TODAY’S FAYRE – Thursday, 30th October 2014
“He drowsed and was aware of silence heaped
Round him, unshaken as the steadfast walls;
Aqueous like floating rays of amber light,
Soaring and quivering in the wings of sleep.
Silence and safety; and his mortal shore
Lipped by the inward, moonless waves of death.
Someone was holding water to his mouth.
He swallowed, unresisting; moaned and dropped
Through crimson gloom to darkness; and forgot
The opiate throb and ache that was his wound.
Water – calm, sliding green above the weir.
Water – a sky-lit alley for his boat,
Bird-voiced, and bordered with reflected flowers
And shaken hues of summer; drifting down,
He dipped contented oars, and sighed, and slept.
Night, with a gust of wind, was in the ward,
Blowing the curtain to a glimmering curve.
Night. He was blind; he could not see the stars
Glinting among the wraiths of wandering cloud;
Queer blots of colour, purple, scarlet, green,
Flickered and faded in his drowning eyes.
Rain – he could hear it rustling through the dark;
Fragrance and passionless music woven as one;
Warm rain on drooping roses; pattering showers
That soak the woods; not the harsh rain that sweeps
behind the thunder, but a trickling peace,
Gently and slowly washing life away.”
Siegfried Sassoon – poet & soldier – 1886-1967
Having never seen a ‘Harry Potter’ film or read a JK Rowling book. I have decided to take my grandsons to see ‘Harry Potter’s World at Warner Bros Studios – the only Hollywood studio to own and operate a production facility in the UK, following a £100 million-plus investment into the re-building and expansion of their operation, at Leavesden, near Watford. I’ve never been into witches, goblins and other such mumbo-jumbo. I am happy to be a convert, but don’t hold your breath! An update before too long!
The only people who were not aware that the UK had a major energy crisis on their hands were its politicians. Labour had no plausible policy and Messrs Huhne and Davey seem to have been an unmitigated disaster at the Department of Energy. Ed Miliband knows as much about energy as I know about non-ferrous welding if he intends to freeze prices. Against the uncertainty of that climate no energy company will want to invest.
Nothing like enough attention has been spent developing gas, which is relatively cheap and clean. The cost of decarbonising is absolutely prohibitive. By 2020 I am reliably informed that it could cost about £500 billion or £1500 extra for each family per annum. I could forgive wind farm energy for being ugly, but when it is so expensive as well; well that is just too much! Unless something very drastic in terms of policy changes is implemented there is every chance that the lights will go out, thanks to inadequate investment in our power stations.
A cynic’s interpretation of the FOMC’s achievements –
“We completely screwed up increasing the FED’s balance sheet to over $4 trillion. We regret not allowing the market to correct instead of mortgaging the future to the point that every generation’s prospects henceforth will be lower than the one before, until the end of time. We are stuck like pigs and have no choice but to continue along the same path, as we believe a dismal future is better than no future at all.”
Last night as expected the FED said ‘sayonara’ to quantitative easing by withdrawing the final $15 billion facility. Rates are likely to remain low for a considerable period of time. The tone of the accompanying comments was not as dovish as many had hoped. It appears that conditions are improving in the Labour market, with unemployment already down to 5.9%. The outlook for inflation is also seen as benign. The key to the FED’s statement was interest rates. Now the next game in town is guessing the hike date – July 2015 or could it be earlier – perhaps March? The under-performance in terms of growth by much of the rest of the world will probably be a contributing factor to that question.
What of the market’s reaction? I think the Street of Dreams just wanted to reflect, having had a particularly ebullient run on the rails during recent sessions. The DOW and S&P closed just below the Plimsoll line and the NASDAQ eased by 0.33%, much of that loss was exaggerated by Facebook losing 6% in value. Chartists and geeks are obviously concerned about the strength or softness of equities’ belly without its ballast (QE). However those that know about these things tell me that historically equity ‘sell-offs’ generally take place about 18 months after a major upward move in interest rates. So maybe we have time. Today US GDP data may enlighten us a little more as to the robustness of the US economy. 3% is the figure bandied about following the stellar number of 4.6% for the 2nd quarter.
The fact that the Serious Fraud Office is launching a criminal investigation into the accounting affairs of Tesco, which triggered an over-statement of profit to the tune of £263 million for the quarter ending August 2014 comes as no surprise at all! Most people’s concern is the length of time it will take. A 2-year investigation programme by the SFO could damage the recovery process. If, however, Deloittes are close to submitting their findings from their independent investigation to Dave Lewis and the FCA, this could well speed up the process. Tesco’s share price has halved, wiping about £12 billion off its value; so investors venting their spleen anymore seems a pointless exercise. However without a quick conclusion to the SFO’s deliberations, it will be very difficult for Tesco to rebuild their image and restore the consumers’ trust particularly as Lidl and Aldi are still rampant cutting prices with a really smart business models in place. Tesco needs a fresh business plan, innovative marketing and probably needs to sell some assets to shore up the balance sheet. I think Tesco is a brand that people want to love, but any delay could be very damaging.
Yesterday was a good day for the FTSE 100 which added 51 points to 6453. The miners got their act together; so did Tui Travel. Next had a modest setback with its trading statement. The shares were initially down 3% courtesy of sales falling short thanks to clement weather. Sales only increased by 5.4% instead of the expected 10%, which may cost £25 million in revenue. However the shares eventually settled down just 0.33%. Mortgage lending fell to its lowest level for 14 months with only 61k applications considered. With house prices starting to ease – even if only temporarily – it seems unlikely we can expect a rate increase here in Old Blighty until well in to next year. A lack of wage inflation is worrying.
Asian markets seemed relative receptive to the FED’s policy with to Australia ASX adding 0.8% and the Nikkei the same towards the close. Shanghai was also up 0.8% at lunch though he Hang Seng was down 0.7%. Samsung we hear seems to have lost ground in the handset market to its peers and may post its worst results for some time.
Barclays posted its results today against the threat of even more litigation in the form of a Saudi business man suing for £10 billion for supposedly a fraudulent approach to obtaining a banking licence. Though Barclays passed the EBA’s stress test with flying colours, it seems likely that he BOE/PBA may want Barclays to increase its leverage ratio from 3.5% to nearer 4%. Anyway for 9 months Barclays increased its pre-tax profits by 5% to £4.93 billion. Expenses have also been cut by 7%. However, provisions are still substantial – PPI +£170 million – FX investigations £500 million and interest rate issues £160 million. Tier One Capital came in at an acceptable 10.2%. Investment banking income fell by 13% and its profit base fell by 38%. This is not surprising since the bank’s policy has been cut its presence. Barclays in the process of cutting 12000 jobs announced a few months ago – half in the UK.
Jorma Ollila, chairman of Royal Dutch Shell will stand down in 2015 and will be replace by Charles O Holliday, formerly with DuPont and currently a director of Bank of America. For the 3rd quarter Shell posted a pre-tax profit of $8.1 billion and spent $8.5 billion on capital projects. Aviva, Cairn Energy, St James’s Place, Kazakhmys and Smith & Nephew also post results today.
US earnings next week – Thursday – KELLOGG, PITNEY BOWES, ALTRIA, STARBUCKS, LINKEDIN, Friday – EXXON MOBIL & CHEVRON.
These are David Buik personal views
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