TODAY’S FAYRE – 2nd January 2014

TODAY’S FAYRE – Thursday 2nd January 2014

“Escape me?
While I am I, and you are you,
So long as the world contains us both,
Me the loving and you the loth,
While the one eludes, must the other pursue.
My life is a fault at last, I fear—
It seems too much like a fate, indeed!
Though I do my best I shall scarce succeed—
But what if I fail of my purpose here?

It is but to keep the nerves at strain,
To dry one’s eyes and laugh at a fall,
And baffled, get up to begin again,—
So the chase takes up one’s life, that’s all.
While, look but once from your farthest bound,
At me so deep in the dust and dark,
No sooner the old hope drops to ground
Than a new one, straight to the self-same mark,
I shape me—

Robert Browning –poet – 1812-1889


Gracious me some of the New Year political rhetoric does not improve with the passing of time. Particularly regrettable was the jingoistic tripe served up by DPM Clegg with his sabre-rattling over the importance of increasing the UK’s commitment to Europe. In his opinion a vote for UKIP is a wasted effort. Many would say that the Lib-Dems with only 54 seats in parliament are punching way above their weight and I would have to agree with this assessment. PM Cameron knows what has to be done in negotiating improved terms. If he does not get them – Que sera, sera! If the UK votes to go it alone, we will do better than survive! The one thing Mr Cameron has not done is to say unequivocally the UK will be leaving if the referendum votes to come out! I think the UK will remain in the EU; BUT I fear the terms won’t improve for us immeasurably!

I have enjoyed the much of the content of Damian McBride’s book ‘Power Trip!’ What dispirited me was the utter intellectual contempt Messrs Brown Miliband (E) and Balls had for those unsupportive of their economic goals. With their eventual track record, I am gobsmacked at the prospect of the electorate voting them back in to power in 2015 – even more so in coalition with the Lib-Dems, who would sleep with the devil to remain in power.

To start the year off, before markets start to get under a wet sail, I thought it might be interesting to reflect on a few international situations –

There was a poll conducted by CNN last week that showed 73% of Americans feel Congress has done nothing worthwhile. The approval rating for the Democrats has collapsed by 6% and this is all part of the process of shifting from a Public Confidence Wave to a Private Confidence Wave. If matters carry on in this manner, come November of this year President Obama could find himself a lame duck President, much in the same manner as George W Bush did in 2006

On the economic front in the US some are of the opinion that residential construction in the US accounted for 9% of the gain in the economy. This exceeds its share of GDP, but still is small since volatile housing normally leaps in recoveries, spurred by low interest rates. But deterrents abound. The initial boost to the economy as retrenching consumers cut imports was later reversed; so net exports reduced real GDP growth by 0.4% in the 13 quarters of recovery to date.

Inventory-building accounted for a substantial 9% of the rise in real GDP, suggesting the accumulation of undesired stocks since anticipation of future demand has been consistently subdued. Non-residential structures fell 0.1% as previous overbuilding left excess space. Equipment spending contributed 20% of the overall growth, but has failed to shoulder the normal late recovery burst.

Much of the following content is down to Martin Armstrong, the US economist – no great fan of the FED!

During the Spanish American War, Congress again introduced the War Revenue Tax Law of 1898, which imposed a 0.1% federal transaction tax on stock trades. This tax did not reduce domestic speculative trading, but foreign investment fled and the Panic of 1899 produced the highest level of interest rates in US history (nearly 200%) because of the tremendous lack of liquidity created by the tax that sent foreign capital fleeing out of the USA.

December 23rd, 1913 is a date which will live in infamy. That was the day when the Federal Reserve Act was pushed through Congress. Many members of Congress were absent that day, and the general public was distracted with holiday preparations. Now we have reached the 100th anniversary of the Federal Reserve, and most Americans still don’t know what it actually is or how it functions. But understanding the Federal Reserve is absolutely critical, because the Fed is at the very heart of our economic problems.

Since the Federal Reserve was created, there have been 18 recessions or depressions, the value of the U.S. dollar has declined by 98%, and the U.S. national debt has expanded by 5000%. This insidious debt-based financial system has literally made debt slaves out of all of us, and it is systematically destroying the bright future that our children and our grandchildren were supposed to have. If nothing is done, we are inevitably heading for a massive amount of economic pain as a nation. The FED will be responsible for much of this pain!

We have hardly started the New Year and bankers are again under fire. The situation has again been fuelled by His Grace, Justin Welby, Archbishop of Canterbury, who continues to leave no doubt in anyone’s mind as to his feelings on the subject. Let me just say that Ross McEwan, the new CEO of RBS, who is on an annual salary of £1 million, which is commensurate with the position he holds, is entitled to the £1.5 million share incentive scheme. These shares will only have value if Mr McEwan delivers RBS out of the proverbial ‘House of Bondage!’ If he doesn’t he will get nix! The scheme is what it says it is – INCENTIVE. Banking is an international business it is not parochial; so competitive schemes need to be in place to compete globally.

Finally just to make myself very unpopular on this subject. Why shouldn’t 115 people at Goldman Sachs receive bonuses of at least £3 million if they have delivered profits across the spectrum? Goldman has done the UK economy no harm. Some of these beneficiaries will pay plenty of tax as well as spend money here in the UK – fundamental to the continued recovery process of UK PLC! Again these bonuses have very little cash composition. Bonuses are largely paid in shares – not for sale for at least 3 years – engendering continuity and loyalty.

Well done John Lewis – 6.9% increase in sales for the 5 weeks over Christmas. Though down on last year, thanks to a drop in tablet sales, this is a great effort by Andy Street’s motivated team – The right number of attractive goods on the shelves at the right price. Debenhams profit warning was not a surprise with 50% discounts available 2 weeks before Christmas. Shares were down 15% last Thursday. Today they have rallied by 2%, thanks to those taking their profits from ‘shorting’ the stock. Sainsbury, Tesco and M&S have also felt the wheels of pain across their backs as the market expects disappointing results on the sales front. NEXT updates the market tomorrow and is unlikely to disappoint. The same will probably apply to ASOS, Dunelm and Primark (AB Foods). This is a very competitive market place. With incomes only rising by 0.7% against inflation of say 2.2-2.4%, something has to give. The market waits with bated breath to see if Belinda Earl’s influence has been brought to bear on the fashion front – or is it too early?

These are David Buik’s personal views

Twitter – @truemagic68

David Buik

Market Commentator

D +44 (0)20 7886 2775
Panmure Gordon & Co
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