TODAY’S FAYRE – 27th March 2014

TODAY’S FAYRE – Thursday 27th March 2014

“Somewhere or other there must surely be
The face not seen, the voice not heard,
The heart that not yet—never yet—ah me!
Made answer to my word.

Somewhere or other, may be near or far;
Past land and sea, clean out of sight;
Beyond the wandering moon, beyond the star
That tracks her night by night.

Somewhere or other, may be far or near;
With just a wall, a hedge, between;
With just the last leaves of the dying year
Fallen on a turf grown green.

Christina Rossetti – poet – 1830-1894

I heard several extracts from Rev Paul Flowers’s interview with Jeremy Paxman on ‘BBC Newsnight’ and I must confess I was singularly underwhelmed. The fact that he was looking for sympathy was bizarre when most sane-minded people would have known that professionally he did not tick any of the boxes of experience required to be chairman of a major bank. What were Len Wardle and Peter Marks thinking of in appointing a ‘doubtful member of the cloth’ as chairman of an aspiring bank with billions of pounds of liabilities and doubtful assets, post the acquisition of Britannia Building Society. Rev Flowers knows as much about banking, as I know about non-ferrous welding! Just because he is a fully-paid up member of the Labour party does not entitle him to hold hugely influential executive posts.

I care not a jot for his shrouded and murky private life. ‘There’s now’t as queer as folk! For Rev Flowers to suggest that Messrs Osborne & Hoban were acting in bad faith in attempting to persuade the Coop to buy the 632 branches of Lloyds Bank is just nonsense. Politically it made sense to encourage a Northern based operation to have a stronger toe-hold in a geographically broader based bank. What the Chancellor and the City Minister did not know was the fact that the Coop was a can of banking worms. Clearly the regulators were not on top of their game 5 years ago. To maintain its 30% stake in the Cooperative Bank the Society is going to have to stump up another £125 million as its share of a £400 million provision for poor advice.

The politicians and great leaders of our world were still ‘pressing the flesh’ in Europe yesterday and raising the political temperature on Putin rather than raising their diplomatic game at the negotiating table. Such is life! Global market operators are becoming wearisome of the jingoistic rhetoric and decided to take some risk off the table. Also markets feel very heavy and the enthusiasm to buy stocks has waned in recent weeks. Global indices seem to have a bad dose of indigestion and seem in need of an enema; maybe the ‘Rennies’ will do!

The Street of Dreams had a forgettable session yesterday with the DOW easing by 0.6%, and the S&P 500 by 0.7%, their performances not being helped by average or slightly sub-standard factory orders for February. The NASDAQ by a very measurable 1.43%, which was down to Facebook losing 6.5% and other top tech spots tottering under the weight of scrutiny. Also enter stage left; King Digital Entertainment’s IPO. This on-line games company came to the market on the back of euphoric interest in ‘Candy Crush Saga’ for $500 million at $22.50 a share – middle of the range of $21-$24, which would have valued the company at $7.2 billion. Sadly the issue price may have made investors sceptical as to whether the appetite to support this company was there. Had the shares been issued at $24, then support for the IPO would have been unequivocal. As it was the shares fell 16% on the first day of trading and the company lost about £1 billion in value. I suppose investors had memories like elephants, bringing Zynga’s inauspicious debut in 2011 back in to play. It would appear that Citigroup failed the FED’s capital stress test and will have to regroup. Bank of America finally agreed to settle $9.5 billion on Fannie Mae and Freddie Mac for losses incurred during the housing crisis over 5 years ago.

The FTSE 100 closed flat yesterday at 6604, though the DAX and the CAC added the best part of an average of 1%. I fear much of that may be surrendered today as sentiment looks temporarily negative. Asia this morning offered little solace, having taken its lead from New York. However many of their bourses had impaired some losses. The ASX closed down 0.50%. The NIKKEI was up 1% as we headed for the close and the Shanghai Composite was up 0.1% with the Hang Seng flat at lunchtime.

The Murdoch Empire indulged itself in a dose of nepotism – almost certainly justified. Rupert made his son Lachlan joint chairman of News Corporation and Fox with James assuming the role of COO of Fox TV and films. Lloyds of London saw its chairman John Nelson post a profit of £3 billion. Great to see after the debacle in 1989, when so many people were financially ruined. Credit goes to David Rowland, Ron Sandler, Hugh Stevenson and others, who gave Lloyds a platform to recover. After the ruinous day for annuities last week, it was good to see L&G win a £3 billion contract to look after Akzo Nobel/ICI pensions. The second tranche of 5.2 billion of Lloyds Bank shares went at a 5% discount at the end of the day. Retail investors were disappointed and an overhang has been created.
There was a warning from the OBR’s economist Stephen Nickell about a house price bubble. He felt house prices across the country would rise by 5% (I suspect a great deal more in London) in the next year. This phenomenon would continue until more houses were built. Governor Carney and the government are more than aware of the possible dangers.

Finally I think SSE’s decision to freeze energy prices will prove folly regardless of the smiles it brings to the politicians and the consumer. It will damage competition with profits falling. The government’s energy policy is questionable, with nothing like enough credence being given to the importance of gas and fracking and too much to nonsense green ideas. I will never win that battle! If the lights went out in 2016, I would not be remotely surprised.


These are David Buik personal views

Twitter – @truemagic68

David Buik

Market Commentator

D +44 (0)20 7886 2775
Panmure Gordon & Co
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