Monthly Archives: November 2014


TODAY’S FAYRE – Sunday, 30th November 2014



“How soon hath Time, the subtle thief of youth,

Stoln on his wing my three and twentieth year!

My hasting days fly on with full career,

But my late spring no bud or blossom shew’th.

Perhaps my semblance might deceive the truth,

That I to manhood am arrived so near,

And inward ripeness doth much less appear,

That some more timely-happy spirits endu’th.

Yet be it less or more, or soon or slow,

It shall be still in strictest measure even

To that same lot, however mean or high,

Toward which Time leads me, and the will of Heaven;

All is, if I have grace to use it so,

As ever in my great Taskmaster’s eye.”   


John Milton – poet – 1608-1674


Away from the normal day to day business, two issues have dumfounded me this week. Firstly Andrew Mitchell’s libel case against the Police. Talk about frothing up a mole hill in to a mountain – just pure hubris and egotism! Absolute madness and frankly neither did the police cover themselves in glory. The whole saga was totally unnecessary.


Secondly the divorce settlement arrangements between Sir Chris Hohn, the multi-million/billion charitable hedge fund manager and his estranged wife Jamie Cooper-Hohn. What an absurd and gross amount of money to settle an unsatisfactory relationship – £337 million. Regardless of the circumstances, surely no one requires that amount of largesse to stay solvent and for that matter for the generations of children to follow. Provision was even asked for the non-existent family dog!


I can’t believe it! PM David Cameron wimped it! The public’s expectations for a ground breaking speech on immigration was virtually stratospheric. With so much at stake at the General Election, many believed that this speech would be a barnstormer telling Chancellor Merkel and her cronies exactly how seriously concerned the UK was that the net inflow of migrants had increased by 260k in a year on year to June 2014 and what he intended to do about it!


But no! He watered his speech down to just saying that it would be harder for European migrants to gain social benefits and they would have to be here in the UK for 4 years to qualify. Mark Field MP told us on Sky News that Chancellor Merkel’s cards have been marked prior to the speech and that she was receptive to the idea of qualification for migrant benefits.


To believe the PM can win round an intransigent EU to his way of thinking even on this lukewarm proposal could take years to be approved and in that event, it is unlikely that the electorate will be very impressed. With only 6 months until the General Election, the UK is starting to look as if it might be ungovernable, with no obvious coalition manifesting itself. How sad it is that this election will be fought on purely emotive subjects such as Europe and immigration – important though they are – rather than the economy. Like or not, the country is passionately fired up about these two issues. PM – you need to grasp this nettle rather more urgently, if you want to be re-elected in May. On Wednesday the Chancellor makes his autumn statement – his last until the General election in May. The inability to cut the budget deficit sufficiently will weigh on many minds, particularly Labour’s. However much has been achieved by this government in cutting unemployment from 8% to 6%, stimulating growth to 3.1% and providing a boost to the housing market. With more austerity required to balance the books, the country is unlikely to be that accommodative in terms of accepting the need, essential though the need for further cuts is. The Chancellor has little room for manoeuvre. There is a belief that the Chancellor may announce major road investments, such is the buoyancy of growth, which may be returning to 2006 level.


This past week was dominated by the OPEC oil meeting, which was preceded by inconclusive clandestine meetings between Russia, Mexico and OPEC members in the hope that there would be a satisfactory agreement over cutting producton levels. No such agreement was reached, culminating in oil prices falling sharply at the end of the week, though much of this fall had been anticipated in many quarters. Nymex fell 10% on Friday to $66.15 and Brent crude by 3.4% to $70.15. Brent has fallen by 16% in November and by nearly 40% since 19th June 2014. Though this sharp reversal may in the long-term be good for growth – some say it could contribute 0.7% to global GDP – it was a devastating blow to energy companies’ share prices and also it may have a negative effect to those countries in the EU staring deflation in the face. I must confess, in concert to thousands of other observers, I was singularly underwhelmed by the monosyllabic approach of Saudi oil minister, Ali-al-Naimi, whose performance in Vienna, frankly, could only be described as very unhelpful. Exxon Mobil fell by 4.2%, Chevron -5.4%, Halliburton -10.9%, BG Group -8.8%, Tullow -8.4%, Premier -13.4%, Cairn -2.8%, BP and Royal Dutch Shell surprisingly little by 1.4% and 1.8% respectively.


There is no doubt that this draconian and politically driven action will put great heat in fracking/shale’s kitchen and on those small exploration companies that are potentially over-leveraged. I am sorry to say but those two energy sectors are having their pips squeezed. The effect on dividend policy for many of these large companies could have an adverse impact on pension funds, if this lower price of oil drops too much farther. Keeping production at 30 million barrels a day OPEC seems hell bent on putting pressures on other producers. It goes without saying that Russia’s economy could suffer quite badly.


Against the background of uncertainty revolving around oil prices plus the fact that investor’s conundrum was further exacerbated by huge economic question marks against the EU, highlighted by dreadful data in France, particularly consumer spending, which fell 0.9% last month, global indices more or less trod water last week. The S&P added 0.4%, the FTSE 100 eased by 0.4%, European indices added a net 0.6%, with Tokyo’s Nikkei also adding 0.6%. US markets may well react quite positively to Thanksgiving and Black Friday sales data. It is estimated that sales will have risen by 4.1% to $616.9 billion – the highest figure since 2011. Some stores will have relied on as much as 20% of their annual sales over this weekend. Wal-Mart, Target, Best Buy and Macy’s have already been singled out as having had a decent response. In the UK the recent advent of getting involved in Black Friday seems to have got off on the wrong foot, with fighting breaking out in Tesco’s and Asda emporiums – inadequately staffed or policed for the occasion. Also Tesco’s on-line service was down for an inordinately long time. Even Majestic wines entered the fray offering 30% discount on some of their wine ranges. Household names such as Selfridges and Harrods declined to take part in the jamboree.


