TODAY’S FAYRE – Sunday 5th January 2014

“Unfriendly friendly universe,
I pack your stars into my purse,
And bid you so farewell.
That I can leave you, quite go out,
Go out, go out beyond all doubt,
My father says, is the miracle.

You are so great, and I so small:
I am nothing, you are all:
Being nothing, I can take this way.
Oh I need neither rise nor fall,
For when I do not move at all
I shall be out of all your day.

It’s said some memory will remain
In the other place, grass in the rain,
Light on the land, sun on the sea,
A flitting grace, a phantom face,
But the world is out. There is not place
Where it and its ghost can ever be.

Father, father, I dread this air
Blown from the far side of despair
The cold cold corner. What house, what hold,
What hand is there? I look and see
Nothing-filled eternity,
And the great round world grows weak and old.

Hold my hand, oh hold it fast-
I am changing! – until at last
My hand in yours no more will change,
Though yours change on. You here, I there,
So hand in hand, twin-leafed despair –
I did not know death was so strange.”

Edwin Muir –poet – 1887-1959

There was very little for England cricket supporters to cheer about at the SCG on Saturday. Though TV viewers were given a wonderful cameo clip of former Australian Prime Minister Bob Hawke necking down a pint of ‘amber nectar’ in one, in front of admiring spectators and supporters, without the slightest sign of any muscle in his ‘Adam’s Apple’ moving by a miniscule amount! That is a very considerable achievement by a person in his 30s or 40s. Bob Hawke is 84 years of age! The mind boggles at the thought of Messrs Major, Blair or Brown even attempting to sink half a pint in one! I doubt for one minute that either of them have ever indulged themselves in a game of ‘Cardinal or Pope Puff’ in their youth!

Talking of this Ashes series, the manner of England’s defeat, from a professional sportsman’s perspective, was bordering on the reprehensible. Most people can cope with defeat with a degree of dignity, but this capitulation was crushing and ignominious. England went out like a light with no visible resistance. To be bowled out in 31 overs, to put it mildly, can only be put down to dire application.

President Vladimir Putin is alleged to have a current net worth alleged to be between $40 billion and $70 billion – not bad for a former head of the KGB! Mikhail Khordokovsky will smile wryly at that snippet of news!

Commentators seem now to have dispensed with analysing the achievements and shortcomings of 2013. The forecasts and outlook for shares, interest rates, bonds and foreign exchange have already gone out to their respective acolytes and followers. They look a fairly mixed bag, though it is fair to say many equity luminaries seem to have hung their hats on the growth peg and want to believe in the sustained recovery story and support it!

This coming year Central banks look as though they will be increasingly influential in financial markets. The FED, under its new ‘Scarpia’, Janet Yellen will need to dextrously police the tapering of quantitative easing, whilst at the same be prepared to be flexible if the recovery of the US economy is not sustainable and comes off the rails. There is still a concern about the retail sector, despite Consumer Confidence in December being at its highest since 2008. Though stock markets are at all-time ‘highs’, margins from retailers are beginning look quite skimpy! Also the US housing market has had a tremendous run on the rails. Few believe that this level of improvement can be sustained, since mortgage rates have one up. The S&P 500 has a very rich 15+ times P/E ratio; so 4th quarter results which will be posted in earnest the week beginning 11th January, will need to show a marked improvement on the last quarter, which were marginally disappointing.

Governor Mark Carney has different challenges. He must attempt to keep interest rates where they are until 2016, if at all possible. The economy remains brittle, but unemployment is falling and Mr Carney’s original guideline to raise rates was 7% unemployment. This look readily achievable; so the threshold on unemployment is likely to be dropped to 6.5%. Otherwise Mr Carney may have a battle royal on his hands fighting off market forces from raising rates, with inflation resisting the 2% threshold. A potential housing bubble has attracted a great deal of attention. London, I believe is the exception to the rule. However if lending to first time buyers and other mortgage applicants is to continue increasing, low interest rates for an indefinite period of time is a pre-requisite.

