TODAY’S FAYRE – Wednesday 12th January 2014

“I love to rise in a summer morn,
When the birds sing on every tree;
The distant huntsman winds his horn,
And the skylark sings with me:
O what sweet company!

But to go to school in a summer morn, –
O it drives all joy away!
Under a cruel eye outworn,
The little ones spend the day
In sighing and dismay.

Ah then at times I drooping sit,
And spend many an anxious hour;
Nor in my book can I take delight,
Nor sit in learning’s bower,
Worn through with the dreary shower.

How can the bird that is born for joy
Sit in a cage and sing?
How can a child, when fears annoy,
But droop his tender wing,
And forget his youthful spring!

O father and mother if buds are nipped,
And blossoms blown away;
And if the tender plants are stripped
Of their joy in the springing day,
By sorrow and care’s dismay, –

How shall the summer arise in joy,
Or the summer fruits appear?
Or how shall we gather what griefs destroy,
Or bless the mellowing year,
When the blasts of winter appear?”

William Blake – poet & painter – 1757-1827

I have often wondered why it is that Conservatives are called the “right” and Liberals/Labour are called the “left.” By chance I stumbled upon this verse in the Bible: “The heart of the wise inclines to the right, but the heart of the fool to the left.” – Ecclesiastes 10:2 (NIV) – Thus sayeth the Lord. Amen.

Manchester United post their results today. I am less than convinced how interested people will be in the quality of the earnings. The public just dislike the idea of the Glazer family retaining in excess of 70% of the shares despite its IPO in the US in the summer of 2012. As we know Manchester United is in danger of not qualifying for the Champions League next year, which will adversely reflect on their income stream. Manchester United is a brilliant global brand and is cash cow. Supporters and observers resent the idea of the Glazers using surplus funds to finance their operations in Florida, even though they are entitled to!

Some shrewd operators have been ‘shorting’ this stock since the middle of December, when it stood at $17.50. Today the shares have fallen to $15.23 which includes a 40 cent rally yesterday – possibly the result of a ‘squeeze rally’ and some sensible profit taking.

So the grand lady from Brooklyn New York – Janet Yellen – spoke endlessly on day one of her Humphrey Hawkins lecture and actually said very little. However investors were appeased at the thought of no real change in policy. Proceed with more tapering if the economy stands up to scrutiny. Be prepared to be flexible in necessary over tapering. Chairman Yellen was not overly concerned about the relatively discouraging NFP data for December and January and put it down to bad weather. I think thousands of people have given up looking for work, but the official drop in the unemployment rate to 6.6% is encouraging. I see little chance in the FED raising interest rates in the immediate future unless the US economy is on fire and that would need China and the emerging countries to show similar increases in growth – far from guaranteed! However Many were pleased to see that China’s exports jumped 10.6% in January. However there are still issues over China’s shadow banking problems.

Mark Carney chairs the Inflation Report meeting at 10.30am today and the ‘Street’ thinks he has a credibility gap to shore up over his ‘forward guidance’ policy! I don’t think he has a problem. I just think he has to adjust the rhetoric a touch. The BOE wasn’t to know that the economy in the UK was going to improve that quickly. There is also no guaranty that the rate of improvement can be sustained. 7% unemployment was only a guideline for the MPC to increase rates – not a trigger point.

The market thinks Mr Carney speaks with forked tongue and that rates will go up next year – so it appears that the bond markets are happy to endorse this perception. Wholesale funding and mortgages have increased in price in recent weeks. I hope Mr Carney will talk about the slack in the economy, no wage inflation (0.7%), hardly an inflationary force to put rates up. The MPC has for many months left QE where it is and rates have been at 0.5% since March 2009. Mr Carney, I believe, should officially lower the guideline threshold of unemployment to 6.5% and reassure the markets that it is not the immediate intention of the MPC to hike rates before 2016. There is obviously no guaranty! Outside influences could precipitate a change of heart! If interest rates were hiked in the immediate future, the ability for consumers and business to sustain the servicing of debt would come under undue pressure! Keep the conversation going! What I have enjoyed since last August is the fact that the MPC is singing and dancing from the same hymn sheet. It creates an air of confidence and an atmosphere of stability. None of these Blanchflower outbursts that were around for so long!

Back at the ranch! Markets on the Street of Dreams purred at the prospect of no change in FED policy and equities selected another gear. There was a feel good factor on both sides of the pond. The 3 main indices in New York rallied between 1-1.2%. In London the FTSE added 81 points at 6672. Miners and retail stocks were all the rage. Not surprisingly Barclays was the laggard – down 4%. Hardly surprising! Forget the controversial bonus issue. It was the way the whole package was put together. Profits down 32%, bonuses up 10% and by the way 12k redundancies without adequate explanation. Trust in banks is at an all-time low. This has to be improved. We need to see more managers prepared to look in the whites of the eyes of their customers. I have said it one I have said it 100 times. Bank CEOS must hold town halls and explain their rationale to hacks, shareholders and customers on a monthly basis. We do not want to read about misdemeanours in the Mail, Sun and Mirror. If trust and respect is to be restored, this is a sensible way forward.

This morning Reckitt Benckiser posted 5% growth for the last year with all continents doing well. A profit of £2.3 billion for the year was achieved. The market approved – shares up 1.4% at 8.45am.

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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