With BT attempting to steal a march on Vodafone and BskyB with a potential tie up with Telefonica/02 or just EE, no one can be surprised that Vodafone was rumoured to be flexing its muscles, firstly by running its ruler over TalkTalk and Tesco’s struggling pay-TV service – Blinx – and then the soothsayers got a little ahead of themselves in suggesting that some sort of betrothal to Liberty Media – John Malone et all including Virgin Media, may be on the cards. There was more than just ‘billing & cooing’ in these so called ideas! We shall see. As for the rest of the week here in Old Blighty, we experienced a horror story as how not to present corporate governance of a public quoted company, when Harriet Green handed over the CEO’s reins of Thos Cook with indecent haste. Informed sources believe that M/S Green’s relationship with Chairman Frank Meysman was very fractious and therefore untenable. M/S Green may well have been handsomely rewarded, but analysts, shareholders and the Street in general require a much better levels of communication for a sensitive handover of that nature to avoid a calamity such as a 17% fall in the share price.


First Group suffered quite badly losing 11% last week having lost the East Coast rail franchise to Stagecoach (+9.7%) and Virgin. Poundland posted decent results 8 months after its IPO with profits up 12% and sales on a like for like basis up by 4.7%. Balfour Beatty may be broken up if John Laing Investment Fund believes the ailing UK construction titan’s portfolio of PFI contracts provides positive value, according to the Sunday Times.






US companies posting interim results – Tuesday – GENERAL MOTORS






David Buik

Market Commentator


+44 (0)20 7886 2775

Panmure Gordon & Co  One New Change | London | EC4M 9AF | United Kingdom


MARKET UPDATE – OIL DRIFTS NEARLY 4% TO $70 a barrel – $6.95 in 1974

It is 4.00pm – Yes, its Thanksgiving in the US today. Germany’s inflation is down to 0.6%. Here in the UK we’ve blown a raspberry at J-C Juncker’s €315 billion ‘Walter Mitty’ stimulus package to reignite the EU’s economy and no! We are not interested in subbing up another £33 billion over 5 years as our share of an increased EU budget deficit. So not much of a platform to get the market under a wet sail!


The FTSE is flat at 6730 just after 4.00pm, but unlike yesterday there has been some illogical and volatile behaviour. After OPEC left oil productions where it was – roughly at 30.6 million barrels a year – BP fell by 2%, Royal Dutch Shell by 2.7% and BG Group by 3.5%. Nymex fell 3.9% to $70.82 and Brent by 4.03% to $74.62 However nothing is cast in stone and I doubt oil will be allowed to fall like a stone below say $45 a barrel without remedial action being taken. So watch this space. It’s a game of politics and mathematics. If production were to surreptitiously fall to 30 million, mainly courtesy of Saudi Arabia and Libya was to blow up in our face that would be plenty to see prices rise again. In 1974, when most of you weren’t a twinkle in your father’s eye, crude oil was $6.95 a barrel – enter stage left the NUM – Lawrence Daly, Joe Gormley, Arthur Scargill and Mick McGahey.


As you can imagine, IAG and easyJet picked up the cudgel and ran, adding 3.5% and 4% respectively.   Property was strong with British Land +1.5%. Banks were good with Barclays the standard bearer adding 2% with the others at a average of 1%. There were good performances from AB Foods +1.5% and Diageo 1.25%.


Poundland posted numbers roughly 7 months after its IPO – decent +2%. It was transport that surprised everyone. Why was National Express up 6%? Having won the East Coast with Virgin, Stagecoach rallied by 9%. The behaviour of First Group was surprising during the session – -4%, -2%, -7% and then up 2%. Again why?


TODAY’S FAYRE – Thursday, 27th November 2014


You whom I loved like an unnamed flower,

plucked too soon, I will tell them of

you as Iseek your shifting image and again

remember,beautiful companion of the irrepressible cry.

I see first the dancer, checked by lingering fate

,as though her youth were being cast in bronze;mourning

and listening till in celestial response music poured

through her heart’s transmuted gate.

Illness drew nearer. Already in the shadow’s clasp

,her darkening blood, unconvinced, yet broke the grasp

to pulse forth once more the familiar spring fervor.

From dark and relapse, it often


surged rebounding,mortal and bright, till at last,

with a fearful pounding,it flowed

through the hopelessly open door.”  


Rainer Maria Rilke – poet – 1875-1926


Right across the world everyone’s heart goes out to Philip Hughes’s family and his host of friends, who will be grieving at his loss at the tender age of 25 – 26 on Sunday. This talented batsman was at the pinnacle of his career. Middlesex supporters like me remember him for his great, though short term contribution, in 2009, when he averaged 150! Spare thoughts also for Sean Abbott – NOT his fault! Imagine how he feels. RIP


“They say there are two sides to everything. But there is only one side to the stock market; and it is not the bull side or the bear side, but the right side. It took me longer to get that general principle fixed firmly in my mind than it did most of the more technical phases of the game of stock speculation.”Jesse Livermore – Wall Street trading titan – 1877-1940



His Holiness Pope Francis, when addressing the European Parliament in Strasbourg on Tuesday warmed the cockles of my heart in comparing the EU to an old grandmother – ‘somewhat elderly and haggard’ and suffering from weariness and ageing! His Holiness went on to say – “The great ideas which once inspired Europe seem to have lost their attractiveness, only to be replaced by the bureaucratic technicalities of its institutions”. Not many of us would argue with his assessment.


