Mellon, Travelers, Snap-On, PayPal, American Express, Phillip Morris, Friday – Procter & Gamble

 

Economic data posted this week – Wednesday – UK PPI, CPI & RPI, US MBA Mortgages, US Housing starts, Thursday – UK Retail sales, US Initial Jobless Claims, ADP Employment Index, Friday – UK PSBR, BOE Carney Speech, US Existing Home Sales

 

 

Opening calls FTSE +1 at 7030, DAX +26 points at 11640, CAC +10 points at 5105, DJIA futures +8 points at 25258

 

75% of retail investors lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

MARKETS CANNOT HEAD NORTH INDEFINITELY – CORRECTION LOOKS TO CONTINUE TODAY

Yesterday the FTSE 100 7,145.74 −91.85 (1.27%), DAX 11,712.50 −264.72 (2.21%) , CAC 5,206.22 −112.33 (2.11%)GDP IMF 1.7% to 1.4% in 2018 and 1.5% in 2019

The IMF, despite its very average track record over the years for forecasting, certainly made its presence felt on world markets yesterday, warning about a possible economic downturn, unsustainable levels of debt, the damage a ‘no deal’ on BREXIT could have and increasing trade tensions between China and the US.

HOWEVER, THE FACT REMAINS – STOCK MARKETS CANNOT HEAD INDEFINITELY NORTH WITHOUT SOME KIND OF CORRECTION. The fact that the alternative asset classes have proved unappetising for investors has not helped. It has exacerbated the incredible record levels attained in New York. Despite what President Trump may think, even his rhetoric, has failed to convince investors, that he walks on water! So, investors set about their task of taking considerable risk off the table in a most vituperative manner. The DJIA suffered its third worst daily fall – but from a very high base- not like 1929, or 1987 crash, or ‘9/11’ or the 2008/9 financial crisis, when percentage falls were greater. This correction is not wholly unexpected! 

On the Street of Dreams the losses were as follows – DJIA -3.15%% to 25598, S&P 500 -3.29%, NASDAQ -4.08% –Thanks to IMF downgrade of global GDP, threat of higher US rates and a trade war, the DJIA traded down by more than 800 points. The 10-year Treasury note was yielding 3.21%–the highest yield since 2011. Climbing yields over the past several sessions have forced investors to reassess valuations for stocks, notably technology and internet-related shares with Amazon taking a relative hammering down over 6% and Apple was larruped by 4.6%.

 

This morning there was even more visceral shakeout in Asia, falling dramatically in concert with New York     – ASX -2.47%, Shanghai -4.34%%, Hang Seng -3,74%, Nikkei -4.4%. The Shanghai Composite has fallen by over 20% this year.

 

Bonds – Japan 0.15%, Germany 0.55%, France 0.90%, Spain 1.61%, UK 1.72%, Portugal 1.95%, US 3.21%, Italy 3.54%, Greece 4.41%

 

Cable $1.3224, €/£0.8742, €/$1.1563, $/Y112.12 – Gold $1196.90 – Nymex $71.92, Brent $81.57 – oil down 1.8%

 

 

UK companies posting results this week – Thursday – WH Smith, Hays, Countryside, Dunelm, N Brown, Hargreaves Lansdown, Jupiter, Mondi, Moneysupermarket, Friday – Man Group, Ashmore

 

 

US companies posting results this week – Thursday – Walgreen, Boots Alliance, Delta Airways, Friday – JP Morgan, Wells Fargo, Citibank

 

Economic data posted this week –Thursday – BOE credit, US CPI

 

THE SELL-OFF LOOKS AS THOUGH IT WILL CONTINUE

 

Opening calls FTSE -91 points at 7054, DAX -198 points at 11514, CAC -80 points at 5128, DJIA futures -312 points at 25286

 

75% of retail investors lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

“AGAINST THE PERFORMANCE OF US RETAIL SECTOR, THE UK & EUROPE ARE DROWNING IN A SEA OF RED!”

“AGAINST THE PERFORMANCE OF US RETAIL SECTOR, THE UK & EUROPE ARE DROWNING IN A SEA OF RED!”

