TODAY’S FAYRE – Thursday 3rd July 2014

TODAY’S FAYRE – Thursday, 3rd July 2014

“OF all the souls that stand create
I have elected one.
When sense from spirit files away,
And subterfuge is done;

When that which is and that which was
Apart, intrinsic, stand,
And this brief tragedy of flesh
Is shifted like a sand;

When figures show their royal front
And mists are carved away,—
Behold the atom I preferred
To all the lists of clay!”

Emily Dickinson – poet – 1830-1886

“Fella in business got to lie an’ cheat, but he calls it somepin else. That’s what’s important. You go steal that tire an’ you’re a thief, but he tried to steal your four dollars for a busted tire. They call that sound business.”
– John Steinbeck – author – The Grapes of Wrath (1939)

It’s been rather a very bad two weeks for us all – bounced ignominiously out of the World Cup at the qualifying stage, beaten 3-0 by New Zealand at rugby, lost our first ever home cricket series against Sri Lanka, Andy Murray, the Wimbledon champion having his colours clinically lowered yesterday by Grigor Dimitrov and finally the PM humiliated in Brussels when the EU elected J-C Juncker as their President. So there’s very little to crow about apart for all those petrol heads, who feel that Lewis Hamilton is still in touch with Nikki Rosberg in formula one and the smouldering embers of hope Chris Froome will win the Tour de France, which starts in Yorkshire on Saturday.

Tuesday was one of the all-time great show biz nights of my long life –‘Coldplay’ at the Royal Albert Hall in concert – electric! Mesmeric! Subliminal! Chris Martin must be the most charismatic of entertainers, who from start to finish knew how to play to the gallery to their ecstatic enjoyment. It was an evening I shall never forget!

I just get the impression that US investors are trying to convince themselves that the recovery is stronger than it is. With FED Chairman Janet Yellen remarkably reluctant to jack interest rates up, no one seems too concerned that the S&P 500 has a P/E ratio of 16.7 times, which bears little resemblance to valuation reality. The US seems to be on its own in regards to where stock markets may be headed. There is no doubt that Europe is having a far more cautious approach to the job at hand. There is greater realistic concern about growth prospects; it is virtually non-existent in the EU, with unemployment remaining indecently high. The EU’s banking sector seems to be creaking with Deutsche Bank, Barclays, BNP and Espirito Santo all having mountains to climb. Some of the aforementioned may need some more capital or at least some cash injection to take them out of their current embarrassing predicament.

Though the US ISM data and car sales posted on Tuesday were marginally encouraging, yesterday’s ADP index, which suggested that 281k jobs had been created in the private sector failed to convince many bourses, particularly in Europe, where investors felt it prudent to take some risk off the table. FED chairman Yellen believes that monetary policy has a very limited contribution to make to recovery or asset bubble threats or financial instability. She is of the opinion that regulation is a much more powerful tool to correct anomalies. Today’s ECB meeting is unlikely to bring much in the way of any change in policy and Draghi may just put a little more meat on the bone in terms of contingency plans if deflation threatens or growth in the region starts to fall out of bed.

Today’s Non-Farm Payroll numbers will be posted, as on Friday markets in the US are shut, celebrating Independence Day. The market expects 225k jobs to have been created in the US with the unemployment rate remaining at 6.3%. Anyway yesterday Wall Street kept its poise with all three main indices closing near enough flat on the day. In London the FTSE crawled up 13 points on the day to 6816 – with most people concerning themselves with the machinations in SW19. The appointment of Laura Wade-Gery as deputy to Marc Bolland in all but name gave the beleaguered retailer a much needed fillip – up 1.2%. Persimmon’s sales were very robust with 33% increase in the last year. Their presence in London is limited and the outlook looks bright provided the mortgage market remains stable and accessible.

The outcome of Mike Ashley’s £200m bonus demand for his staff and of course himself at Sports Direct was probably the most interesting story in a very dull market place. Having been rejected on 3 previous occasions, Ashley was backed by a few who turned up at this meeting and the proposal was carried. Mike Ashley, himself, was not entitled to vote. You either love Mike Ashley or you hate him. I’m a fan for what he has achieved. Yes, he’s a maverick and a gambler having declared his hand and taken temporary stakes in House of Fraser, MySale and Debenhams for gain and not a little success. However he IS MR SPORTS DIRECT. He stacks them high and sells them cheap in shops who would think had just been burgled, but he gets the job done; he pays his staff well and this retailer looks to be an unqualified success. In the last year he shares have risen from 550p to 728p yesterday, though the road is often rocky and volatile. The mistake that has been made was probably allowing Mr Ashley to retain such a huge controlling stake in the company when it went public. I think his stake is around 60%.

I was amazed that Mothercare rejected the 300p a share bid from the US’s Destination Maternity, which has 1900 outlets. Mothercare in the UK has really struggled, though overseas business has gone well with revenue in the last 6 years having risen from £286 million to £729 million with profits up from £9.6 million to £45 million. In my humble opinion Mothercare should have capitulated to that very sporting bid, against a background of huge domestic competition from supermarkets and discount outlets.

Finally another controversial CEO was in the news yesterday – Mike Lynch – former head honcho of Autonomy, who sold the company, in what some considered to be a very unsatisfactory manner to Hewlett-Packard for $11 billion. The arguments on this sale are still in the hands of the lawyers. My Lynch’s company Blinx, a video operation, saw its share price halved yesterday from 65.75p to 31.5p on a profits warning, losing £140 million in value. Last year the shares nudged 227p.

UK companies posting results today – GREENE KING, POWNDLAND.

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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