TODAY’S FAYRE – Tuesday, 2nd December 2014



Get all the gold and silver that you can,

Satisfy ambition, animate

The trivial days and ram them with the sun,

And yet upon these maxims meditate:

All women dote upon an idle man

Although their children need a rich estate;

No man has ever lived that had enough

Of children’s gratitude or woman’s love.



No longer in Lethean foliage caught

Begin the preparation for your death

And from the fortieth winter by that thought

Test every work of intellect or faith,

And everything that your own hands have wrought

And call those works extravagance of breath

That are not suited for such men as come

proud, open-eyed and laughing to the tomb.”




William Butler Yeats – poet – 1865-1939



‘Kajaki – The True Story’ – Without a doubt this is the most gruesome war film I have ever seen. It tells the story of part of a platoon of British soldiers, caught in a minefield near Kandahar.  Many loose multiple limbs in the most horrific circumstances.  However leadership and camaraderie plays an enormous role in galvanising most of them to survive.  This film is not for the faint-hearted. Above all else it tells us that the UK Government – Blair, Brown & Co – left our armed forces hopelessly and inadequately catered for in such desperate terrain, often leaving US Air Force helicopters the unenviable job of picking up our casualties! – Disgraceful!





After all the drama from the inconclusive outcome of last week’s OPEC meeting, it was hardly surprising that there was an adverse reaction in global markets on Monday. Oil had fallen temporarily below $65, which triggered a ‘sell-off’ in commodity prices which adversely affected European bourses, especially the FTSE 100. Ironically both Nymex and Brent rallied by about 4% to $68 and $72 a barrel respectively. This OPEC oil cartel for my money is just pure theatrical political skulduggery! Its dog eat dog out there! When Saudi Arabia have squeezed sufficient pips out of other oil producers peers including the US tracking and shale oil mob, then prices could well shoot up nearer the $85 a barrel level eighteen months from now.

Though all the teenage scribblers and economic egg-heads tell me that this massive 35% cut in oil prices since September is good for the global economy, perhaps adding as much as 0.7% to GDP, I am less than convinced that the Russian economy will greet this news with the same zestful enthusiasm. The Rouble fell 8% in value on Monday and many soothsayers tell me that the Russian economy will not only fall below No: 8 in the global growth pecking order, but it could also fall into recession – -0.8%.

Russia may also be strained by its exposure to external debt to the tune of $680 billion with Lukoil, Rosneft and Sberbank also under duress in that arena.  Whilst on the subject of debt, I was horrified that US corporate bond sales for the year breached $15 trillion – a dangerous level. With interest rates so low, debt has increased, rather than companies and individuals taking the opportunity to pay down debt.

They talk about a week being a long time in politics, well 24 hours in the markets can seem like an eternity. Today markets did an about turn in Europe with FTSE 100 adding more than it had surrendered on Monday – up 1.19% to 6730 at 3.45pm, with New York, not exactly under a wet sail, but regaining some poise thanks to energy stocks picking up the cudgel. The economic outlook feels more or less stable. The ECB will hopefully respond to the dire state its economy by introducing stimulus packages close to QE on Thursday. We expect no fireworks from the MPC on the same day. Above all else more deals are coming back on the table. It looks as though Aviva’s quest to buy Friends Life will be consummated with a price tag of $8.8 billion plus obvious job losses. Expect something to transpire between BT/Telefonica/O2/EE. Maybe Vodafone may join the party courtesy of deals with Liberty Media – a big price tag of £25 billion and a much lesser one for TalkTalk.

There were a couple of interesting news titbits in the last 24 hours. Apple initially shed $40 billion by losing 5% in value on Monday. easyJet’s Carolyn McCall will be happy with her year’s work – a bonus of £6.4 million. BG’s new CEO Helge Lund, agreed to have his remuneration package halved. It is possible that some banks may have lost as much as £billion with questionable investments in the oil industry.



Tomorrow we hear the detail from Chancellor George Osborne’s Autumn Statement. My colleague Simon French is very much on the case and I leave you with some of his thoughts –



“My thoughts on the Autumn Statement. From the noises leaking out of the Treasury it is clear that this is going to be an economic growth fiscal event. Under the title of “Long Term Economic Plan” which has taken over from “Global Race” as the buzz phrase coming out of Number 10 press office.