 

THE GREAT GOD ‘AMAZON’ – SHARES ARE UP 56.7% YEAR TO DATE

 

US RETAILERS

 

COMPANY Percentage gain/loss YTD
WalMart -3.9% (big recovery since April)
Target +26.3%
Walgreen Boots Alliance -0.12%
JC Penney -52.6%
Norstrom +26.1%
Dollar Tree -24.3%
Dollar General +11.9%
TJX +44.5%
Costco +18.9%
Kroger +3.7%
Home Depot +5.5%
CVS Health +8.5%

 

UK & EUROPEAN RETAILERS

 

COMPANY Percentage gain/loss YTD to 9/10/18
M&S -26.1%
TESCO +0.67%
MORRISON +14.6%
QUIZ -63.5%
BOOHOO +14.9%
PRIMARK (AB FOODS) -17.6%
DEBENHAMS -73.4%
SPORTS DIRECT -17.9%
HOUSE OF FRASER N/A
TOYS R US N/A
MAPLIN N/A
KINGFISHER -26.5%
DFS FURNITURE +5.6%
WH SMITH -10.6%
GREGGS -22%
TED BAKER -29.1%
FRENCH CONNECTION +57.5%
NEXT +21%
HALFORDS -10.8%
CARPETRIGHT -56.5%
CARREFOUR -14.3%
METRO -20.1%
CASINO -28%
HENNES & MAURITZ -0.13%
INDITEX -13.8%

 

Most stock market acolytes and observers have been pre-occupied with the reversals many global indices have experienced in the last few days.  The threat of higher rates in the US and the economic disruption which prevails in Italy have both triggered some sharp increase in bond yields.  The added distraction of some serious economists such as Panmure’s Simon French flagging up the dangers of bloated global borrowing – up over 60% since the crash a decade ago coupled with the IMF downgrading global growth this year and next from 3.9% to 3.7% provided plenty of fuel to unnerve investors, forcing them to take some risk off the table.

 

I also suspect that the on-going Sino/US trade spat, which could end up being highly toxic, is unlikely to have a resolution until after the mid-term elections, will have exacerbated the situation. China has suffered the most with Shanghai easing by a short 5% in the last 6 working days.  But, indices Europe and the UK have also felt uncomfortable easing by between 3.5% and 4% in the same period.

 

Does this mean this is the start of a real sell-off?  Who knows?  Rates cannot go up very much further than where we they are today, as some economies might tip over. However, when sentiment turns ugly, it can adopt a very dangerous level of contagion, which can spread like wild fire.

 

FTSE Retailers may be sensitive to BRC September Like-For-Like sales -0.2% YoY vs 0.1% est, yet this data must have come as no surprise, after a decent retail performance in the summer, when the sun was high on the yard arm. Here in Old Blighty retail therapists like my wife are very reluctant to spend their money on winter clothes.  I thought this might be a good time to look at retail’s performance in the US in comparison to their peers in the UK and Europe. Everyone is of course cognoscent of the fact that retail in the US makes up almost 70% of growth in the US and about 60% this side of the pond. Growth in the US has been running at about three times the level it has in the UK and double Europe.  This looks as though it is reflected in the table I have added on the written piece of this work.

 

Apart from Dollar Tree and JC Penney, which, despite appointing a new CEO looks as though its ready for the ‘last rights – shares down 52% to $1.66 YTD, all the main protagonists have seen their shares perform well with great efforts from Target (+26%), TJX (+44%) and Costco (+19%) in the vanguard. Walmart had a bit of a blip in April with a profits warning but has come back strongly in the last 3 months. Because of prodigious of distances the ‘one-stop-shop’ is acutely important as is the website and internet. There is no doubt that Amazon has changed the whole culture of retailing and the US consumer seems to have adapted better and more quickly than its European peers.

 

Looking at the UK/European table it is a sea of red! Toys R Us, Maplin and House of Fraser have gone to the wall as have other lesser known operators. Over 6000 units have closed already this year with surely more to follow.  The Government must surely do something about the unfair burden of business rates.  NEXT deserves ‘the yellow jersey’ – up 21% since the beginning of the year.  No one knows better than Lord Wolfson how much stock and what people like on his shelves better than his Lordship. French Connection is 57% up on the threat of a takeover rumour. Wm Morrison is up 14% YTD, with Boohoo (also up 14%) carrying the flag for the internet and inexpensive fashionable clothing. Primark continues to attract the fashion conscious young, though AB Foods’ share price is not reflective of its performance. Quiz, fresh from its IPO, when it well and truly bounced out of the traps, has suffered badly – down 63% – due to supplier issues and problems with the likes of House of Fraser. Kingfisher seems to be fighting a losing battle especially in France with Castorama though ScrewFix is flourishing.  Restaurants and coffee chains such as Byron and Jamie’s are also suffering.  It was sad to hear of the investigation of financial irregularities with Patisserie Valerie, which has nearly 200 outlets.

