TODAY’S FAYRE – ECB & RETAIL

TODAY’S FAYRE – Friday, 6th June 2014

70th Anniversary of the D-Day Landings – 1944

“They went with songs to the battle, they were young.
Straight of limb, true of eyes, steady and aglow.
They were staunch to the end against odds uncounted,
They fell with their faces to the foe.

They shall grow not old, as we that are left grow old:
Age shall not weary them, nor the years condemn.
At the going down of the sun and in the morning,
We will remember them.

They mingle not with their laughing comrades again;
They sit no more at familiar tables of home;
They have no lot in our labour of the day-time;
They sleep beyond England’s foam.”

Laurence Binyon– poet – 1869-1943

For my birthday this year my children gave me the most imaginative of presents – a visit to Prince Khalid Abdullah’s Juddmonte Stud Farm at Banstead Manor, Cheveley, near Newmarket to see some of his great stallions, which have sired countless Group One winners over the last 18 years.

There are only 7 stallions standing there at present – the most famous being Observatory, Oasis Dream, Dansili and yes wait for it – ‘Frankel!’ The first two named were trained by John Gosden. Dansili by Andre Fabre and ‘Frankel’ by the greatly loved and dearly missed Sir Henry Cecil.

What an establishment – beautiful surroundings, immaculately kept and run like clockwork by a management team and grooms second to none. Dansili is now 18 years old and stands at £95k a pop and covers only about 80 mares in a season. The old boy doesn’t believe in for-play and just does his job very efficiently. Oasis Dream stands at £85k a pop! As for Frankel; what magnificent confirmation, weighing 550 kilos. He looks very fit and needs to! He is only in his 2nd year, but I understand he relishes his task, sometimes covering 3 mares in a day! He has covered 125 mares this year at £125k a time – that’s £15.6 million in stud fees. If he eventually proves to be as good as his sire ‘Galileo’ he could eventually charge £300k for the pleasure of his company.

It was a fascinating visit and a fantastic treat preceded by a wonderful lunch at ‘The Three Blackbirds at Longditton. I shall remember this occasion for the rest of my days.

A Member of Parliament to Disraeli: “Sir, you will either die on the gallows or of some unspeakable disease.”

“That depends, sir,” said Disraeli, “Upon whether I embrace your policies or your mistress.”

The ECB President, Mario Draghi, is a very impressive operator, but you could see in his eyes a high degree of frustration at the lack of structural reforms carried out by the EU in recent years. On this subject he did not pull his punches. The market seemed to be on its toes in response to measures introduced by the ECB to head of deflation, with a derisory level of inflation of 0.5% in Europe as well as adding measures to stimulate the EU’s economy, which is currently embarrassed at the pathetic growth achieved in the first quarter of 2014 of 0.2%.

The ECB cut the repo rate by 10 basis points to 0.15%. It lowered its deposit rate to a negative number of -0.1% and it cut its marginal lending rate to 0.4%. This initiative was supposed to discourage support for the Euro thus helping the export drive. It was also supposed to plead with the banks to lend money to their clients rather than leave it on deposit with the central bank.

A new LTRO facility of E400 billion was made available to stimulate lending to the private sector, especially industry and commerce. I hate to say it but banks will only lend if the climate is right and the business proposition is a decent one. I think the ECB should have offered a facility to buy in commercial bonds direct from big companies. That would have helped. Mario Draghi says that the ECB may not be finished; so in the future we can expect a quantitative easing programme, which to date the EU has attempted to avoid. Frankly this all looks fairly standard stuff and probably too little too late!

Talking of banks it has been a bad couple of days for them. On top of a report that international banks have been fined over $100 billion for misdemeanours in recent years, news broke that President Obama had little sympathy for the $10 billion fine that may be imposed on BNP for breaking sanctions with countries such as Iran. This would be a blow to BNP, which could lose its US banking licence if it refused to comply. Then this morning there was implied confirmation that Bank of America would be fined $12 billion for abuse and malpractices of mortgage securities sales.

The DAX and the CAC responded well to the ECB’s initiatives adding 0.2% and 1% respectively. The FTSE 100 was troubled by retail issues such as the 31% drop in ASOS’s share price and the index fell by 5 points to 6818. Over on the Street of Dreams the mood was positive and the DOW, S&P 500 and NASDAQ all cracked on – by 0.59%, 0.65% and 1.05% respectively.

On the ASOS front, when you are the ‘darling’ of the on-line retail market, which sees your share price as high as £71 and then the worm turns, shareholders are very unforgiving. The shares fell yesterday to circa £31. The reason for the profits warning was margins, which fell from 6.5% to 4.5% thanks to a very strong Pound which affects 60% of the business, which is done away from these shores.

You have to have some sympathy with Sir Ken Morrison’s intemperate language at Morrison’s AGM vented towards CEO Dalton Phillips the CEO acquired from Walmart Canada to replace Marc Bolland. Morrison has seen sales cascade in recent years, with Morrison missing out on the need and benefit for convenient stores. But Sir Ken has a point. If you cannot get the big stores right, how can you expect to compete in convenient stores. It will be interesting to see if this price war will benefit this Bradford based supermarket titan!

So sad that the likes Angela Ahrends, once of Burberry and soon of Apple, Marc Bolland and Justin King have had their remunerations cut from many millions to millions, reflecting some average performances. Maybe shareholders are stepping up to the plate no longer abrogating their responsibilities.

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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