I started to listen yesterday to the gospel according to St J-C Juncker as his dreams and aspirations for putting life in to the moribund EU economy by injecting E300 billion in to infrastructure projects over the next five years.  However anyone wants to dress up this ideology, its plain vanilla ‘Federalism’ and frankly I am just not up for that.  Apparently, the EU’s budget may have a shortfall of £259 billion. ‘Old Blighty’s’ share could be as much as £33.7billion.  You can imagine that Nigel Farage will be having a field day if that figure turns out to be true. I doubt PM Cameron will be that pleased either! – As the old expression goes – “Nearer and nearer draws the time – the time that surely be, when the earth shall be filled with the Glory of God as the waters cover the sea!”


The economic data in the US was mixed yesterday, but not dispiriting.  Consumer spending climbed in October, though slightly disappointingly. Initial Jobless claims rose more than many had hoped for – to 313,000. Also new homes sold at a slower pace in October.  However it will be the outcome of today’s OPEC meeting in Vienna that will be weighing heavily on traders’ minds, particularly as there was no guidance as to whether some OPEC countries such as Saudi Arabia, Mexico and Russia had come to any agreement as to whether supplies would be reduced. Brent oil dropped to $78 a barrel. The Dollar was a little weaker against Sterling, the Euro and the Yen. Markets were not active as there was always going to be a rush to the door to get home to the Hamptons to enjoy Thanksgiving – plenty of turkey cranberry sauce followed by pumpkin pie washed down with buckets of Chardonnay. Then tomorrow – Black Friday – this is the biggest shopping day of the year on the US calendar.  Retail is so important, accounting for 70% of US GDP. It has recently been superseded by China’s ‘Singles’ day – not surprisingly considering there are 1.4 billion in China!

There was satisfactory news for UK GDP. In the 3rd quarter it rose by 0.7% down from 0.9% in the 2nd quarter. The annualised rate was 3%. Investment fell quite sharply which is worrying, but with such political uncertainty and also concerns for global growth, this reaction cannot be that much of a surprise. Consumer spending was encouraging.


Greene/Green is the colour and the name; both had bad days at the office yesterday. In the case of Moya Greene, I thought Vince Cable was mealy-mouthed – nothing new there – about her concerns that suppliers were cherry picking Royal Mail’s orders. I don’t think that is fair as she warned about the likelihood at the time of last October’s IPO. As for Harriet Green; I doubt chairman Frank Meysman and new CEO Peter Frankhauser could have done a worse PR exercise on how to replace her, if they had tried. To just say her work is done and Peter Frankhauser is better placed to take the business forward, when shovelling Green out on to the street just does not wash. Thos Cook, under her guidance saw the share price rally from 14p to a high of 190p. Yesterday the shares on the news of her indecently hasty departure were larruped – down by 17%. There must have been acrimony for this severance to have manifested itself without explanation. What rubbish interpersonal skills.


It was rather a listless session yesterday in London, with the FTSE 100 closing down by just one point. There were decent numbers from Wolseley, Compass and DMGT, yet it was insufficient to give markets any momentum. There was much gossip about Aviva having been in conversation with Phoenix about a number of closed book businesses of which Friends was just one. Though there are people not keen on an Aviva/Friends deal, it is too early to say it is dead. BT’s Gavin Patterson was given a headache, when it was rumoured that the likes of Vodafone would moan to the competition authorities if BT were to acquire EE or o2. A deal of that nature could trigger an enforced split. I think it is fair to say that an objection would be taken as read. Its dog eat dog out there in the telecoms game. If Telefonica sell o2, would that make Telefonica vulnerable to take over? This morning Poundland posted encouraging results. Stagecoach and Virgin won the East Coast franchise for 8 years at a cost of £3.3 billion. Stagecoach added 9% in value and sadly First Group were left rather exposed and lost a further 4% on top of 10% earlier in the week.


Yesterday New York saw the DOW add 0.07%, the S&P 0.28% and the NASDAQ 0.67%. Apple and Hewlett Packard made good progress. The Strong Yen and global growth concerns took Asian markets lower, though Samsung announcing a $2 billion buy back saw shares rally by 6%, having been down 10% on the year. Diahatsu recalled 20k vehicles and Toyota felt obliged to recall 50k cars.


David Buik

Market Commentator


+44 (0)20 7886 2775

Panmure Gordon & Co  One New Change | London | EC4M 9AF | United Kingdom


It’s been a strange old day.  In terms of stocks market activity the fact that the FTSE 100 is down 20 points at 6708 at 4.34pm does not really tell the story.  The oil & energy sectors have been weak ahead of the OPEC meeting on Thursday.  Mining looked perky initially, but it is just below the Plimsoll line as I write at 4.04pm, despite gutter talk about Glencore flirting again with Rio is the alleyways.

Most people expected De La Rue to get larruped after a 36% fall in profits but October’s profit warning was already priced in, but it had a roller-coaster ride starting down just 1%, then rallied to +8% then back down to -2% and is now looking as if it might end the session down virtually unchanged.  Kingfisher did not please its acolytes – down 4%. Banks leapt out of the traps on very good terms with themselves – with most banks up 2% plus.  However the sector was only up 1% towards the close with RBS the outstanding performer – +2%.


With all the chat and buzz about EE and O2, BT had another good day adding 2% as did SKY – also up 2%.  However the Vodafone appeared to be ‘the ugly duckling’ of the sector – down 0.4%.  Ashtead and Merlin are expected to join the MSCI today.  Both stocks turned over about 3 million shares but there was little change in their share prices.