 

Europe’s performance has been dire with all its main supermarket operators failing to ‘float anyone’s boat.’ All their share prices are well and truly underwater, apart from Hannes & Mauritz, which has had a terrific rattle on the rails in the last two months. Even Inditex the owner of Zara has struggled.  As for Ocado – not sure if that is distribution or retail. Anyway, having bagged Casino of France as a customer, its share price is up 98.4% YTD!

 

The results from UK retail operators superficially looks worse than it is. The High Street remains a huge problem thanks to business rates and the culture change of the consumer. The internet rules OK and I am less than sure that the likes of M&S, John Lewis and Sports Direct have really grasped the nettle. Amazon is a huge thorn in retail’s side, but the consumer needs to learn to live with this amazing service/product which will soon embrace media, banking and copious other technological products. There is one other imponderable – BREXIT.  The great unknown and the lack of clarity could damage retail in general in the months to come.  With folk having less disposable income, they are very particular where they spend their money. It is mildly disarming to find many retail chains already offering sale discounts up to 70% with Christmas over two months away.

 

If by any chance there was a ‘NO DEAL’ situation, then we are looking at tariffs, expensive food and a degree of inflation, which will complicate what is already an unappetizing situation, even if only manifesting temporary discomfort The world looks troublesome with many hurdles and obstacles to negotiate, particularly if US/China trade tariffs prevail triggering a domino effect around the world with the added conundrum of a drop in global GDP.

David Buik

Communications

Mobile – 07788 144 877

 

Financial spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Click here to read the full risk warning.

MARKET ACTIVITY & EUROPEAN OPENING CALLS

Yesterday the FTSE 100 -85 at 7233 -1.16%, DAX -1.36% at 11947, CAC -1.10% at 5300 – the weakness of the Italian economy & the rising bond yields continued to take its toll on the all 3 main European indices. The main fallers were BP & Shell in response to Trump’s threat toward further sanctions on Iran and Vodafone fell to a 9 year low as the size of its dividend seemed threatened.

 

Jaguar Land Rover plans a two-week closure as demand falls – plastic packaging maker RPC Group has given two private equity firms – Apollo Global Management and Bain Capital more time to make bids and now have until 5 November to make firm offers or walk away from RPC.

RPC shares fell 6.5%, valuing the company at £3.25bn.

On the Street of Dreams DJIA +0.15% to 26486 S&P 500 -0.04% to 2884, NASDAQ -0.67% to 7735 – a fear of rising rates continues to undermine confidence. Technology shares declined for a third straight session as a period of rising rates knocked equity benchmarks around. The bond market was closed in observance of Columbus Day

 

The International Monetary Fund has warned a trade war between the US and China risks making the world a “poorer and more dangerous place” in its latest assessment of the global economy. The IMF has lowered its forecast for global growth this year and next from 3.9% to 3.7%. Both business and households would be hit by any escalation of this trade spat.

 

 

Today Chinese markets struggled to reverse Monday’s measurable sell-off post the holiday last week. Shanghai had fallen 4.3% yesterday – ASX -1.08%, Shanghai +0.49%, Hang Seng +0.31%, Nikkei -1.25%.

 

Bonds – Japan 0.15%, Germany 0.54%, France 0.88%, Spain 1.59%, UK 1.68%, Portugal 1.96%, US 3.23%, Italy 3.61%, Greece 4.58%

 

Cable $1.3093, €/£0.8777, €/$1.1490, $/Y113.10 – Gold $1194.60 – Nymex $74.68, Brent $84.39

 

 

UK companies posting results this week – Tuesday – Ferrexpo, Greggs, YouGov, Wednesday – Genesis, Marston’s, Vedanta, PageGroup, Thursday – WH Smith, Hays, Countryside, Dunelm, N Brown, Hargreaves Lansdown, Jupiter, Mondi, Moneysupermarket, Friday – Man Group, Ashmore

 

 

US companies posting results this week – This week sees the start of 3rd quarter earnings in earnest – Thursday – Walgreen, Boots Alliance, Delta Airways, Friday – JP Morgan, Wells Fargo, Citibank

