TODAY’S FAYRE – Tuesday 14th January 2014

“I ne’er was struck before that hour
With love so sudden and so sweet,
Her face it bloomed like a sweet flower
And stole my heart away complete.
My face turned pale as deadly pale.
My legs refused to walk away,
And when she looked, what could I ail?
My life and all seemed turned to clay.

And then my blood rushed to my face
And took my eyesight quite away,
The trees and bushes round the place
Seemed midnight at noonday.
I could not see a single thing,
Words from my eyes did start–
They spoke as chords do from the string,
And blood burnt round my heart.

Are flowers the winter’s choice?
Is love’s bed always snow?
She seemed to hear my silent voice,
Not love’s appeals to know.
I never saw so sweet a face
As that I stood before.
My heart has left its dwelling-place
And can return no more.

John Clare – poet – 1793-1864

“12 years a Slave” – Well it won best picture at the ‘Golden Globes’ for Steve McQueen, the director and his wonderfully well-chosen cast, which included Chiwitel Ejiofor, who was unlucky to come up against Matthew McConaughey for the best acting award for his role in “Dallas Buyers Club.” However there were no other spoils of war for this well touted nominee. The ‘Golden Globes’, in terms of voting, are a little on the parochial side; so perhaps when thousands vote in the ‘Oscars’ Ejiofor may stand a better chance. However the Academy Awards are so political; so who knows?

“12 Years a Slave” was a very harrowing gruelling and sickening 2 ½ hours. I would not have missed it for anything. In his own way Michael Fassbender was equally commanding as the sadistic plantation owner and again was unlucky not to have been at least nominated as best supporting actor. Also Benedict Cumberbach and Brad Pitt put in eye-catching cameo performances. Idris Elba will be proud of his portrayal of Mandela and ‘hats off’ to Cate Blanchett for scooping up best actress in ‘Blue Jasmine’ – thoroughly deserved, though I shed a little tear for Judi Dench in ‘Philomena.’

Every man and his dog has been talking about the possibility that some equity valuations are becoming too rich for their blood. Having been shaken by the indifferent US employment data last Friday investors put their money where their mouth was on the Street of Dreams yesterday by taking some risk off the table. 4th quarter S&P profits are expected to grow by an average of 7.7%, but revenues may only expand by 0.4%. This is not a fabulous prognosis for this trading period. We must remember that the S&P 500 has added 169% in value since 9th March 2009 and that its current P/E ratio is 15.4 x – not necessarily fully valued but high enough for investors to pause for breath. So the DOW eased by 1%, the S&P 500 by 1.26% and the NASDAQ by a measurable 1.47%

Amongst the leading fallers were Microsoft -2.9% with Exxon Mobil, Nike and Walt Disney – all barometer stocks – each falling 2%. Kohl’s lost support and was clattered by 6% and amongst retailers Michael Kors lost 3.9%. Despite the negative mood that took a vice-like grip on activity on beautiful downtown Manhattan, M&A activity was surging; so perhaps this aberration is no more than a healthy correction. Charter Communications bid $37 billion for Time Warner, but if it wants to land the spoils it will need to improve its initial bid. Japan’s Suntory bid $14 billion for Beam which will make the successful predator the 3rd largest drink operator in the world. Google continues to tinker with its portfolio by paying $3.2 billion foe Nest Labs, makers of thermostats and alarms. Where the synergy lies is not obvious, but I would venture to suggest that Google have a decent track record for add-on-value-acquisitions.

Today JP Morgan Chase and Wells Fargo post their numbers. JPM is expected to post $1.24 eps on slightly lower revenues of $23 billion, though provisions of $850m may have been made for bad loans and litigation. Wells Fargo, on the other hand, may have seen a drop in mortgagees, but yields have increased with revenues of $20.9 billion likely to see eps of 98 cents. US banks have had an amazing 3 years despite the desperate issues. They will need to turn the corner in 2014 in response to improved economic growth.

Yesterday the FTSE 100 closed up 17 at 6757 thanks to strong support for banks, thanks to the easing regulatory requirements. Morrison also made a strong rally after last week’s debacle, thanks to an upgrade from Nomura. Homeserve faces a £34 million fine by the FCA. Home Retail may appoint John Walden to succeed Terry Duddy as CEO. The shrewd and street-wise Mike Ashley made a raid on behalf of Sports Direct International in buying 4.6% of the ailing Debenhams. It is hard to see the synergy. Sports Direct culture of ‘stack ‘em high sell ‘em cheap does not sit well with Debenhams. Perhaps Ashley just thinks Debenhams is cheap and over trashed. Portakabin served notice that it was considering a £4 billion IPO. This morning Asia suffered at the hand of poor sentiment in New York. The ASX closed down 1.4%, with Hang Seng easier by 0.28% towards lunch and the NIKKEI thoroughly out of sorts – down 3.14% towards the close. The Shanghai Composite was up 0.55%.

I think we can take it as read that Alex Salmond is not short of brain cells. Frankly those voting for Scotland’s independence are insane – a sandwich short of a picnic! It just won’t happen! I believe Salmond’s campaign is purely a charade for Westminster to contribute more to Scotland’s coffers.

Though understandably the UK government and the Debt Office want an orderly market post a vote to leave the Union, I hope the agreement to underwrite Scotland’s debt is temporary. Everyone in the UK would be appalled that Scotland would be allowed to benefit from the UK’s credit rating in the gilt market; nor should they be regulated by the Bank of England or the FCA. If Scotland votes to leave; then they are on their own in perpetuity! Also use of Sterling as a currency should eventually be withdrawn. Treasury support for Scotland greatly weaken London’s negotiating hand, consequently making Salmond’s plans more sustainable. Scotland has 5 million people – 8% of UK’s 63 million population. Out of the kindness of his heart Mr Salmond says that Scotland would be prepared to share debt responsibility in exchange for attractive assets – oil maybe? On yer bike kind sir. Issue your own debt and that may cost another 150 basis points on top of UK gilt prices.

Scotland! You must live by the sword or die by it!”


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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