TODAY’S FAYRE – Wednesday 8th January 2014

“When love has changed to kindliness —
Oh, love, our hungry lips, that press
So tight that Time’s an old god’s dream
Nodding in heaven, and whisper stuff
Seven million years were not enough
To think on after, make it seem
Less than the breath of children playing,
A blasphemy scarce worth the saying,
A sorry jest, “When love has grown
To kindliness — to kindliness!” . . .
And yet — the best that either’s known
Will change, and wither, and be less,
At last, than comfort, or its own
Remembrance. And when some caress
Tendered in habit (once a flame
All heaven sang out to) wakes the shame
Unworded, in the steady eyes
We’ll have, — that day, what shall we do?
Being so noble, kill the two
Who’ve reached their second-best? Being wise,
Break cleanly off, and get away.
Follow down other windier skies
New lures, alone? Or shall we stay,
Since this is all we’ve known, content
In the lean twilight of such day,
And not remember, not lament?”

Rupert Brooke –poet – 1887-1915

So it seems that Kevin Pietersen was the only fly in England’s ointment! It will be interesting to hear what really happened. Can one man really bring the form of an entire team to its knees? I doubt? There must be a greater and wider explanation, which will hopefully be forthcoming!

Every day that goes by at Old Trafford for legions of Manchester United Supporters must be very painful, as the Red Devils suffer their third defeat in a week at the hands of the Black Cats at home! David Moyes is not Sir Alex Ferguson and never professed to be. He must be given time to bed down his own systems. However what is painfully obvious is that the side is drained of swagger and confidence and Moyes won’t find it as easy to sign great players as his predecessor did.

Post a rather lack-lustre start to 2014, Monday/yesterday saw sentiment improve a little on bourses in Europe and the US. The fact that the US cut its trade deficit by 12.9% to $34 trillion (est $40 trillion) was not unhelpful. Healthcare shares had a run on the rails and tech stocks were very much in demand. When the NYSE clanger signalled the end of the session the DOW and the S&P 500 had both added 0.6% and the NASDAQ 0.96%. It is still a little early in the year to expect financial and economic news to turn the world on its axis. Ahead of next week’s numbers JP Morgan Chase had $1.7 billion fine imposed by the SEC for gross mishandling of their involvement in the Bernie Madoff fraudulent Ponzi scheme. Meg Whitman, the CEO of Hewlett-Packard is simply not going to accept Mike Lynch and Autonomy’s rather limp explanation that there has been a major misunderstanding over international accounting procedures when HWP paid $11.7 billion for Autonomy, which resulted in an $8.8 billion write-down by HWP. Since those dark days HWP’s shares have increased by 100%. Amongst the litany of misunderstandings was an $11 million re-seller deal with the USAF, for which Autonomy only received $500,000! This litigation is going to run. Friday’s Non-Farm Payrolls are eagerly awaited – est +190k.

Yesterday the FTSE 100 added 24 points at 6755, with banks leading the charge – RBS, Lloyds and HSBC all adding 2%+. As a general principle, the steeper the yield curve, the better the (relative) performance of cyclical sectors.

Given the starting point for the banking sector of Europe, then this is a massively geared play on recovery. I will leave to readers’ judgment on the fundamentals supporting the call although would suggest that the technical rally for the UK (State overhang) and the EZ (rights issues) are negative.

I am told it might be better to buy the UK over the EZ on this basis, especially given that the UK is structurally a defensive market overall. In the absence of research, Barclays currently looks the best value. My friend Mike Ingram of BGC Partners put the explanation for this rally well – “Bank = buying a step yield curve. If this is not a function of inflation – actually receding in the UK – then this represents the mismatch profits of borrowing short and lending long. But, David, as you’ve alluded, this could be markets trading on fumes, so perhaps unwise to read too much into the current twitching of the equity corpse!”

Post the energy furor Centrica’s Nick Luff has found it necessary to resign as FD. Banks and energy companies are having real problems with consumers. They need to smarten up on their communication skills and start regular open dialogues with the public to regain trust. We are all heartily sick of reading about these behavioral problems in the Sun, Mirror or Daily Mail.

Justin King has been CEO of J Sainsbury for nearly a decade. During his dynasty he has posted on behalf of the UK’s 3rd largest supermarket an increase in sales for all 35 quarters. Sainsbury did it for 36th time today – JUST +0.2%. Total sales up 2.5% (ex-fuel +2.7%). Convenient store sales +18%. The outlook will be challenging. M&S posts numbers tomorrow. Those with diseased ridden minds working overtime might justifiably feel that it is time for a change of leadership at M&S if the fashions don’t start to trigger an increase in sales. How about the return of the prodigal son to take over from Mark Bolland? Persimmon and Domino Pizza will also be posting trading statements

RBS continues its painful sale of assets to get its balance sheet size down, by selling 100 of its 1400 branches in 12 states of Citizens Bank ahead of an IPO in the next few months valuing the bank at $8 billion. Bruce Van Saun, the former FD will be Citizens new CEO. I am confident that Stephen Hester never really received sufficient credit for cutting RBS’s balance sheet down from a gargantuan £2.2 trillion to £1.5 trillion. Andrew Tyrie, the chairman of the Treasury select committee was visceral yesterday in the extreme and not a little terse in his comments directed at the FCA’s Clive Adamson for the incompetent handling of the Rev Paul Flower’s appointment as chairman of Coop Bank.

I was interested to see that Chris Hohn’s CIT made a 47% return on capital last year after shrewd investments in News Corporation, EADS and a 5.8% stake in Royal Mail. Sadly as a result of his divorce from Jamie Cooper Hohn, no more money will be passed on to charities, which was part of the rationale for the business. There is nothing illegal of unorthodox about this decision, it is just rather dispiriting for all parties.

Finally Ireland had a very successful 10 year bond auction $3.75 billion- yielding 4.21% – good effort. 4 years ago before the bail-out yield for 10 years were in excess of 8%.

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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