 

Economic data posted this week – Tuesday – BRC SALES, Wednesday – UK Trade Balance, Industrial production, Construction Output, GDP & Services index, US PPI, US Wholesale Inventories, Thursday – BOE credit, US CPI

 

 

 

Opening calls FTSE +12 points at 7245, DAX +28 points at 11075, CAC +10 points at 5310, DJIA futures +27 points at 26513

 

75% of retail investors lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

WEEKLY FAYRE

TODAY’S FAYRE – Monday, 8th October 2018

 

Poca favilla gran fliamma seconda. – Dante
Ogni altra cosa, ogni pensier va fore,
E sol ivi con voi rimansi amore. – Petrarca

“I lov’d you first: but afterwards your love
Outsoaring mine, sang such a loftier song
As drown’d the friendly cooings of my dove.
Which owes the other most? my love was long,
And yours one moment seem’d to wax more strong;
I lov’d and guess’d at you, you construed me–
And lov’d me for what might or might not be
Nay, weights and measures do us both a wrong.
For verily love knows not “mine” or “thine;”
With separate “I” and “thou” free love has done,
For one is both and both are one in love:
Rich love knows nought of “thine that is not mine;”
Both have the strength and both the length thereof,
Both of us, of the love which makes us one.” 

 

Christina Rossetti – poet – 1830-1894

 

The summer is a lousy time of year for films.  Now that the leaves are starting to change colour, decent movies start to go on general release. Such was the case at the Curzon in Victoria last Thursday, when I took in a wonderful film – “THE WIFE” with Glenn Close and Jonathan Pryce. This is the story of a novelist – Joe Castleman – who wins the Nobel Prize for literature for his acclaimed and prolific slew of novels. His wife, Joan, played so exquisitely by Glenn Close, now 72 years of age but very well preserved, starts to ruminate over their shared compromises, secrets and betrayals. Max Irons, Jeremy’s son enjoys an interesting cameo role as the disenchanted belligerent son.  I won’t spoil the plot! But, please DO NOT MISS IT – Thespian performances of the highest quality! M/S Close’s facial expressions are something else.  It took me back to ‘Fatal Attraction’ when she played opposite Michael Douglas in 1987!

 

Most people in business are now probably more concerned about the prospect of a Corbyn Government than they are about any possible adverse effects from BREXIT. Halifax posted a 1.4% drop in house prices in September. Estate agents are seeing evidence of expensive property owners down-sizing and attempting to squirrel away largesse from the clutches of Corbynism, which many now believe is a real possibility.

 

Japan’s PM Abe said he would welcome the UK into the TPP post BREXIT. I see that as quite positive news

 

The PM got through the Tory party conference relatively unscathed. However, the next two months are crucial in defining her premiership. How watered down will the UK’s BREXIT agreement with the EU be? Will the UK be prevented from making its own individual fresh trade deals, whilst an interim agreement is in place?  Or will it be ‘NO DEAL’, which I doubt. With what appears to be an inadequate time frame for preparation, ‘walking away’ might be just too dangerous for the economy. What a mess! The June 2017 General Election result changed the whole concept of delivering an acceptable exit. Vibes from the EU suggest that there is reason for quiet optimism. Mmmm! Adding a bit of cynicism might prove to be judicious.

 

 

INDEX 1/10/18 5/10/18  % gain/loss  
FTSE 100 7510 7318 -2.56  
XETRA-DAX 12381 12112 -2.09%  
CAC40 5494 5359 -2.46%  
DJIA 26598 26447 -0.57%  
 S&P 500 2926 2885 -1.40%  
NASDAQ 8091 7788 -1.27%  
Hang Seng 27879 26572 -4.49%  
Nikkei 24173 23783 -1.61%  
Shanghai Comp closed holiday    

 

I suppose it is fair to say that the writing was on the wall last Friday week.  Bond yields had been slowly creeping up, with Italy’s financial tantrums starting to worry the investment community. But the real driver on increased yields was the FED, with Chairman Jay Powell stating that the US economy was sufficiently robust to suggest that rates were some way away from enjoying a neutral stance. Couple those comments with the on-going trade spat between US and China and oil nudging $85 a barrel; together that made a sufficiently toxic cocktail to send investors to the hills, even if only temporarily. Certainly, some risk was taken off the table, as can be seen from the above table, particularly in Hong Kong and to a lesser degree in Europe. Several 10-year bond yields, apart from the Bund, have rallied by between 20 and 40 basis points in the past week – by any standards that is quite a marked percentage increase for a 10-year instrument – UK 1.73%, Germany 0.58%, US 3.23% (its highest level since 2011) and Italy 3.44%.

