TODAY’S FAYRE – Sunday 19th January 2014 & ED MILIBAND’S RECKLESS INITIATIVE

“My heart is like a singing bird
Whose nest is in a water’d shoot;
My heart is like an apple-tree
Whose boughs are bent with thick-set fruit;
My heart is like a rainbow shell
That paddles in a halcyon sea;
My heart is gladder than all these,

Raise me a daïs of silk and down;
Hang it with vair and purple dyes;
Carve it in doves and pomegranates,
And peacocks with a hundred eyes;
Work it in gold and silver grapes,
In leaves and silver fleurs-de-lys;
Because the birthday of my life
Is come, my love is come to me.”

Christina Rossetti – poet – 1830-1894

‘The Wolf on Wall Street’ – decadence in liberal supply, light pornography – well perhaps not that soft – Cristal flowing like table water and cocaine as liberal as salt available in the mines of Krakow, was pure escapism. However much those who loath banks and the excesses of financial sector, felt vindicated in watching this highly dramatized twaddle, it is not representative of the excesses on Wall Street in the ‘90s. This stockbroker was ‘Mickey Mouse’ in the grand scheme of activity on the Street of Dreams.

Being a knee-jerk-reaction politician, I suspect Mr Miliband may have been inspired by the hysterical indulgence in this Hollywood extravaganza prior to writing his withering attack on UK banks and the service they provide. From his beautiful mansion in Regent’s Park and despite his left-wing doctrine, he surely had no right to knock £500 million off the value of Lloyds Banking Group and RBS shares? This ill-thought-out and reckless proposal may well precipitate an early sale of a further tranches of Lloyds Banking Group shares maybe as early as March. With Labour 5-9% in the lead at the polls why would any investor be that encouraged to buy shares in Lloyds & RBS, let alone shares in other forthcoming IPOS in TSB, rumoured to be set for June and Williams & Glyns Bank? Also finally these trashed shares in Lloyds and RBS are owned by the taxpayer, partly courtesy of the previous government’s incompetence and pension funds. They are worthy of better treatment. Mr M! You are a liability that I don’t think the UK can afford to have as Prime Minister.

Hilary Mantel has written two brilliant historical novels in the recent times – “Wolf Hall” and “Bring up the Bodies” – both won Booker prizes. They have currently been dramatised for the theatre at Stratford-upon-Avon to much significant acclaim. We can forgive M/S Mantel’s socialist leanings; it’s a free and almost democratic society we live in. However is there any need for her to write a new visceral novel “The Assassination of Margaret Thatcher” when the former PM has not even been laid to rest for a year? – Tasteless!

Share valuations and the quality of 4th quarter results were beginning to gnaw away at investors’ resolve. Was the S&P 500 P/E ratio in the US becoming a little rich at 15.6 times earnings with profits from the 52 companies that have already reported only increasing by an average of 6%? Yes, 62% beat profit expectations and 63% revenue expectations. This is far from a spectacular achievement. Yes the World Bank had increased its global growth forecast from 2.6% to 3.2% for 2014; yes industrial production in the US rose for the 5th month running by 0.3% plus a revision up to 1% in November, but investors were wholly unconvinced..

Last week earnings from the Street of Dreams were dominated by the banks, with only American Express (+5%) and Morgan Stanley (+4%) excelling themselves. Citi and CSX lost 4.4%. BONY eased by 2.9%, Intel surrendered 3%, as did GE. Best Buy had a horror story losing 35% of its value after an unsatisfactory sales trading statement over the holiday period. JC Penney got trolleyed losing 11%. Friday’s bright note came from Visa – up 5%.

Last week the DOW eased by 0.1% and the S&P 500 by 0.2%. The NASDAQ added 1% with Apple putting in a decent performance. The FTSE 100 added 1.12%, European stocks 1.8%, though the NIKKEI went in to reverse easing by 1.12%%, thanks to the Yen remaining too strong until the end of the week. Bond yields continued to drift with little sign of interest rates being hiked in the immediate future.

Here in Old Blighty Retail Sales over the holiday period were ebullient – 2.6% up in December against expectations of +0.4%. Over the Christmas week they were up 5.3% on last year. Ocado, the outstanding share of 2013 suffered a downgrade from Nomura on margin and future sale concerns – down 3.5%. There was a great effort from Burberry and commendable performances from Dixons, Halfords and Home Retail. Shell told the market that results for the last quarter would be sharply down with its ‘B’ shares suffering the most losing 3.5% on Thursday. Glencore added 3.3% leading many mining stocks higher. The bookmakers suffered on the threat of legislation on slot machines – William Hill down 3% and Ladbrokes -5%. Next week the following post updates – Monday – AFRICAN BARRICK GOLD, Tuesday – UNILEVER, CAIRN ENERGY (TS), CARPHONE WAREHOUSE (TS) – Wednesday – BHP BILITON (TS), LAND SECURITIES (TS), SAGE GROUP (TS), JD WETHERSPOON (TS), WH SMITH (TS), Thursday – AG BARR (TS), EASYJET (TS), LSE (TS), PEARSON (TS), PETROPAVLOVSK.

M&A activity continues to select another gear. There was much talk about Charter Comms $37 billion bid for Time Warner, Suntory’s $16 billion acquisition of Beam and Google snaffling up Nest for 43.2 billion. Activity is picking up in China with New Valve making a brave showing.

The IPO of Orange and T-Mobile, possibly valued at £10 billion may be postponed until 4G is readily available, which could enhance the value of the company. The Sunday Times tells us that BskyB is in strategic talks with Vodafone to stop BT’s broadband drive. Tesco is putting Mothercare under close scrutiny to see if purchasing this children’s outfitters has any synergy with their existing business. Blackstone and PAI may be looking to unload United Biscuits owners of Jaffa Cakes, McVitie’s etc in a £2 billion sale later in the year. The Sunday Telegraph tells us that L&G have warned the government that the ‘Help to Buy Scheme’ is fraught with dangers, fuelling prices of houses. This insurance titan may announce plans to build 5 new towns in the UK over the next decade.

These are David Buik’s personal views

Twitter – @truemagic68

David Buik

Market Commentator

D +44 (0)20 7886 2775
Panmure Gordon & Co
One New Change | London | EC4M 9AF | United Kingdom
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