Whilst on the subject of the BOE, the hugely impressive Andrew Bailey, deputy Governor and head of Prudential Regulation will have his hands full this year with several tricky issues to deal with. The ‘too big to fail’ tag will never be far from the top of the banking agenda, with Mr Bailey forcing through increased capital requirements where needed to sustain safety and lending requirements. At the same time he will be carefully overseeing a further sale of Lloyds Banking Group shares plus considerable large and sensitive IPOS from TSB, Santander UK and Williams & Glyns Bank. Deputy Governor Bailey is more than equal to the task.

As for the ECB’s Mario Draghi’s mandate of “we will do everything that is required”, I doubt the super human former Goldman Sachs executive will be in a position to deliver. The EU PR machine has been flat to the boards extolling the virtues of the EU’s recovery. “Tell it to the marines!” France is hanging in economic rags with the woeful Hollande totally out of touch with reality. Can Greece, Spain and Italy continue to deliver austerity with growth? Many are less than convinced.

Abenomics have been a ‘wow!’ The NIKKEI has made its greatest gain last year since 1972 – 58%! How long can stimulus packages be thrown at a problem before ‘the kissing has to stop.’ Japan is wholly reliant on exporting goods. Domestic demand for consumer goods will always be limited due to the average size of dwellings, which are tiny by other standards.

Pimco’s Bill Gross will give testament to the fact that the central banks have won the initial battle on interest rates, though the result of the war remains in abeyance. Last year Pimco $244 billion Total Return Fund made a loss of 1.9%, its worst performance since 1994, surrendering sovereignty to equities.

There were only three working days last week. Initially profit takers took some risk off the table as the final week of 2013 had probably seen a tad too much euphoria. Also ISM manufacturing in the US faltered a smidgen. The S&P 500 eased by 0.6% on the week with the FTSE surrendering -0.3%, the European bourses by an average of 0.13% and Japan’s NIKKEI by 89%. US car sales fell below the forecast figure of 16 million for the year – 15.6 million. GM, having recently left the clutches of US ‘bail-out’, put in a disappointing sales number for last month – sales down 6%. Ford sales increased by 2% and Toyota’s sales were down by 1.7%. Chrysler saw its sales up by 6%. Fiat have just agreed to buy the remaining 41% for $4.35 billion.

Just out of interest the final share sale will benefit United Auto Workers union-controlled trust fund, which was given its stake after the White House stepped into the process. The deal is expected to close by the end of January. But it won’t end for U.S. taxpayers, who have already lost $10 billion on the General Motors bailout and will continue to lose money in future bailouts until Washington’s klepto culture is changed by the ballot box. Though not expensive by GM standards, the $12.5 billion Chrysler bailout will cost American taxpayers $1.3 billion.

And for what? Yes, they kept a U.S. company in business. But now it’s an Italian company. This prompted John Berlau, a senior fellow at the Competitive Enterprise Institute and a former IBD staffer, to ask wryly: “Wasn’t the bailout supposed to be about saving the American auto industry?” Berlau points out that instead of Fiat saving Chrysler, Chrysler, with help from taxpayers, is bailing out Fiat.

Taxation issues for Google, Amazon, Starbucks, eBay and Apple will be challenging for European and UK governments. How do they attempt to get more revenue without ‘throwing the baby out with the bath war?’ This coming week is a key one for supermarkets and M&S. J Sainsbury posts its Christmas trading statement on Wednesday and this last quarter may be the first time in 34 quarters that sales may not have gone up. Tesco’s like for like sales due on Thursday 9th January may have dropped by as much as 2% and in the case of M&S, which also reports on Thursday, like for like sales may have decreased by between 0.5% and 1%. Aldi, Lidl and Waitrose seem to have been the beneficiaries. The appointment of Belinda Earl to oversee fashion from Kate Bostock has yet to benefit general merchandise sales.

Companies posting numbers and trading statements next week – Tuesday – DUNELM, TOPPS TILES, Wednesday – DOMINO PIZZA, J SAINSBURY, PERSIMMON, Thursday – TESCO, M&S, GREGGS, TED BAKER, RESTAURANT GROUP, Friday – HILTON FOODS, JD SPORTS.


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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One thought on “TODAY’S FAYRE – Sunday 5th January 2014

  1. David Boreham says:

    NIKKEI fell 1.89%, not 89%. Dont panic!

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