TODAY’S FAYRE – Sunday 18th May 2014

TODAY’S FAYRE – Sunday, 18th May 2014

“Music, when soft voices die,
Vibrates in the memory—
Odours, when sweet violets sicken,
Live within the sense they quicken.
Rose leaves, when the rose is dead,
Are heap’d for the beloved’s bed;
And so thy thoughts when thou are gone,
Love itself shall slumber on.”

“The fountains mingle with the river,
And the rivers with the ocean;
The winds of heaven mix forever,
With a sweet emotion;
Nothing in the world is single;
All things by a law divine
In one another’s being mingle:-
Why not I with thine?
See! the mountains kiss high heaven,
And the waves clasp one another;
Now sister flower would be forgiven
If it disdained its brother;
And the sunlight clasps the earth,
And the moonbeams kiss the sea:-
What are all these kissing’s worth,
If thou kiss not me?

Percy Bysshe Shelley – poet – 1792-1822

Jon Robin Baitz’s acclaimed play ‘Other Desert Cities’, currently playing at the Old Vic is a powerful family drama set in Palm Springs, directed by Lindsay Posner. The play tries to mirror image a family’s commitment to acting and eventually to the GOP and supposedly very close to Ronald & Nancy Reagan. That must have stuck in Sinead Cusack’s crawl, the Republicans not really being of her political persuasion. This story of a dysfunctional family, whose whole raison d’etre changes after the death/disappearance of the eldest son for allegedly a fairly discreditable offence. Peter Egan, Claire Higgins, Martha Plimpton and Daniel Lapaine make up a powerful cast, though I always have my doubts about English actors attempting American accents unless it’s Hugh Laurie in ‘House.’

In the 69 years since D-Day, there are only four occasions when the President of the United States has chosen not to visit the ‘D-day Monument’ that honours US soldiers killed during the 1944 landings. The occasions were in 2010, 2011, 2012 and 2013. Apart from those years, every American President except Obama have taken the time and made the effort to honour the memory. That is a fairly poor effort, if I may be so bold!

I know it was ‘Hobson’s Choice’ but PM Cameron was a brave man going to Scotland to make the case for Scotland to stay in the Union, knowing his following North of Hadrian’s Wall is minimal and with the natives not even trying to hide their hostility. He should probably have left Gordon Brown, Alistair Darling, Clegg and the two ‘Alexander’s’ to do his bidding. Even though the two ‘Red Eds’ promised to deny Scotland the use of Sterling and access to Gilts & banking regulation, were Labour to be decimated at polls, maybe horse they might be persuaded to change their minds.

In terms of economic and financial news last week was full of ‘sound and fury’, but by no means ‘signifying nothing!’ Apart from the NIKKEI, which lost 0.73% on the week the other main indices moved only fractionally, but that fact hardly tells the story. The quality of the economic data in the US – housing consumer confidence and retail sales hardly ‘floated investors’ boat.’ There was also about the depth of earnings with US investors continuing to strip out their exposure to small and medium cap stocks. The Russell index has fallen the best part of 10% in the last month. However, with interest rate hikes right across the Western world continuing to look more futuristic, by the end of the week equities had regained some poise.

A slew deals continue to keep Wall Street’s lawyers burning the midnight oil. The momentum for acquisitions and IPOS continues with relentless fervour. We are likely to receive confirmation by Monday that AT&T will have completed its $50 billion acquisition of DirecTV. Darden Restaurants served notice to sell their ‘Red Lobster’ chain for $2.1 billion to Golden State Capital and Abbott Labs has agreed to pay $2.9 billion for CFR Pharmaceuticals. Pfizer’s £60 billion acquisition of Astra Zeneca potentially makes these 2 deals pale into insignificance. As the pace ‘hots up’, the atmosphere between the two becomes more unpleasant. All of a sudden despite the fact that out of ‘left-field’ Astra’s oncology pipeline has become all the rage, when a few weeks ago analysts expressed concern that it was not that robust. Observers are not backward in coming forward in telling us that Pfizer’s share price performance has been derisory, despite the fact they have spent $240 billion on acquisitions. Astra’s shareholders have been invited to engage with Pfizer, as the bid price includes a massive premium. There is a commonality on one issue; political or government interference is unwelcome. Pfizer is expected to go to a last ditch bid of £55 a share to land the spoils. For all those political ‘busy boddies’, who continue to disrupt the commercial process, hanging on to the ‘public interest test’ won’t wash, not even with the EU. It might also be folly to forget that he Alibaba IPO may also grip the world’s investors before too long.

