TODAY’S FAYRE – Wednesday 3rd September 2014

TODAY’S FAYRE – Wednesday, 3rd September 2014

“The life that I have
Is all that I have
And the life that I have
Is yours.
The love that I have
Of the life that I have
Is yours and yours and yours.
A sleep I shall have
A rest I shall have
Yet death will be but a pause.
For the peace of my years
In the long green grass
Will be yours and yours and yours.”

Leo Marks – written in 1943 as a code for Violette Szarbo, who was working as an intelligence agent behind enemy lines. She was executed by the Gestapo in 1944, leaving a husband and a 5-year old daughter crestfallen!

Give YouGov and Peter Kellner their due; the accuracy of their polling in recent years has been very high class. So today’s little bombshell that the Scottish Independence ‘YES!’ vote was within striking distance of its goal will have shaken not only the rafters of Hollyrood House but also the House of Commons and Labour Party Headquarters. Labour has potentially the most to lose. If the ‘YES!’ vote wins the day, the prospects for Labour forming an administration after 2017 are very remote. Notwithstanding that, Alex Salmond is leading Scotland head first into a vortex of economic and financial despair. A ‘Yes!’ vote would trigger three years of economic and political turmoil, which would damage sentiment, costing the remainder of the Union and Scotland untold damage to its business and trade.

As a point of order, it was also interesting to note that Treasury Secretary Danny Alexander was unambiguous in reconfirming that the use of Sterling by an independent Scotland was a non-starter. In an exchange of correspondence with the EU Commissioner Olli Rehn, Mr Alexander was told there was no mechanism for a country to use a currency aligned to the EU without a Central Bank. The use of the Bank of England for that facility would not be forthcoming.

Also in passing if English, Welsh and Northern Irish MPs have no say in Scotland’s destiny, surely it is unreasonable for any Scottish MP to have a vote on issues concerning England!

The World is in turmoil! The terrorist threat from IS is at epic levels, with the UK now sucked in as partner in crime with the US as a UK journalist is now threatened with execution. Putin’s arrogance knows no bounds as he dices with the future of the free world by his aggressive stance towards Ukraine. In the same breath he endorses China’s involvement as an investor in Rosneft’s biggest on shore find – Vankor. The EU economy continues to hang in rags. Tomorrow many observers and economists are not expecting Mario Draghi to start involving the ECB in QE quite yet, as he waits results from previous initiatives in providing funds to banks for lending. I doubt it will work, but here’s hoping. There could also be a bond buying exercises from direct sources bypassing banks as an option. Inflation in the EU remains dangerously low at down from 0.4% to 0.3% last month. The MPC meets tomorrow as well. The idea that rates could go up sooner rather than later is perplexing, whilst the EU’s economy is moribund added to fresh UK manufacturing data posted this week falling sharply as well as no sign of wage inflation. Nonetheless the ‘hawks’ are massing their troops with McCafferty and Weale insistent a hike before too long.

Despite all this upheaval equity markets remain calm and on the whole retain their value. Yes! The US economy appears very robust and the market is expecting another 200k jobs to have been created in August when non-farm payrolls are posted on Friday. Unemployment may fall to 6.1%. However Janet Yellen, the FED chairman appears to be in no hurry to hike rates before the spring of 2015. Consumer Confidence in the US rose sharply in recent weeks.

Tesco’s recent disastrous profit warning has highlighted the need for Dave Lewis to start as CEO now rather than wait another month. Harris Associates has also halved its 3.1% stake in the UK’s largest supermarket, whose share of that market has fallen from 30% to 28% and change in recent months. This news was most unwelcome.

On the domestic front the Coop adopted Lord Myners’s governance recommendations. The bonus issue is likely to be tackled before too long – perhaps even by the G7 meeting this weekend. To the year ending April 2014 £40.5 billion of bonuses were paid. Banks and insurance companies received £14.4 billion +2.9&. Private sector bonuses were up 5.8% and the public sector was lower by 16%. Many shareholders were calling for Glaxo Chairman Sir Chris Gent’s head on a charger after the drug giant’s controversially poor performance. Sir Philip Hampton has been earmarked to take over. The RAC is looking for a £2million IPO – a mere bagatelle in comparison to the $12 billion Alibaba IPO due possibly next week, valuing the company at maybe as much as $240 billion.

The start to today’s session seemed rather anaemic or colourless. The FTSE 100 was up 15 points at 8.30am, with Ashtead Group’s trading statement triggering a 3% rally of its stick. Hermes, the luxury goods aficionado posted poor results and the shares fell by 6% in early trading.

For several months we’ve noted that the US equity market was entering a kind of mania that was indicative of a ‘top’ forming. Here are some issues listed by Phoenix Partners.

1) Investors piling into stock-based mutual funds at a pace not seen since the Tech Bubble.
2) Margin debt (debt investors take on to buy stocks) at a record high.
3) Market leaders (Tesla, Netflix, etc.) showing clear signals of investor rotation.
4) Corporate profit margins at record highs and primed to fall.
5) Market breadth shrinking (meaning fewer stocks participating in the rally).
6) The VIX (a measure of investor sentiment) dropping to levels of complacency not seen since 2007.
7) Investor bullishness hitting record highs and investor bearishness hitting record lows.
8) Investment legends either returning capital to investors (Icahn, Klarman) or sitting on mountains of cash (Buffett).

In simple terms, the bull market of the last five years finally went into mania mode as retail investors stopped worrying about income (investing in bonds) and drank the Fed’s Kool-Aid: bought stocks.

Note, in particular, that the blow off/ mania component of the rally occurred when retail investors began to pile into stocks (as is always the case with tops).

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
http://www.panmure.com – The information in this e-mail and any attachments is confidential and may be legally privileged. It is intended solely for the addressee(s). If you are not an intended recipient, please delete the message and any attachments and notify the sender of miss-delivery: any use or disclosure of the contents of either is unauthorised and may be unlawful.

David Buik
Market Commentator

D +44 (0)20 7886 2775
Panmure Gordon & Co
One New Change | London | EC4M 9AF | United Kingdom
http://www.panmure.com

The information in this e-mail and any attachments is confidential and may be legally privileged. It is intended solely for the addressee(s). If you are not an intended recipient, please delete the message and any attachments and notify the sender of mis-delivery: any use or disclosure of the contents of either is unauthorised and may be unlawful.

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