TODAY’S FAYRE – Wednesday 14th May 2014

TODAY’S FAYRE – Wednesday, 14th May 2014

“If you were coming in the fall,
I’d brush the summer by
With half a smile and half a spurn,
As housewives do a fly.

If I could see you in a year,
I’d wind the months in balls,
And put them each in separate drawers,
Until their time befalls.

If only centuries delayed,
I’d count them on my hand,
Subtracting till my fingers dropped
Into Van Diemen’s land.

If certain, when this life was out,
That yours and mine should be,
I’d toss it yonder like a rind,
And taste eternity.

But now, all ignorant of the length
Of time’s uncertain wing,
It goads me, like the goblin bee,
That will not state its sting.

Emily Dickinson – poet – 1830-1886

US equity markets on the whole have already eclipsed their previous record ‘highs.’ The UK’s FTSE 100 is within spitting distance of breaking its 14 year record of 6930, achieved on 31st December 1999. Yesterday the FTSE 100 closed up 21 points at 6873. As with other equity bourses the FTSE has been on a roller coaster ride since 1999, falling to 3283 in March 2003 aided and abetted by the bursting of the tech bubble and the Iraq invasion, rallying again to 6800 in August 2008 before falling back to 3500 in March 2009 ahead of QE. Since then it has rallied by 96%. If you add in the dividends and script issues paid by these companies the value of the FTSE 100 to investors since 1999 is probably close to 11,000.

In all fairness company results for the first quarter have been no better than average. However the mood in the country that the economy is improving is very positive. The M&A activity is very robust on both sides of the ‘Pond’, as is the IPO market. This has given investors considerable momentum to stick with their positions. The general consensus of opinion is that this record will be eclipsed. However whether markets will crack on much further remains to be seen. The geopolitical background is murky and a proper interest rate structure is probably no more than 2 years away. Also the quality of the earnings will need to improve measurably.

The papers and TV are full up with informed or politically hysterical comment on the Pfizer/Astra takeover. Certainly some hedge fund managers seem to have put ‘shorts’ in place as the share price has not pushed through £46 a share when £50 is on the table. Astra’s CEO, Pascal Soirot has done a really able ‘scare mongering job’ suggesting this that this merger could put drug development on hold and thus cause possible deaths. I can’t have that. Only inefficiency would cause such an unacceptable practice. I was impressed by the fact that Pfizer’s CEO Ian Read did not lose his cool in front of an ineptly aggressive BIS committee chaired by the Coop backed Andrew Bailey.

How can any CEO guaranty jobs for 5-25 years? It is utterly unrealistic to think it could happen. There is a nasty pungent stench of protectionism creeping up my nostrils. This deal has all the hallmarks of political skulduggery all over it. Though jobs are important the commercial realities of this deal appear to have been conveniently forgotten. Pfizer’s current P/E ratio is 13 x. I have it on good authority that the case of Astra, if Pfizer offers £50 a share, it is 19 x and were Mr Read’s board to go to £55 it would be 22 x. If I were a major Astra shareholder I would bite Pfizer’s arm off. Yes some of the 6700 Astra jobs in UK will be vulnerable. However on a global basis Astra employs 55,000. So let’s put this matter into perspective. If this deal means a healthier world; then bring it on. We should know more once round 2 of the BIS committee grilling of Pfizer and Astra today. Suffice to say that if this deal comes off it will be the largest deal affecting a British company since Vodafone acquired Mannesmann of Germany for $225 billion! Finishing on drugs it looks as though GSK’s Chinese CEO Mark Riley has questions to answer over bribery and supressing evidence.

The quarterly Inflation Report is presented today by Governor Mark Carney. We suspect that the BOE will upgrade growth forecasts in excess of 3% today, which may precipitate a symbolical interest rate rise in early 2015. The threat of a housing bubble is causing concern. Many will be interested to hear whether Mark Carney’s forward guidance policy can remain a cornerstone of his governorship or will it be a question of tearing it up and starting again. In fairness neither Mark Carney nor anyone else really expected the country to recover so strongly, nor did he expect unemployment to fall below 7% to 6.9% so quickly. Official figures this morning on employment data should confirm that unemployment continues to fall.

Yesterday on the Street of Dreams disappointing retail sales stopped Wall Street cracking on though confirmation of AT&T’s official $50 billion bid for DirecTV and Valeant suggesting that it will increase its bid for Allegan (Botox) to $47 billion, prevented any major slide in value. The DOW and S&P closed just above the water line and the NASDAQ closed down 0.33%. In Asia this morning, it was a mixed market though towards the end some bourses were turning positive with Shanghai just above the Plimsoll line, the Hang Seng up 1.2%, though the NIKKEI closed down -0.3%. Set out below are the companies posting results today and later in the week.

Wednesday – HILTON FOODS, ADMIRAL, JOHN WOOD GROUP, 3iii GROUP, PARTNERSHIP, Thursday – OLD MUTUAL, VEDANTA, MANCHESTER UMITED, RANK ORGANISATION, CAIRN ENERGY, AVIVA, PREMIER FARNELL, TALKTALK, MARSTON’S, MERLIN ENTERTAINMENT, Friday – INTERTEK, BOVIS HOMES, SIG, GRAINGER
Wednesday – MACY’S, VALERO ENERGY, JACK-IN-THE-BOX, Thursday – WALMART, JC PENNEY and NORDSTROM.

These are David Buik personal views

Twitter – @truemagic68

David Buik

Market Commentator

D +44 (0)20 7886 2775
Panmure Gordon & Co
One New Change | London | EC4M 9AF | United Kingdom
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