There was a terrific fanfare when Carphone Warehouse and Dixons Retail announced their ‘holy matrimony’, with both share prices rallying. Then the analysts scribbled a few numbers and came to the conclusion that, despite Dixons’ recovery in the tech and digital sales arena, a merger with Carphone, which has had the mobile operators disturbed at the amount of fees they pay to Sir Charles Dunstone’s brain-child, the synergies between the two operations were not obvious. Collectively the two companies shed £350 million out of £3.7 billion in value. I expect Sir Charles to return to the stage vigorously defending the rationale to the deal. The Sunday Times also informs us that Walgreen, the US drug store emporium may pay £10.5 billion for Alliance Boots. So there is more than a modicum of appetite for expansion and investment.

On Friday investors will be invited to subscribe for shares in Saga, the over 50s insurance company, valued at £3 billion. Though not an exciting story in the same manner as some tech and recent retail offerings, it will be food for thought, though the timing of this IPO is a worry, as it comes on the back of a wave of offerings, suggesting the market is beginning to suffer from a bit of indigestion. and Card Factory – two recent offerings – have fallen below their issue price. Investors are also more than aware that the £2 billion B&M Retail plus TSB and Williams & Glyn wait in the wings. Some of these global indices are beginning to look a little heavy, with investors mindful of geopolitical tensions and needing an injection of good news to force them to crack on. Investors are also concerned by private equity’s zest to take profits with indecent haste. Has the fair left town with investors left to pick up the trash? However the market for SMES remains very robust, as there is long-term value in many of these aspiring operators.

The net result of all these manifestations was that the S&P 500 closed -0.03%, the FTSE was up +0.61%, with the UK economy appearing to be on good terms with itself (unemployment down to 6.8%) and European bourses grabbing in 0.45%. Retail earnings in the US paid a big role last week and Walmart hardly passed muster, though JC Penney returned to popular acclaim. In the UK Morrison and Sainsbury rallied on private equity rumours. House builders were popular after good figures from the likes of Taylor Wimpey and Bovis Homes. Though there are signs that winter fashions at M&S are improving, Marc Bolland’s tongue will have to be at its most silvery, when M&S posts its third year of falling profits on Thursday. I think it is highly likely that the FTSE 100 record of 6930, achieved in December 1999, may well be broken but it may be tortuous getting there

However it will not have escaped observers that first quarter GDP in France was flat and only +0.8% in Germany and a really awful number emanating from Italy. ECB’s Mario Draghi will surely be forced to tackle deflation head on next month with a symbolic cut in rates and maybe the ECB will buy in commercial paper. My chum at BGC Partners, Michael Ingram describes the situation very succinctly in saying –

“It may seem deeply ungenerous, but I’m getting pretty fed up with the European Central Bank (ECB). Oscillating from stubborn inaction to hinted and – occasionally actual – hyperactivity, they have rarely struck me as being totally on top of events. Predictably, disappointing growth numbers out of the Euro zone yesterday prompted Mr Mersch to suggest that something wonderful may soon be (conditionally) delivered.”

Finally Governor Carney passed the buck back to the government on his concerns about the property bubble threatening to burst. He felt interest rates and deposits had minimal long tern effect and called upon the government to build more houses – ie release more land! Stop local government from being so protective.


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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