Mortgage applications fell by 16% last year – with only 37K mortgages approved in October the lowest figure for 17 months. Political uncertainty and lending banks pulling in their reins, thanks to the requirement of larger deposits, were largely to blame. Lloyds Banking Group also predicts house prices to fall between 3-5%. However if the GDP remains around 3% in 2015, demand could well be robust.


In the US revision for 3rd quarter GDP was better than many expected – some thought it might even fall.  It rose to 3.9% from 3.5% last time, against expectations of 3.3%. Let’s hope the recent severity of the weather does not blunt demand. The S&P Case Shiller Housing index rose 4.9% on the year.  GDP in the US, after a really dreadful start, is expected to grow by 2.2% this year. Consumer spending, which accounts for 70% of GDP, was also up by 2.2%. Wall Street’s response was relatively muted, but let’s face, it US equities have had a tremendous run on the rails, reaching record levels. At 4.30pm the DOW was up a smidgen by 0.04%, the S&P 500 by 0.29% and the NASDAQ by 0.89%.

David Buik

Market Commentator


+44 (0)20 7886 2775

Panmure Gordon & Co  One New Change | London | EC4M 9AF | United Kingdom


TODAY’S FAYRE – Tuesday, 25th November 2014


“Down, wanton, down! Have you no shame

That at the whisper of Love’s name,

Or Beauty’s, presto! up you raise

Your angry head and stand at gaze?

 Poor bombard-captain, sworn to reach

The ravelin and effect a breach–

Indifferent what you storm or why,

So be that in the breach you die!


 Love may be blind, but Love at least

Knows what is man and what mere beast;

Or Beauty wayward, but requires

More delicacy from her squires.

 Tell me, my witless, whose one boast

Could be your staunchness at the post,

When were you made a man of parts

To think fine and profess the arts?

 Will many-gifted Beauty come

Bowing to your bald rule of thumb,

Or Love swear loyalty to your crown?

Be gone, have done! Down, wanton, down!” 


Robert Graves – playwright & poet – 1895-1985-1616


If you have a spare hour and have not been already been, go and see Rembrandt’s Late Works Exhibition at the National Gallery in Trafalgar Square – Exquisite! Mind-blowingly memorable! Rarely have I seen such use of colour and light, with paint appearing to have been ladled on with a trowel. The paintings and drawings on view courtesy of global owners or galleries were created between 1655 and shortly before his death in 1669 at the age of 63. It’s hard to believe that such a genius could have lost his common-law-wife, his son Titus and been declared bankrupt, drowning in debt, all in such a short space of time. These tragedies resulted in all Rembrandt’s works of arts being sold off for a pittance to pay off his debts.



Markets still have plenty of zing about them, despite geopolitical and economic concerns. There is the Thanksgiving holiday to look forward to on Thursday followed by Black Friday’s frenetic activity in the shopping malls as well as on line. Though ‘Singles Day’ in China is now a more significant event in terms of money spent, Black Friday remains a massive barometer for the US economy.


OPEC and particularly Saudi Arabia will be in no hurry to announce any cuts in production at this Thursday’s meeting in Vienna.  It may be important for Saudi Arabia, whilst its reserves are overflowing, to put pressure on Iran, Iraq and Libya to keep the floodgates.  Also it will not have escaped OPEC’s notice that the cost of fracking and shale oil and gas, is relatively expensive. With the US now rampant in that arena, it might also suit Saudi Arabia to make the US feel uncomfortable pro-tem. It has also become very clear that capital investment in exploration and production has dried up.  Oil and gas companies are very highly geared with gargantuan borrowings. Panmure’s excellent Colin Smith forecasts Brent to average US$ 92.5 bbl for 2015 and US$ 95 bbl thereafter.


As well as having a bystander’s interest in Thanksgiving and its effect on retail, here in Old Blighty we have been galvanised by the recent flurry of M&A gossip that manifested itself over the weekend and yesterday. When one considers that the Shanghai Composite has added 18% so far this year and the FTSE 100 has only just about wiped its face despite some volatile market conditions, a slew of IPOS and an improving UK economy, it is not surprising that investors are somewhat bemused at the parsimonious returns. Even Russia is up 2% if you conveniently forget that the Rouble has dropped 28% since the start of the year.  


The leaked rumour that Aviva was prepared to pay £5.6 billion for Friends Life became a reality on Monday morning. Aviva are potentially offering 0.74 shares for every Friends share. This bid represents a 15% premium for Friends shares. At the close of business Aviva’s shares had fallen 5.4%, as Friends had risen by 6%. This deal came as rather a surprise – right out of left field considering that Aviva had expressed interest to expand internationally rather than consolidate in the UK. Perhaps Chancellor Osborne’s legislation, making buying annuities optional triggered the idea of further amalgamation of complimentary operations.   There are of course balance sheet synergies, and make no mistake there will be redundancies and cost cutting exercises. There could be cost savings of £186 million in 2015 and £255 million in 2016. Aviva have 2000 staff in York and 1500 in Sheffield. Friends staff is spread across the country. Our expert insurance research guru Barrie Cornes expressed his surprise at this proposed parochial acquisition and awaits with interest to shareholders’ reaction in the days to come.


There is so much froth over BT’s plans to either accept Telefonica’s offer to sell 02 to them or buy EE, where the market understands BT are also in early negotiations.


