TODAY’S FAYRE – Friday 9th May 2014

“Oh, say can you see by the dawn’s early light
What so proudly we hailed at the twilight’s last gleaming?
Whose broad stripes and bright stars thru the perilous fight,
O’er the ramparts we watched were so gallantly streaming?
And the rocket’s red glare, the bombs bursting in air,
Gave proof through the night that our flag was still there.
Oh, say does that ‘star-spangled’ banner yet wave
O’er the land of the free and the home of the brave?

On the shore, dimly seen through the mists of the deep,
Where the foe’s haughty host in dread silence reposes,
What is that which the breeze, o’er the towering steep,
As it fitfully blows, half conceals, half discloses?
Now it catches the gleam of the morning’s first beam,
In full glory reflected now shines in the stream:
‘Tis the star-spangled banner! Oh long may it wave
O’er the land of the free and the home of the brave!

And where is that band who so vauntingly swore
That the havoc of war and the battle’s confusion,
A home and a country should leave us no more!
Their blood has washed out their foul footsteps’ pollution.
No refuge could save the hireling and slave
From the terror of flight, or the gloom of the grave:
And the star-spangled banner in triumph doth wave
O’er the land of the free and the home of the brave!

Oh! thus be it ever, when freemen shall stand
Between their loved home and the war’s desolation!
Blest with victory and peace, may the heav’n rescued land
Praise the Power that hath made and preserved us a nation.
Then conquer we must, when our cause it is just,
And this be our motto: “In God is our trust.”
And the ‘star-spangled’ banner in triumph shall wave”

Francis Scott Key – lawyer, poet & lyricist– 1779-1843

Visiting Washington has been on my agenda for many years and its realisation has not been a disappointment. This beautiful city with wide roads, a mass of parks and tree line streets, all currently emerald green, is so obviously bloated with government bureaucracy and red tape. Washington DC sports beautiful architecture such as Capitol Hill, the White House, Lincoln Memorial and copious museums and galleries, not forgetting the poignantly peaceful and well-manicured Arlington National cemetery. Washington lacks the commercial buzz and cosmopolitan sophistication of New York – they are as different as chalk from cheese.

The US economy may be on the mend, but we witnessed some truly horrifying examples of urban decay and deprivation as our train rattled through Baltimore, Philadelphia and Trenton – not a pretty sight. One rarely hears too much about this truly depressing caveat of life in the US. Obviously Detroit, Chicago, New Orleans and parts of LA suffer in a similar fashion.

When it comes to mobile phone mania, I thought we were overly obsessive about their use and the role they play in our lives; believe me against the US we are novices. There are people tripping over the pavement, absolutely mesmerised by their iPhone/Smartphones! Even when dining these devices are humming with activity! I do worry about the art of conversation. It is becoming an endangered occupational hazard.

Finally the ‘cupcake’ faze that has taken the US by storm has selected another gear. If Georgetown Cup Cakes and particularly the chocolate salted caramel variety ever hit town, they are decadence personified! – An absolutely mouth-watering experience that left me panting like an expectantly playful dog!!

What a week to be away! Following in the wake of some better than expected Non-Farm payroll numbers (+288k jobs created in April), taking the unemployment rate down to 6.3%, the FED withdrew another $10 billion from its facility down to $45 billion, though Janet Yellen did reiterate that a high degree of accommodation remains warranted in terms of liquidity. Even though Putin scored another ‘Royal Flush’ – ace, king, queen, jack and a ten, leaving Obama, Merkel and Cameron with just the joker, equity geeks more or less kept their nerve during the week, though the situation in Ukraine looks very messy. However the economic data – employment, retail, industrial production, manufacturing and consumer confidence look very encouraging in the US and the UK; even the EU does not appear to be hanging in rags as much many thought it would, though the ‘Wizard Draghi’ is expected to lower rates next month to counter attack the threat of deflation.

