TODAY’S FAYRE – Thursday 3rd April 2014

TODAY’S FAYRE – Thursday 3rd April 2014

“Let me not to the marriage of true minds
Admit impediments. Love is not love
Which alters when it alteration finds,
Or bends with the remover to remove.
O, no! It is an ever-fixed mark,
That looks on tempests and is never shaken;
It is the star to every wandering bark,
Whose worth’s unknown, although his height be taken.
Love’s not Time’s fool, though rosy lips and cheeks
Within his bending sickle’s compass come;
Love alters not with his brief hours and weeks,
But bears it out even to the edge of doom.
If this be error, and upon me proved,
I never writ, nor no man ever loved.”

William Shakespeare – playwright & poet –1564-1616

In last night’s EU debate hosted by BBC’s David Dimbleby, on approachability, friendliness and urbane frankness, Nigel Farage gave Deputy PM Clegg a terrible mauling – unequivocally! I felt the debate missed the playful and impish input of Nick Ferrari. The debate needed spicing up. The old Dimbleby panache seemed to be missing!

In August 2011 the 10-year Greek bond yield hit 18.5%. Today the yield is 6.09%. I am told the Greece will be coming out of recession next year – really? Anyway congratulations to those who had the ‘bottle’ to get stuck in. Clearly other EU member states, Greek citizens and some fund managers filled their boots comforting themselves that the ECB would not want to lose face by allowing Greece to default. None but he brave! Greece may soon be able to turn to the bond market again to independently finance its debt.

Here is a statistic that astounds me and is totally unacceptable. The EU is responsible for 14% of the world’s GDP, BUT it is also responsible for 42% of global welfare. This has to stop. In the case of the UK, despite Herculean efforts to cut public expenditure, the UK is still borrowing more than it ever has and I am less than confident that the country’s borrowing requirement will be nil by 2019, as indicated by the Chancellor in his Budget speech. There is a huge leap of faith in thinking that continuing growth will provide increased revenues to pay down the debt.

Welfare, as a generalisation, is so debilitating. Those with health problems and genuine unemployment issues must be supported. However I fear George Osborne missed a trick by not really getting stuck in and cutting savagely in 2010. As we get closer to the election, severely cutting expenditure is a vote loser.

I was rather surprised at the intensity of pressure subjected in the direction of the FCA’S Martin Wheatley by market commentators and business editors to resign in the wake of the faux-pas over the investigation on pensions and insurance policies. Yes, the ill-judged comments cost a fortune in terms of lost value in many of these insurance companies. However to dismiss the head of this regulatory division which is just beginning to get its act together, would, in my opinion be a retrograde mistake. Of course the buck for mistakes made must eventually sit at the top. However Martin Wheatley is an outstandingly direct and robust operator in his field. He built up a fine reputation at the LSE and provided the heads of those directly responsible for this blunder do roll, Mr Wheatley should be allowed to carry on his good work. Nonetheless he is under huge pressure and may do well to survive.

The Street of Dreams was given a fillip yesterday with relatively positive ADP private sector employment data, which saw 191k jobs created in March 2014. Wall Street did not exactly purr but here was sufficient confidence for the S&P 500 to hit another record +0.29% on the day with the DOW adding 0.24% and the NASDAQ +0.20%. Google split its shares in a sort of 2 for 1 to protect the founders, Larry Page’s and Sergei Brin’s shareholdings. On the whole it was a fairly quiet session yesterday, waiting on Friday’s Non-Farm payrolls which hopefully will have seen 2005 jobs created in March. I suspect that the ADP data is irrelevant. I think the FED likes ADP, as it enables it to interpret inequality of earnings. I still have this feeling that equities in the US and Europe may be overvalued, but bonds remain an unattractive alternative. FED Chairman Janet Yellen may have hit the tapering button too hard, though it may be a couple of months before we know whether the US economy really is ‘gung-ho!’ We will also learn a great deal from the quality of 2nd quarter earnings in 2 weeks’ time.

The threat of China’s economy slowing still prevails. Maybe 7.4% GDP for 2014 may prove a struggle. So today there was evidence of further Chinese stimulus packages. We are led to believe that tax cuts for small firms will be implemented as well as increase on infrastructure spending involving railways. Asian stocks were mixed. Shanghai was down 1% just after lunch, the NIKKEI was up 0.87% at the close with the ASX and the Hang Seng looking to end the session just above the water line.

The ECB will deliberate over the threat of deflation and ponder over its oversized naval as to whether anything should be done about negative interest rates for deposits or whether commercial bonds will be added to sovereign debt to buy in. Don’t hold your breath for any real action today. Yesterday the FTSE 100 closed up 6 points at 6659. A few mining stocks sat up and took some nourishment. Analysts looked at M&S’s announcement that it intends to add 250 stores abroad in the next 3 years to its portfolio. This sounds to me like the last throw of the dice by Mark Bolland. M&S’s fashions, despite Belinda Earl’s fresh approach, still look dowdy. Overseas sorties have proved barren for M&S and Tesco in the past. Why should this initiative be any different? M&S needs to get its fashion act together before trying another mad expansion plan which looks ill thought out. The market gave Bolland and Earl the benefit of the doubt and the shares added about 2.5%.

Let’s finish on a good note. Aldermore, a private bank which has seen it profits increase from £1.5 million to £22.4 million, whilst increasing its balance sheet by 66% to £4.2 billion, has called in Deutsche Bank and Credit Suisse to do a feasibility study for an IPO. The main shareholders are AnaCap, which owns 64%. Aldermore has increased the size of its SMES from 97K to 136K – impressive in the face of severe competition.

BOOKER, THORNTONS, DUNELM and TATE & LYLE posted numbers today and tomorrow EASYJET will announce traffic news.

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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