As they say what comes round, sometimes goes round. In 2002, just prior to CEO Sir Peter Bonfield leaving, post paying the Treasury on behalf of BT Cellnet £4.003 billion for a 3G licence, BT Cellnet demerged from BT and was re-launched on 18 June 2002 (2002-06-18) as O2. The problem at the time was that BT had a huge debt and a hole in its pension scheme, which required remedial action – hence the demerger. Then in 2005 O2 was acquired by Telefonica for £17.7 billion. Bonfield had a roller coaster ride as CEO of BT. He arrived when shares were £4 each. They hit £15 in 2000 and fell like a stone to £5 after the TMT debacle. Ben Verwaayen was CEO of BT from 2003-2008. He must have shuddered when the O2 deal with Telefonica was consummated.


If BT buys O2 the deal is said to be worth £9 billion and deal with EE (Orange & T-Mobile) slightly more. EE has 33% of the UK mobile market, O2 26.6% and Vodafone 26%. There is no doubt that the way forward is to offer all things to all men – media, TV, entertainment, broadband, fixed lines. It is now a question as to whether a deal can be pieced together and agreed with shareholders, whilst at the same time not incurring the wrath and indignation of the Competition regulators.


Following an earlier announcement that it was in discussions with Platou, Clarkson PLC (‘Clarksons’) today announces its proposed acquisition of the entire issued share capital of RS Platou ASA (‘Platou’) for a total consideration of £281.2m. Of the proposed consideration to be received by Platou shareholders, 75% would be satisfied in Consideration shares, 16.66% in Loan Notes and 8.34% in cash. The Board of Clarksons believes that the acquisition would be earnings enhancing in the 2015 financial year.



This morning Kingfisher posted slightly neutral numbers. De La Rue’s efforts were dreadful but October’s profit warning was already priced in – shares down 0.9%. The banks continue to attract adverse publicity – RBS over misleading the TSC about small loan facilities and news that HSBC will receive a visit from US regulators over FX fixing allegations. Can we have an end to this please?


US companies posting results and trading statements this week – Tuesday – HORMEL FOODS, FRED’S, CAMPBELL SOUP, Wednesday – ASTRO-MED





David Buik

Market Commentator


+44 (0)20 7886 2775

Panmure Gordon & Co  One New Change | London | EC4M 9AF | United Kingdom


TODAY’S FAYRE – Sunday, 23rd November 2014



Sigh no more, ladies, sigh nor more;

Men were deceivers ever;

One foot in sea and one on shore,

To one thing constant never;

Then sigh not so,

But let them go,

And be you blithe and bonny;

Converting all your sounds of woe

Into. Hey nonny, nonny.


Sing no more ditties, sing no mo,

Or dumps so dull and heavy;

The fraud of men was ever so,

Since summer first was leavy.

Then sigh not so,

But let them go,

And be you blithe and bonny,

Converting all your sounds of woe

Into. Hey, nonny, nonny.”



William Shakespeare – playwright & poet – 1564-1616


 Some might say that the outcome of the Rochester & Strood by-election could have been worse for the Conservatives. The lost by 2,900 votes to the maverick Mark Reckless of UKIP with a 52% turnout – an 8% margin, when many were predicting a 12-15%! Labour were destroyed with just 7,000 votes, which will disappoint Bob Marshall-Andrews QC, the previous incumbent, who had a solid majority 5 years ago; admittedly boundaries have been slightly altered.


 What strikes the ordinary man in the Street is that come next May, post the General Election, the UK could be almost ungovernable. As matters stand at the moment the Conservatives and Labour are unlikely to command much more than 33% of the vote each, with UKIP, SNP, Lib-Dems and Greens providing useless and tiresome, but influential irritation. No one could possibly predict the outcome at this juncture. It could be any combination to form a toothless tiger of a coalition, totally lacking in conviction.


It is hard to see UKIP going into coalition with David Cameron, since the PM has been so rude and insulting to Nigel Farage on numerous occasions. It is also virtually impossible to see Alex Salmond leading his 30 odd renegade SNP MPs in to coalition with the Tories or Labour. This very bright, politically adroit but thoroughly obnoxious political adversary will just want to be counter-productive to progress on any issue that did not benefit Scotland and the possibility of independence and will thoroughly enjoy spoiling the adoption of legislation for the sake of it. By the time the recess comes next summer we could all wish that Scotland had said ‘yes!’ to rid us of this turbulent and treacherous dissident.


 Looking at stock market data in isolation, last week’s activity looked like plain sailing aided and abetted by some stimulus packages from China, similar activity and help from Abe-San & Kurudo-San in Japan with the added spice of a snap election being called. Perhaps the icing on the cake being provided by Dear Old Mario Draghi coming up with the same old regurgitated phrase on behalf of the ECB that ‘we will do everything in our power to stimulate growth’ short of officially introducing quantitative easing.  Last week saw the S&P 500 breached yet another record adding 1.1% on the week, with the FTSE 100 rallying by 1.5%, European stocks by an average of 3% and the NIKKEI by 0.8%. Oil retrenched closer to $80 a barrel as we head to the OPEC meeting at the end of next week, when oil supplies might be cut, though there is a strong lobby to suggest they won’t be. Gold shot up to $1201.55 an ounce on the back of a stronger Dollar, though the Greenback did see a few profit takers at the end of the week, with the Yen being the major beneficiary – $/Y117.79. Last week we also saw so much in the way of positive data from the US and from the FED and how well the economy is improving, One just hopes that there is no repetition of the dire winter weather conditions experienced in the first quarter of 2014. The current early bout of snow and freezing conditions do not augur well. Remember last year GDP for the first quarter ended up deeply in negative territory – -2.9%.