This fiscal event will be in sharp contrast to the 2015 Budget which will have to focus much more on personal incomes due to the imminent election. Expect the Tories to say “we are providing a plan to make Britain strong to withstand European headwinds” while expect the opposition to reply with “Cost of Living Crisis, falling real wages, out of touch, zero hours” – they know that in the Spring Budget there will be much more to bat that away so this is their chance to attack the government into doing nothing.



Also expect the Chancellor to weave a narrative that is pro-union and anti-Europe to shore up his domestic support. In essence he will sell the big infrastructure and growth plans as enabling the UK to make its own weather even if the Eurozone gets itself in an economic funk. It is also is “convenient” that all the commitments to infrastructure spending will be made outside the immediate fiscal window and hence packaged as affordable.



On specifics, a lot of which has been heavily trawled:


  • Infrastructure: Stonehenge Tunnel, Road Building Program. We know about this but expect something to be held back for the day – the favourites would be Crossrail 2 or High Speed Broadband roll out. Airport expansion is just too toxic.


  • NHS: £2bn Extra funding flagged over the weekend. This is the limit of the giveaway given the dire public finances. Expect for it to be paid for by:



  • Efficiency Plan: I have fairly decent signals that there will be an efficiency plan for the next parliament unveiled. This never gets much attention as it is not very sexy but in essence there will be more digitalisation of front line services, more sharing of back office functions, more public sector pay restraint and workforce reductions.


  • Deficit and Growth projections: The government is on track to miss its deficit target for 2014/15. See chart below. It is likely that against this backdrop it has little wriggle room for a short term tax giveaway. It may ‘encourage’ the OBR to be pretty brutal on revising the target down this month as it gives the opportunity to be more optimistic in March Budget which could tee up an income tax/National Insurance giveaway which I think is odds on!




  • Corporation Tax, Allowances & Business Rates: We know about the cut to 20% in April. Expect a packages of support for small business that include more generous capital allowances and devolving power over setting business rates to local government. 


  • Basic Materials: Some of the interesting parts of last week’s Smith Commission was the devolution of onshore mineral exploitation to the Scottish Government. It may be that the “Northern Powerhouse” narrative on infrastructure extends to energy and specifically fracking in the Autumn Statement. Talk of a northern sovereign wealth fund last month was probably premature but devolved decision-making may be a halfway house. 



  • Pensions: Expect nothing on the state side. I think it has become pretty clear that pensioners have done pretty well over this parliament and actually would be favourites for a rough deal in the first Budget of the new parliament. The ‘pensions freedom’ narrative for private pensions will be recycled.


  • Welfare: The welfare cap and changes to eligibility to benefits has been popular but limited in its savings by the failure to introduce Universal Credit and trouble with the Work Capability Assessments. This won’t stop further savings being found in the welfare budget but this is always highly volatile and has been squeezed hard in this parliament.



  • Taxation: The scope for giveaways or political capital for rises is limited. The Chancellor may be tempted to reintroduce the fuel duty escalator to shore up tax revenues but I doubt he is brave enough to do it this close to the election.


Rabbit out of the hat? Wow, if I knew this then I’d be a bookie! But Chancellors ALWAYS do this so what is within the realms of the possible:


  • “Free” Shares in RBS or Lloyds. This has been so silent recently that it may be one to watch. What better politics than to flag a share giveaway so all can benefit from the publicly owned shareholding.


  • Income Tax/ NI cut. I don’t think so, neither the ‘wriggle room’ or the best timing – more likely to come at Budget 2015.



  • Inheritance Tax cut. The Tories are desperate to do this but I don’t think they have coalition support, nor does it fit the narrative.


  • Housing – The government is desperate to make sure that they don’t enter an election on the back of a slowing housing market. Stamp Duty reform to make it a sliding scale rather than a slab tax could be packaged up as a cut at the bottom end and higher rates at the top end. The Scottish Govt have done this so expect the UK government to follow shortly.


As an aside we can anticipate another Twitter storm to follow the #grannytax #pastytax #omnishambles, #caravantax. Where would I put my money? Difficult to know but the opposition will try and make it about personal incomes so expect something about stealth taxes. Labour were hurt by the Rochester twitter storm so expect them to try and cultivate a “doing nothing for hard working families – tax cuts for millionaires” trend.”











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


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