TODAY’S FAYRE – Thursday 13th February 2014

TODAY’S FAYRE – Thursday 13th February 2014

“This day and age we’re living in
Gives cause for apprehension
With speed and new invention
And things like fourth dimension.
Yet we get a trifle weary
With Mr. Einstein’s theory.
So we must get down to earth at times
Relax relieve the tension
And no matter what the progress
Or what may yet be proved
The simple facts of life are such
They cannot be removed.]
You must remember this
A kiss is just a kiss, a sigh is just a sigh.
The fundamental things apply
As time goes by.
And when two lovers woo
They still say, “I love you.”
On that you can rely
No matter what the future brings
As time goes by.
Moonlight and love songs
Never out of date.
Hearts full of passion
Jealousy and hate.
Woman needs man
And man must have his mate
That no one can deny.
It’s still the same old story
A fight for love and glory
A case of do or die.
The world will always welcome lovers
As time goes by.
Oh yes, the world will always welcome lovers
As time goes by.”

Lyrics from “As time goes by!” from the film “Casablanca.”

Herman Hupfeld – lyricist – 1894-1951

I am absolutely gobsmacked at the reaction of the SNP when they heard that all four political parties are unanimous in their thoughts that were they to vote for independence that Scotland would keep the Pound! No way, Jose! or Jock! if you prefer. And Scotland can whistle in those circumstances for access to UK Gilts and BOE regulation and as for RBS and part of Lloyds not sold, you can pick up the tab for that as well. I just don’t understand why there would ever be any other outcome! You can’t leave a political Union and dictate the terms.

When one reads of the horrific murders perpetrated by that barbaric Joanna Dennehy and her two sadistic accomplices how can anyone contemplate the legalisation of any drugs from weed to cocaine? – Unthinkable. May all three never ever see the light of day!

So Mark Carney came in for some stick over his ‘forward guidance’ initiative – Unjustified in my opinion. He eloquently refused to back down and repudiated the idea that his plan was in tatters. There was no guaranty that the unexpected strength of the improvement in the economy could be sustained. The 7% Unemployment rate was only a guideline. Wage inflation, which is currently ‘non-existent’ is a far more virulent consideration. The fact that the BOE upgraded the UK’s growth target from 2.8% to 3.4%, in one breath is brave as it is encouraging, but if this atrocious flooding was to carry on for another month, this growth figure may have to be revisited. Some say the flooding could cost the UK £15 billion. The BOE’s chief economist, Spencer Dale is on record in saying that growth could well fade in 2014. So interest rates go up a tad in 2015 rather than 2016 is a revision, but a justified one. There is plenty of slack in the economy and here in Old Bighty we need to remember that all is not well with our cousins in the EU and with 40% of our exports heading in that direction, Europe’s plight could well set us back. All in all, the Governor produced a very balance and plausible case. We should be behind him!

So now to Lloyds Banking Group’s results – no surprises there! As expected operating profit were up 140% to £6.2 billion – Net profit £415m. Impairment charges down 47% to £3.04 billion. However with the extra £1.8 billion allowance for PPI, £8 billion has been paid out by the largest operating high street bank for the shabby treatment of many of its customers! That’s a great deal of largesse. Lending increased by 3% and the vibes from ex BOS and Halifax branches are positive.

Tier One capital came in at 10.3% which was a full one percentage above Barclays. In regards to the sale of a further tranches of Lloyds, the government already having disposed of 6% for about £3 billion, I am slightly alarmed about further piece-meal sales, despite the share price being at 82P (73.5p break even for the taxpayer). Even though 33% remains with the taxpayer, and despite the size of the sale I would be inclined to sell it in one job lot to avoid an overhang, allowing fund managers and retail operators to participate and thus hopefully benefit. Conditions and sentiment would need to be positive. Overhangs can often damage a share price unnecessarily as potential predators wait for the shares to come cheaper and cheaper. The Lloyds bonus pool was increased from £365 million to £395 million – a mere bagatelle in comparison to Barclays £2.38 billion, but apples should never be compared to pears. Lloyds is a domestically based bank with virtually no investment banking. Antonio Horta-Osorio takes £1.7 million out of the ring for his services – deserved despite the £8 billion price tag for PPI misdemeanours.

Investors vented their spleens on Rolls Royce this morning – down 9.8% at 8.30am after an indifferent guidance for 2014, though 2015 is expected to be OK. Tate & Lyle’s numbers also did not pass muster – down 12% – no hiding place these days! Rio posted encouraging numbers and a 15% dividend.

Finally Wm Morrison are rumoured to be taking counsel about returning to private hands. Sir Ken and others may be speaking to the likes of CVC, Carlyle and Apax Partners. This is all conjecture, but Morrison has lost market share and sales were down 2.5% last quarter with CEO Dalton Phillips failing to arrest the decline quickly enough. Perhaps time away from the public eye for a few years might help. Morrison needs more convenience stores very urgently.

Nestle’s outlook was not brilliant when reporting and BNP Paribas reported profits were down due to a US $1.1 billion charge.

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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