The general public had hardly digested the enormity of the ‘FX rigging scandal’ by 5 banks, with perhaps Barclays to follow and the gargantuan fines that went with the admittance of these transgressions, when it was confronted with RBS’s fine by the FCA and PBA for inadequate control over its ancient IT system, which collapsed in a heap in June 2012, leaving RBS’S clients without access to their money. This aberration had already cost RBS £70 million in terms of restitution and compensation. That should have been quite enough bad news for a bank in one week; but no! It was not to be. On Friday it transpired that RBS is alleged to have submitted incorrect data to the EU, overstating its financial strength and Tier One capital requirements for the ‘stress test’ by £3.5 billion, due to the addition of tax credits from projected losses, which did not qualify as correct criteria for inclusion. This news meant that RBS had just scraped by with Tier One capital at 5.7%. By comparison Lloyds is 6.2%, HSBC 9.3% and Barclays 7.1%. Mistakes of this magnitude are not good enough and senior heads should role. The final nail in the banking sector’s coffin came last Thursday from Brussels – the dismissal by the EU of the UK’s government’s and the BOE’s protest to stop bankers’ bonuses being capped at 100% or 200% with shareholder approval. So much has already been written on what crass legislation this is for the UK financial markets, any additional criticism from the likes of me would be superfluous to requirement – just insanity personified! Finally in talking of the BOE, let’s hope that Lord Grabiner finds no evidence of staff helping to rig auctions in relation to QE post the 2007/8 banking and credit crisis. Sometimes and perhaps I am naïve, people are looking for skeletons in the cupboard, which are just not there.


 As the 3rd quarter earnings season comes to a satisfactory close, US equities feel on good terms with themselves, aided and abetted by reasonable economic data including falling unemployment, a buoyant housing market and satisfactory retail activity. There is also plenty of M&A activity with Activas completing its acquisition of Allergan for a breath-taking $66 billion. On Friday some results were a little mixed with the following attracting headlines – GAP -5%, GameStop -14%, Hertz+5%, Sotheby’s +10%. Mining stocks and energy stocks lead the way with oil rallying and China’s stimulation package providing encouragement.


Here in Old Blighty, as with US markets, mining and energy held their heads up high. There is still some M&A stimulating aroma permeating around Threadneedle Street and Canary Wharf, which helps to keep momentum pumped up. Aviva stepped up to the plate and declared undying love for Friends Life, for which it is alleged it will pay £5.6 billion to buy. Clive Cowdery, for all his bold actions from his Resolution acquisition trail, may pocket as much as £160 million from the deal – good man! The new company could be valued at £20.1 billion – CEO Mark Wilson and new chairman Sir Ian Montague are expected to remain in situ.



There are those who refuse to believe that embers under Smith & Nephew won’t be rekindled by Stryker’s interest in the UK’s medical component maker. There were also rumours of Vodafone casting a beady eye over TalkTalk. NAB are considering a £2 billion float for Yorkshire Bank! Perhaps there may be a touch of banking IPO indigestion? On Friday Anglo American +6.7% and Tullow +5.8% scrapped over the day’s yellow jersey. Ineos’s chairman Jim Ratcliffe announced proposed plans to spend £640 million on developing fracking and shale which could be of huge employment benefit to Grangemouth. Tiger Global seem to have done a decent demolition job in ‘shorting’ Quindell and other stocks such as Nokia in recent months.


 Chancellor Osborne did not have great news from the ONS on the UK’s borrowing requirements. Public sector net borrowing for last month was similar to the same period last year, within £200m to £7.7bn. As of the end of October 2014, net borrowing is £64.1bn, which compares with £60.5bn the government had borrowed by the same date in 2013. It transpires that government net borrowing is 6.1% higher than last year, compared with the budget forecast, provided by the OBS, which initially suggested that net borrowing would fall by 11.2% in the whole year. Hence comments from the Treasury that borrowing was in line with the budget forecast was a little surprising. The tax receipts in recent months have been very disappointing income tax revenue, with wages not rising as one would expect and a measurable fall in stamp duty from a less active residential property market. Also not surprisingly oil and gas revenues were disappointing. Until real confidence returns to business investment, which would come with political stability, wages are unlikely to select another gear.


 US companies posting results and trading statements this week – Monday – DYCOM INDUSTRIES, Tuesday – HORMEL FOODS, FRED’S, CAMPBELL SOUP, Wednesday – ASTRO-MED





David Buik

Market Commentator


+44 (0)20 7886 2775

Panmure Gordon & Co  One New Change | London | EC4M 9AF | United Kingdom

The Unelectables: UKIP victory points to UK Government instability in 2015

The Unelectables: UKIP victory points to UK Government instability in 2015
Yesterday’s by-election victory by the UK Independence Party (UKIP) points to instability in the lead up, and following
the 2015 General Election and reduces the prospect of meaningful economic reforms in the UK. Voting in the Scottish
Referendum, Clacton-on-Sea and now in Rochester signals that the three major UK parties have become individually
unelectable – so from May 2015 the UK faces a further period of coalition or minority government. This weakens the
medium term growth prospects for the UK economy by reducing prospects for structural reform, deficit reduction and
political stability. We therefore reduce our outlook for Sterling – with referenda on the future of the Union or Britain’s
EU membership expected to act as the makeweights in any coalition agreement.
UKIP – The task gets harder from here
Despite its recent success UKIP remains a party of protest. It has neither a stable support base nor a broad and credible
policy portfolio. On taxation, healthcare and welfare reform – where the UK faces the biggest challenges from an ageing
population – the UKIP position is wafer thin and will be exposed in the lead up to the General Election. We expect the
creation of a UKIP manifesto will split the currently unstable coalition of left and right that makes up the UKIP support
base. The speculation surrounding the position of the current UKIP Economy spokesman, Patrick O’Flynn, an advocate of higher taxation, is indicative of this issue. Deep divisions between his views (which are aligned with a significant minority of UK supporters) and those of major UKIP donors will come to the fore over the next six months and should act to stem the UKIP surge.– An art not a science
So where does this leave UK politics ahead of the 2015 General Election? Neither the Conservatives nor Labour have
sufficient support to achieve a parliamentary majority and must look for coalition partners. It is often forgotten that even after polling 29% in the 2010 Election, the Labour Party were in pole position to enter a coalition until botched
negotiations with the Liberal Democrats pushed together the current coalition partners. The likely composition of a 2015 coalition is highly unpredictable given the nature of these post-election negotiations which have as much to do with personality as politics. While the current coalition has been remarkably stable, the unifying driver of post-GFC deficit reduction will be diminished this time and reduces the prospect of a stable five year parliament.