Friday’s Non-Farm Payrolls were mixed.  134,000 jobs were created in September – well down on August, but the unemployment rate fell to 3.7%, with hourly wage inflation steady at 2.8%. Personally speaking, for Jay Powell to start getting very excited, I would like to have seen that wage inflation number nudging 3%.  The US also posted PMI numbers for manufacturing, construction and services – all were positive as were the UK’s – all above the 50-threshold. It was interesting that the EU posted its most discouraging manufacturing data for two years, though great strides have been made in that period.  In New York, banks had a decent week with the prospect of higher rates and so did GE and Constellation Brands.  However, other sectors did not fare so well.  PepsiCo numbers were neutral, with Costco losing 3.5% on numbers posted on Friday, courtesy of higher costs than expected. Suffice to say that the likes of Apple, Amazon, Alphabet and Microsoft surrendered some modest ground in a week of modest turmoil. It should of course not be forgotten that the DJIA breached its record for the 14th and 15th time last week.

Back here in Old Blighty, Tesco’s decent sales posted on Wednesday was the main story in the early part of the week. Its 2.5% increase in like for like sales – an outstanding effort in the current climate – was insufficient to avoid some brutal treatment at the hands of traders.  The parsimonious 2%+ increase in profits was short of the mark, as was some efforts from their international outlets, resulting in investors venting their spleens by taking Tesco’s shares down 8%. DFS Furniture and Ted Baker also posted disappointing efforts with both retail operations losing 10% in value on Thursday. Topps Tiles reversed the retail trend with its shares rallying by 14% on Wednesday. Beware Amazon, which is apparently looking for units to open shops in the High Street! ITV pulled out of negotiations to buy Endemol.

Despite the support of no less than twelve investment banks, Aston Martin’s IPO was far from a glittering success. Expectations and valuations were far too ambitious especially its expansion plans which take time and are costly to get under way. Shares fell 9.2% from 1900p to 1724p on the week, Funding Circle £1.5 billion valuation fared even worse. Despite the backing of Goldman, BOA, Morgan Stanley and Numis, this peer-to-peer lender saw its shares fall a massive 19% from its issue price of 440p to 354p by Friday. Again, in an investment climate that was short of enthusiasm, its valuation seemed way over the top!  Rumours abound that former HSBC Chairman Douglas Flint may soon chair Standard Life Aberdeen. Saudi Arabia’s Aramco may enjoy its long-awaited IPO before 2021, but no firm date has been decided.

Nothing will persuade me, despite categorical denials by all the dramatis personae that Unilever’s plans to move head office from London to Rotterdam after 133 years, was anything but political.  The commercial gains were minimal.  I don’t buy the protection from takeover. 3G Capital’s and Kraft Heinz’s bids reared their ugly head in 2017, as Unilever was failing to deliver proper shareholder value.  Frankly the business was too complex with declining margins. Despite advice from UBS and Deutsche Bank, it was a plain as the nose on my ugly face that a slew of major UK fund managers – Aviva, L&G, Royal London, M&G and Schroders – would never countenance such a crazy idea, which would have taken Unilever out of the FTSE 100, denying it tracker fund support. Unilever employs 7,300 people in UK and 3,500 in Holland. London is a MAJOR financial centre.  Rotterdam by compassion is ‘Mickey Mouse.’ I find it hard to believe that that Chairman Marijn Dekkers and CEO Paul Polman, due to retire soon after a decade at the helm, did not have their collars tugged by EU or PM Mark Rutte. Or perhaps Paul Polman just believed his own arrogant gospel. These two executives got the mood horribly wrong!  They should go!