Here in the UK we experienced great numbers from Prudential and BT; average efforts from HSBC and Barclays, disappointing efforts from J Sainsbury (like for like sales down 3.1% after 36 quarters of increases – Mike Coupe has his work cut out taking over from Justin King), a poor effort from Morrison (L/F/L sales down 7.1%) and a shocker from Balfour Beatty. There is still plenty of M&A in abeyance. Dixons are all but bedded down with Carphone Warehouse in a very synergistic £3.7 billion merger. Saga announce their intention to post a £3 billion IPO. In the US the DOW and the S&P either diced with or succeeded in breaking existing records. However the NASDAQ continued to feel very heavy with Facebook threatening to fall way below its issue price – it was down 18% in one day. Disney posted fab numbers and Alibaba’s IPO – maybe the largest ever recorded, which could value the company at $150 billion, though we understand China’s largest ecommerce company which dwarfs EBay and Amazon put together, is only officially looking for $1 billion. Remember Alibaba is not a tech company; it is retail and it makes money $1.5 billion last quarter.

However there were 4 issues this week that really stuck in my crawl. Firstly Hollande blocking GE’s takeover of Alstom for $13 billion was an absolute disgrace – the deal not being in the national interest. That is pure French protectionism; mind you France is a pure socialist country; many of you have forgotten that France was within an ace of turning communist back in 1946. France, like Germany is interested in pure federalism and has only scant interest in the free enterprise system, though no doubting Germany’s prowess as an industrialised nation – lucky old them that they have no defence budget to speak of for over 60 years.

The outcome of the Coop debacle is becoming clearer this morning, with the much respected Richard Pym resigning as chairman of the bank and the bank surrendering more minority control as a result of more capital being required taking the Coop’s stake in the bank down to 21% – still the largest individual stake. The Coop has 8 million members; consequently the bank cannot be allowed to fail. If it only maintains a minority stake; so be it. The protection of its customers is a prerequisite. At the time of writing no new chairman of the bank has been appointed. It would be great if Lord Paul Myners could be persuaded to take on the position, having been so openly and correctly visceral about the poor quality of the bank’s management. However I doubt the Coop would give the former ace fund manager and Labour Treasury minister sufficient slack to make the radical changes that are so necessary. What I like about Lord Myners is that he is successful, uncompromising, understanding and fair. He got some stick over his handling of Fred Goodwin’s pension. Let me say that I have it on fairly good authority that the £16 million pension rights, reduced to £12 million that Goodwin claimed was in point of fact a guaranteed bonus – part of his contract. Quite difficult to break contract when no criminal intent was ever proved. A forthcoming trial will tell us more. I’ve been known to have a tilt at the ring and my instincts tell me there is a huge difference between fraud and incompetence.

So to Barclays. So much has been written about the recent announcement that 20,000 jobs are to go by 2016 – most of them in investment banking. The writing was already on the wall with the demise of Del Messier, Ricci and finally Skip McGee last week. Barclays continues to lose its appetite for risk. Changing culture is fine but there is the tanker syndrome. In other words getting from A to B takes time in double quick time is not possible. Barclays has gleaned 40-60% of its profits from BarCap. What plans to Barclays have to replace that profit? As a commercial bank Barclays is a fair way behind the curve; so attracting new business will take time. Hiving off £115 billion toxic assets in a bad bank is PURE window dressing! No one will be hoodwinked by such cosmetic action. Finally there is little evidence of the new management selecting another gear. Its chairman Sir David Walker is seen by the market as a political/BOE appointment – very negative for progress. No offence but I doubt Sir David could sell ice to the Eskimos; nor would Antony Jenkins be seen as progressively dynamic. Many would retort! – Good! I would say you need strong contingency plans to change course radically.

Finally Pfizer and Astra Zeneca. Whether the deal happens for £60 billion or £75 billion or not at all; whether the synergy is there; whether Astra jobs will go! ALL TOTALLY irrelevant. To hear PM Cameron, Dr Cable, the FT, Lord Myners throw their two cents worth in as to the validity of the deal or whether it is in the national interests is just total poppycock. Also Miliband and Ummuna – just pipe down! Miliband could not even spare Ian Reid a few minutes of his time to talk about Pfizer’s plans. If politicians want to bring influence to bear, buy some shares in Astra Zeneca; then you have the right of a say and some clout to go with it. There is still the semblance of free enterprise; let’s keep in that way! Let market forces decide. Ironically there are many UK investors in Pfizer and many more US investors on a pro rata basis in Astra. Enough is enough!

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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