“Scexit” or “Brexit” – The price of power
The Scottish National Party (SNP) are projected to win over 40 seats at the next General Election and have overtaken the Liberal-Democrats Democrats as the party most arithmetically suited to enter coalition with the Labour Party. We anticipate that the SNP terms would be a second Scottish referendum with “devo max” on the ballot paper. While too easily dismissed as a sticking point for Labour, the current leadership will not enter such negotiations from a position of strength. By contrast if the Conservatives strike a deal with UKIP – who are likely to be short on MPs but will act as a major barrier to the Conservatives achieving a majority – the terms will be a 2017 “in-out” EU referendum followed by a second General Election with UKIP limiting their campaigning in marginal Conservative constituencies. Under either scenario outlined above, or indeed a minority government, we see a return to the polls well ahead of May 2020 and the resultant uncertainty weighing on UK financial markets.


When Mark Reckless gives his acceptance speech at about 1.00am tomorrow morning, when winning Rochester & Strood for UKIP – their second seat in the House of Commons, let it be a warning to those who allowed Blair, Brown and their cronies to sign the Treaty of Lisbon. This act of undemocratic treachery amounted to surrendering our financial prowess and sovereignty to Brussels, and particularly to the ‘Ag & Fish bureaucrat Michel Barnier and all the ramifications that go with it.


George Osborne gave it his best shot in fighting the UK’s corner but it was to no avail. The EU Court of Justice rejected all six arguments challenging both the scope and the legal basis for the new rules on limiting bank bonuses to 100% of salary or 200% in the case of a shareholder vote. The EU Court’s opinion may not be legally binding, but it still amounts to traversing through a minefield of difficulties for the UK government, in the same manner a transaction tax does.


These bureaucrats and ‘box tickers’ in Brussels will have their own political crosses to bear and one thing is for sure federalism rules OK with bashing bankers clearly towards the top of their agenda! Italian and Spanish banks are not enjoying great health and nor are some French, Belgian and Dutch banks. The UK based banking sector has no correlation with the EU banking sector. UK domestic banks are mortgaged based. However more to the point, London is the centre of the time zone and English is the generally accepted language of international banking. London as an international financial centre is probably larger than Frankfurt, Paris, Amsterdam, Madrid and Milan put together.


There is no evidence that bonuses will cut out risk and what is irrefutable is such banal and ill thought out legislation on bonuses will just trigger massive increases in salaries to maintain London’s ability to compete in banking internationally. What I find astounding is the inability to understand that the introduction of such crass restrictive practices will just force not only unacceptably large salaries but it will also leave international banks no alternative but to reapproriate their capital in other parts of the world.


So the EU wants us to remain as a member! – Really? Their members have a funny way of showing their unrequited love.


The arrogance of Brussels will not only irrevocably damage London as a financial centre, but this daft decision will just be cannon fodder to UKIP, which will dangerously increase the level of political stability.


Can you imagine what could happen next May? Labour & Tories about 32% of the vote with SNP 12%, Lib Dems 9% and UKIP 15% – A coalition out of that? I don’t think so! The country will become ungovernable with no positive decisions being made on any major issues, though if the country is bonkers enough to vote in a Lib/Lab coalition, it will further drown us in to the morass of EU despair! This is INSANITY personified!




TODAY’S FAYRE – Thursday, 20th November 2014


 “I met Louisa in the shade,

And, having seen that lovely Maid,

Why should I fear to say

That, nymph-like, she is fleet and strong,



And down the rocks can leap along Like rivulets in May?

She loves her fire, her cottage-home;

Yet o’er the moorland will she roam In weather rough and bleak;

And, when against the wind she strains,


Oh! might I kiss the mountain rains

That sparkle on her cheek. Take all that’s mine ‘beneath the moon,’

If I with her but half a noon

May sit beneath the walls Of some old cave, or mossy nook,


When up she winds along the brook

To hunt the waterfalls.”


William Wordsworth – poet – 1770-1850


 For me, Morten Tyldum’s film “The Imitation Game”, was the very best I have seen this year. The Story of the academically awkward and complex Alan Turing, who with colleagues broke the ‘Enigma’ code, which may have shortened WW2 by a couple of years was brilliantly portrayed by Benedict Cumberbatch, in a sad, witty and eccentric manner! He will be there, knocking at the door for ‘gongs’ at the Academy Awards, Bafta and Golden Globes. His performance could only be described as breath-taking. Keira Knightley is not just a very decorative young lady; she is a very powerful and accomplished actress. Mark Strong, Charles Dance, Allen Leech, Rory Kinnear and Matthew Goode put in very strong cameo performances.


A sepulchral session on the Street of Dreams yesterday with all three main indices closing just a tad lower was not surprising considering that markets want their cards marked by the FED in tonight’s FOMC statement. Rates are unlikely to change but the comment ‘considerable period of time’ for a rate change may be removed. However M/S Yellen will be in no hurry to change the FED’s policy whilst China’s economy appears to want to contract and the EU economy continuing to ‘hang in rags!’ Also whilst Uncle Vlad continues to put the fear of God in to Europe’s economy, that geopolitical problem could be enough to put action on hold.