UK companies posting results this week – Monday – Reach, RPC, Tuesday – Ferrexpo, Greggs, YouGov, Wednesday – Genesis, Marston’s, Vedanta, PageGroup, Thursday – WH Smith, Hays, Countryside, Dunelm, N Brown, Hargreaves Lansdown, Jupiter, Mondi, Moneysupermarket, Friday – Man Group, Ashmore

US companies posting results this week – Thursday – Walgreen, Boots Alliance, Delta Airways, Friday – JP Morgan, Wells Fargo, Citibank

Economic data posted this week – Tuesday – BRC SALES, Wednesday – UK Trade Balance, Industrial production, Construction Output, GDP & Services index, US PPI, US Wholesale Inventories, Thursday – BOE credit, US CPI

 

David Buik

Communications

Mobile – 07788 144 877

 

Financial spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Click here to read the full risk warning.

INDEX 1/10/18 5/10/18  % gain/loss  
FTSE 100 7510 7318 -2.56  
XETRA-DAX 12381 12112 -2.09%  
CAC40 5494 5359 -2.46%  
DJIA 26598 26447 -0.57%  
 S&P 500 2926 2885 -1.40%  
NASDAQ 8091 7788 -1.27%  
Hang Seng 27879 26572 -4.49%  
Nikkei 24173 23783 -1.61%  
Shanghai Comp closed holiday    

 

I suppose it is fair to say that the writing was on the wall last Friday week.  Bond yields had been slowly creeping up, with Italy’s financial tantrums starting to worry the investment community. But the real driver on increased yields was the FED, with Chairman Jay Powell stating that the US economy was sufficiently robust to suggest that rates were some way away from enjoying a neutral stance. Couple those comments with the on-going trade spat between US and China and oil nudging $85 a barrel; together that made a sufficiently toxic cocktail to send investors to the hills, even if only temporarily. Certainly, some risk was taken off the table, as can be seen from the above table, particularly in Hong Kong and to a lesser degree in Europe. Several 10-year bond yields, apart from the Bund, have rallied by between 20 and 40 basis points in the past week – by any standards that is quite a marked percentage increase for a 10-year instrument – UK 1.73%, Germany 0.58%, US 3.23% (its highest level since 2011) and Italy 3.41%.

Friday’s Non-Farm Payrolls were mixed.  134,000 jobs were created in September – well down on August, but the unemployment rate fell to 3.7%, with hourly wage inflation steady at 2.8%. Personally speaking, for Jay Powell to start getting very excited, I would like to have seen that wage inflation number nudging 3%.  

 

The main fallers on Wall Street were from the tech sector were Amazon -2.20%, Apple -1.76%, Alphabet -2.84%, Microsoft -2.07% and Facebook -2.20%.

In London last week news centred around TESCO, whose shares fell 8% on Wednesday on disappointing profits despite good sales with Ted Baker & DFS Furniture losing 10% in value.  Conversely Topps Tiles were up 14%. Unilever gave up their quest to take head office from London to Rotterdam due to lack of shareholder support. CEO Paul Polman may have to go sooner rather than later.

 

Today Chinese markets fell on news that Central banks cut reserve ratios for lenders, with a view to revving up the economy that may be faltering – ASX -1.20% ASX %, Shanghai -2.95%, Hang Seng -0.88%, Nikkei -0.80%.

 

Bonds – Japan 0.15%, Germany 0.58%, France 0.91%, Spain 1.57%, UK 1.73%, Portugal 1.93%, US 3.23%, Italy 3.41%, Greece 4.4s%

 

Cable $1.31.09, €/£0.8779, €/$1.1509, $/Y113.86 – Gold $1200.30 – Nymex $73.80, Brent $83.31

 

 

UK companies posting results this week – Monday – Reach, RPC, Tuesday – Ferrexpo, Greggs, YouGov, Wednesday – Genesis, Marston’s, Vedanta, PageGroup, Thursday – WH Smith, Hays, Countryside, Dunelm, N Brown, Hargreaves Lansdown, Jupiter, Mondi, Moneysupermarket, Friday – Man Group, Ashmore

 

 

US companies posting results this week – This week sees the start of 3rd quarter earnings in earnest – Thursday – Walgreen, Boots Alliance, Delta Airways, Friday – JP Morgan, Wells Fargo, Citibank

 

Economic data posted this week – Tuesday – BRC SALES, Wednesday – UK Trade Balance, Industrial production, Construction Output, GDP & Services index, US PPI, US Wholesale Inventories, Thursday – BOE credit, US CPI

 

 

 

Opening calls FTSE -3 points at 7315, DAX -4 points at 12108, CAC -2 points at 5357, DJIA futures +40 points at 26487

 

75% of retail investors lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.