TODAY’S FAYRE – Thursday, 24th September 2015


“Dark Spirit of the desart rude

That o’er this awful solitude,

Each tangled and untrodden wood,

Each dark and silent glen below,

Where sunlight’s gleamings never glow,

Whilst jetty, musical and still,

In darkness speeds the mountain rill;

That o’er yon broken peaks sublime,

Wild shapes that mock the scythe of time,

And the pure Ellan’s foamy course,

Wavest thy wand of magic force;

Art thou yon sooty and fearful fowl

That flaps its wing o’er the leafless oak

That o’er the dismal scene doth scowl

And mocketh music with its croak?


I’ve sought thee where day’s beams decay

On the peak of the lonely hill,

I’ve sought thee where they melt away

By the wave of the pebbly rill;

I’ve strained to catch thy murky form

Bestride the rapid and gloomy storm;

Thy red and sullen eyeball’s glare

Has shot, in a dream, thro’ the midnight air

But never did thy shape express

Such an emphatic gloominess.”


Percy Bysshe Shelley – poet – 1792-1822


Lightening rarely strikes twice and that was the case at Kingsholm, Gloucester yesterday, where Scotland clinically put Scotland to the sword 45-10. If England does not win the World Cup, I can cope with Scotland doing so in the unlikely event of that happening, as long as M/S Sturgeon is not within 10-miles of Twickenham gloating at England’s expense.  In recent times, rarely have I seen a cleverer or more divisive domestic politician than Scotland’s First Minister. I have total sympathy with Kelvin McKenzie, when referring to her as PM of “Jockistan”, was roundly and viscerally criticised for his supposed tasteless comments.


I think European bourses had soothing comments by Mario Draghi to the effect that the ECB’s barrels are full of QE gunpowder in the event of deflation and falling growth, to thank for yesterday’s equity market resurgence. Could it be a false dawn? I cannot help looking at some of Bloomberg’s graphs on equity activity, which illustrate and endorse the fact that ‘selling’ in recent sessions has been ‘gargantuan.’ A colleague also pointed a frightening graph on Petrobas, which not long ago issued a $15 billion 100—year bond, which matures in 2115 with a 6.85%% yield, which was gobbled up by investors, who went all ‘google-eyed’ at the prospect of such protracted franked income. What a great deal for Petrobas! It’s total debt is $95 billion. The graph concerns CDS – it’s almost perpendicular in shape! This graph makes Glencore’s current uncomfortable plight look like a walk in the park.


Anyway, I digress. The Draghi Factor triggered the FTSE adding 1.6%, the DAX 0.44% (damaged by auto stocks) and CAC +1.13% despite initial setbacks with Peugeot Citroen and Renault on the back of VW’s unenviable plight. Here in Old Blighty oil stocks stepped up to plate for a rare decent performance. Not surprisingly IAG (+4.8%) and easyJet (+3.5%) were popular thanks capitalising on to lower fuel hedging. Unfortunately the Street of Dreams did not enjoy the same level of ebullience. There was still consternation over the indecisive approach by the FED towards rate hikes; hence the session was relatively sepulchral. The DOW was down 0.31%, the S&P 500 by 0.20% and the NASDAQ by 0.08% – a mere bagatelle. Today, once there has been a chance to digest comments on Xi Jinping’s visit to the US and the focused adulation towards Pope Francis, maybe the New York exchanges will provide greater input than they did yesterday. Perhaps data on Durable Goods and New Home Sales could be the litmus test of the day! In Asia, Japan returned to work after a three day holiday and was subject to a downward 2.76% adjustment. The Shanghai Composite was 0.67% to the good after lunch and the Hang Seng was 1.01% under water. The ASX ended the day up 1.67%. Thos Cook posted numbers in line with expectation – +4% its shares having been trashed in recent sessions. DMGT’s efforts were satisfactory – +0.8% and Poundland was the recipient of rather harsh treatment as a result of its £50 million placing – down 5%!


Anyway, it’s all about VW these days and the skulduggery over false data on emissions from ONE of their diesel engines. No one is attempting to condone this unacceptable behaviour. However the reaction initially was very violent. Yes there are potentially 11 million cars potentially involved. The situation is of course exacerbated by the fact that VW have fallen foul of the US authorities. We must remember that the law in the US is the greatest business on earth and litigation will be rife – hence the hysteria. There will of course be ramifications in the UK and the EU as well and one suspects that China, who receives 40% of VW’S exports, will have things to say. VW have made provisions for £4.2 billion in terms of fines and payments. The shares fell 35% in the first two days (€18 billion loss in value) but recovered by 6% in the hope that CEO Martin Winterkorn would bite the dust and another 6% this morning in expectation that other heads, responsible for this heinous misdemeanour, would role. They have to be exposed by the new CEO sooner rather than later for VW to have any chance of restoring the standing of its tarred brand quickly. We hear Friday is D-Day!


Who are in the vanguard to take over? Only two names to date – Matteus Mueller – CEO of Porsche one of 3 major shareholders (the others being the Workers Council in Wolsburg and the Lower Saxony Government) and Herbert Diess (formerly with BMW) have been flagged up. The latter surely would be seen as a more transparent appointment? Corporate governance in Germany is a little like Japan – very incestuous. There appears to be no real transparency. Information rarely comes out of a very tight drum – hardly surprising when unions and government are omnipotent in corporate affairs as dominant shareholders. When one thinks about it NO MAJOR German operation has ever been acquired by an overseas predator apart from Mannesmann, which was acquired by Vodafone for €220 billion back in 2000! That price was madness and there was no government ownership.


This VW scandal has all the hallmarks of the ‘BP Saga’ and the vilification that befell Phillip Morris in the US. VW will be aware of this and need to act quickly to avoid an unnecessary fall-out that ends up being financial carnage. VW need to adopt the attitude – “We’ll be damned if we are going to allow the US to destroy our company!” As auto engineers Germans are peerless! VW must have the drains up NOW!


UK companies posting results –   Thursday – THOS COOK, EUROMONEY, SVG CAPITAL, DMGT, WS ATKINS, Friday – MJ GLEESON

US companies – Thursday – JABIL CIRCUITS, NIKE





David Buik – market commentator



Panmure Gordon & Co


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