TODAY’S FAYRE – Tuesday 28th January 2014

“When we two parted
In silence and tears,
Half broken-hearted
To sever for years,
Pale grew thy cheek and cold,
Colder thy kiss;
Truly that hour foretold
Sorrow to this.

The dew of the morning
Sunk chill on my brow–
It felt like the warning
Of what I feel now.
Thy vows are all broken,
And light is thy fame:
I hear thy name spoken,
And share in its shame.

They name thee before me,
A knell to mine ear;
A shudder comes o’er me–
Why wert thou so dear?
They know not I knew thee,
Who knew thee too well:
Lond, long shall I rue thee,
Too deeply to tell.

I secret we met–
I silence I grieve,
That thy heart could forget,
Thy spirit deceive.
If I should meet thee
After long years,
How should I greet thee?
With silence and tears.

George Gordon, Lord Byron – poet – 1788-1824

In recent days Ed Miliband, Ed Balls and Chuka Umunna have trotted out their economic gobbledygook with cheap, though eye-catching political shots, on tax and banks, clearly endorsing the perception that they are not fit to govern this country. Apparently they have learnt nothing from the financial meltdown that followed in Labour’s wake 5 years ago, rarely showing even a modicum of contrition. Perhaps I am not always the most objective person in the world, but Mr Balls comes across as financially innumerate and illiterate. I know he’s not, but his policies, if only the naïve electorate knew it, have a scorpion’s sting in their tail. Anyway the 5-6% consistent Labour lead in the polls has started to narrow. YouGov has Labour in the lead 37% to 35% in today’s poll for The Sun. I am beginning to believe there is a financial God up there!

The PM, Dr Vince Cable, Michael Fallon, Lord Livingstone have been out there, making hay whilst the sun shines, strutting their Gospel according to the Coalition on business development, ahead of today’s 4th quarter GDP data, which should show that the UK’s economy grew by 0.8% and by 1.9% in 2013. The OBR and the IMF believe that the UK will grow by 2.4%, if Europe does not drag ‘Old Blighty’ down in to the vortex of despair with its collective incompetence. Huge amounts of ‘Red Tape’ and bureaucracy have been cut in 3 years and let’s hope that Lord Livingstone’s infectious enthusiasm helps a concerted export driven recovery.

In the past 2 weeks it has been all about the realisation that emerging markets are struggling with their currencies coming under extreme duress since the announcement of tapering by the US Fed starting this month. Access to cheap funding through Dollars has now disappeared, leaving the likes of Argentina, Turkey and Indonesia very vulnerable. BGC’s Mike Ingram put the situation very succinctly yesterday – “The implied increase in funding costs has caused capital flight in a number of vulnerable EM economies, hammering bonds and currencies. Many countries feel obliged to raise rates in response, further slowing economic growth.” It is also fair to state that many global indices seem fully valued with the quality 4th quarter earning failing to set the investors’ hearts a flutter!

A huge amount of overseas capital has been withdrawn from many emerging countries, with some fairly substantial profits banked and losses as well, for those late in on the scene. The process of globalisation between mature and emerging nations may have slowed, or even rolled back in some respects over the last few years. But the linkages through trade, financial flows and asset pricing remain strong and are likely to strengthen anew in the years ahead. However whilst this uncomfortable situation prevails, it would be folly to think that mature equity markets will not suffer. Yesterday was another ‘Bad Day at Black Rock’ with US markets falling between 0.5% and 1.1%. I am normally quite a sporting supporter of the bonus system. However JP Morgan’s Jamie Dimon taking $20 million out of the ring considering JPM paid out over $10 billion in fines and losses for misdemeanours, seemed a little rich for even my blood!

After hours Apple posted results for 1st quarter. They did not pass muster, despite revenues of $57 billion and a profit of $13 billion. 51 million units were sold but the sale of iPhones was disappointing. Over the year there was a 6.7% jump in sales. Apple currently sits on a cash pile of $157 billion. Tim Cook must do something about that, even if it is to return some cash to shareholders. The Street of Dreams was underwhelmed by these numbers and larruped the shares – down 9%. Samsung are still hot to trot pus other alternatives like androids.

The FTSE 100 also had a shocker losing 113 points to 6550, with BG Group posting a profits warning, thanks to the fall in US gas prices and trouble with their operation in Egypt. It appears profits will fall to about £1.4 billion. Shareholders vented their spleen, taking BG’s shares lower by nearly 14%. Colonial Investment Trust, owned by the Bank of Montreal, has served notice to take over F&C for £700 million. Vodafone had a bit of a setback yesterday when AT&T surrendered its option to make a bid. The shares were 3.9% lower. Vodafone has pots of cash since pouching £36 billion net from Verizon. Come on Vittorio surely BSKYB would be a good fit! ‘Uncle Ru’ will be reluctant, but have a go! Mobiles and media – let’s dance! ARM Holdings announced that Stuart Chambers, chairman of Rexam, will replace Sir John Buchanan as ARM’s next chairman.

Finally we can’t let the despairing news about RBS go under the radar without comment. A loss for the year of £8 billion expected, exacerbated by extra provisions totalling £3.1 billion – £1.9 billion for US issues over mortgages – £500 million for swap issues – £465 million for further PPI claims and £200 million legal costs. Many are understandably frustrated that these poor numbers keep pouring out. No! This is not Stephen Hester’s fault. He knew the issues. I suspect that he profoundly disagreed with George Osborne about even contemplating selling RBS back to the public, when this complex bank was clearly not in remission. One forgets but the number of times banks, after 2008, adjusted their provisions for bad debts more realistically, were immeasurable. Had the banks written all their provisions down fully at the start of the crisis – i.e. to zero – the world’s banking system would have been irreparable! CEO Ross McEwan thinks that most of the skeletons are out of RBS’S cupboard and that the show is almost back on the road. I think the taxpayer can kiss goodbye to any flotation for another 5 years. No doubt the politicians will have their way and cut this operation to ribbons. Citizens Bank may be sold by way of an IPO in the summer subject to stable conditions for £8 billion. The executive board have waved any bonus but it is folly to think RBS can compete globally without a bonus system.

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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