The US housing market seems in good nick and we wait with bated breath to hear news of CPI data and the Phili-Fed today. Target posted decent numbers with news that unlike Wal-Mart, it is happy to move ‘on-line’ goods free of charge. Sales on a like for like basis were up 1.2%. The shares rallied by 7.4%. Microsoft and Qualcomm were amongst the tech stocks to take the NASDAQ lower by 0.51%.


We expect the MPC to still vote 7-2 against no change in rates (0.5% for 5.5 years) and QE at today’s meeting. The chances of an increase in interest rates before August 2015, is remote. Though inflation of 1.3% was posted on Tuesday expect that to drop to 0.9% in the New Year. The paucity of wage increases announced by the ONS yesterday of £1 a week to circa £501 average pay a week will discourage the BOE from any knee-jerk reaction. Despite comments made at the Inflation Report that wages were increasing by 1.3%, this news will need to not only improve, but also filter through.


Yesterday the FTSE 100 retreated by 12.5 points to 6696. Mining stocks were given some rough treatment and the situation has not improved today, thanks to poor PMI data posted from HSBC in China – the worst level for 6 months. The rest of the session was taken up discussing on-going issues concerning Royal Mail Group. The outlook for sales courtesy of Amazon and fierce competition from the likes of UK Mail, FedEx, UPS and Deutsche Post, seems uncertain, taking the shares down 8.6% to 428p. The House of Commons shook the pub industry to the core yesterday, when the Government was defeated in a free vote, forcing most hostelries to become free houses. The main industry protagonists will appeal against this bone crushing decision. Punch lost 16% and Enterprise Inns lost 20%. Greene King is in the process of buying Spirit Pubs. Whether this news alters the ‘terms of reference’, remain to be seen. Rooney Anand is a shrewd operator and I suspect his hostelries are so user friendly, this law if ever implemented, will be one he, if anyone can, will surmount. Ironically Greene King only eased by about 1%.


There were a slew of earnings this morning with Johnson Matthey posting an improvement – up 4%. Centrica’s management statement was bland – down 1.5%. We need to see Mr Conn from BP, replacing Sam Laidlaw as CEO, making his presence felt as a strong leader. Most Asian markets finished flat – Shanghai all square, Hang Seng was down 0.07% with an hour to go and the NIKKEI was up 0.07%. RBS was fined £56 million for the collapse of its technical facilities in June 2012, which has already cost the bank £175 million in compensation. This is a salutary lesson for RBS, illustrating the need for perfect cyber proof technology. If it fails, the entire banking system is at risk.


 US companies posting results and trading statements this week –Thursday – BEST BUY, ROSS STORES, GAP, Friday – ANN INC, FOOT LOCKER




David Buik

Market Commentator


+44 (0)20 7886 2775

Panmure Gordon & Co  One New Change | London | EC4M 9AF | United Kingdom


Who am I to write about the Royal Mail Group, when one of my splendid colleagues, Gert Zonneveld, proved to be virtually the only analyst to flag up the fact that the Royal Mail IPO would prove to be a terrific ‘Arfur Daley’ and was probably undervalued and therefore should be aggressively subscribed for. Well I think I can comment from non-valuation perspective

Many of you will recall that the shares were issued at 330p in October of last year and went to a 40% premium on the first day, hitting an intraday high of 615p in December 2013. There were howls of anguish with opposition politicians calling for Vince Cable’s and Michael Fallon’s head on a charger, with Chuka Umunna leading the forlorn charge. Cries of a £1billion had been conned out of the taxpayer – Resign etc etc!


I attended the BIS select hearing chaired by a nervous Adrian Bailey MP and his committee, when Lazard, Goldman and UBS were in the dock so as to speak. All were duly castigated for under-valuing this offer for sale, with representatives from JP Morgan and Deutsche Bank smugly pouring salt in to the wound. Clearly the so-called offending investment banks failed to speak up for themselves in a virile manner and it was very obvious to the onlooker that the PR men had been at work, rather unconvincingly – the rhetoric was pathetic and clearly not investment banking speak!

Though this issue was probably under-priced by 50 pence, history may well be kind to Lazard, UBS, Goldman, ministers and to Moya Greene, the CEO in the years to come. First and foremost the issue had to be a resounding success with what was to follow – tranches of Lloyds Bank, Williams & Glyns, TSB and RBS in the future. This IPO could not afford to falter!  It had to be a knock-out blow for investors. Also it should not be forgotten that the taxpayer still owns circa 40%!


To be fair there were huge imponderables – Union issues, potentially ferocious competition from the likes of UPS, TNT, Deutsche Post, FedEx and UK Mail – all looking to cherry pick RMG’s best contracts. Revenue from letters had to drop with the advent of emails. I definitely did not buy market conditions as they were not too bad at the time. the fact that RMG had scope to raise their tariff was questionable in the wake of such fierce competition. Some of these imponderables have manifested themselves in today’s results.

Even though Messrs Fallon & Cable were incandescent with rage over Panmure’s valuation, which was based on existing data; it was spot on by Gert Zonneveld!  There was always going to be cumuli nimbus clouds of uncertainty hanging over this business model, though RMG property sales in the future could prove to be a cosy cushion. The following comments are not Panmure’s view, but mine.  I think this IPO was very cleverly priced – mission accomplished! Whether RMG’S business is acquired in the future, who knows?  If it is the taxpayer should do well by way of its remaining 40% stake