TODAY’S FAYRE

TODAY’S FAYRE – Sunday, 1st November 2015

 

Bent double, like old beggars under sacks,

Knock-kneed, coughing like hags, we cursed through sludge,

Till on the haunting flares we turned our backs

And towards our distant rest began to trudge.

Men marched asleep. Many had lost their boots

But limped on, blood-shod. All went lame; all blind;

Drunk with fatigue; deaf even to the hoots 

Of tired, outstripped, Five-Nines that dropped behind. Gas! Gas! Quick, boys! –

An ecstasy of fumbling, Fitting the clumsy helmets just in time;

But someone still was yelling out and stumbling,

And flound’ring like a man in fire or lime . . .

Dim, through the misty panes and thick green light,

As under a green sea, I saw him drowning.

In all my dreams, before my helpless sight,

He plunges at me, guttering, choking, drowning.

If in some smothering dreams you too could pace

Behind the wagon that we flung him in,

And watch the white eyes writhing in his face,

His hanging face, like a devil’s sick of sin;

If you could hear, at every jolt, the blood

Come gargling from the froth-corrupted lungs,

Obscene as cancer, bitter as the cud 

Of vile, incurable sores on innocent tongues,

My friend, you would not tell with such high zest 

To children ardent for some desperate glory,

The old Lie; Dulce et Decorum est

Pro patria mori.”

 

Wilfred Owen – soldier & Poet – 1893-1918

 

On Friday I ticked another box. I went racing at Wetherby. I knew it was a grade one racecourse, but my travels had never taken me there despite having had two runners there 20 years ago. What a magnificently kept racecourse it is and the Charlie Hall Chase always gets the real NH season off to a cracking start, as was proved yesterday when ‘Cue Card’ rose from last year’s ashes of disappointment to land the spoils. That just leaves Cartmel, Yarmouth, Fos Las and Chelmsford to make for a full house.

 

What an amazing game of rugby to grace the final of the Rugby World Cup at Twickenham. A fast, furious open game with both sides hell-bent on winning in style. It just transpired that the All-Blacks just had that extra touch of class to see them through with a little in hand at the end (34-17), though both teams made an immense contribution to the final! All Northern Hemisphere teams have so much to learn. England, in particular have gone backwards since their great triumph ‘down-under’ in 2003.

Though many investment geeks were looking for economic guidelines such as the FOMC interest rate prognosis, 3rd quarter US GDP, UK mortgage lending & house price data and stimulus packages from China and Japan to influence any decisions they may require to ‘back the truck up’ and understandably so, it was the brittle inconsistency of the earnings season on both sides of the pond and the below par interim results from the UK banks that could have caused considerable consternation.  As it transpired US markets shrugged off the rather disappointing 3rd quarter GDP number of just 1.5% and the increasing likelihood that the FED would increase rates symbolically by 0.25% in December and then probably sit on their hands for a year. Last week equities were massaged and encouraged by Central banks comments and actions. The S&P added 0.81% on the week BUT it was up 8.7% in October. It was only eclipsed by the heavily stimulated Nikkei, which added 9.7%. European bourses rallied by an a average 8.3%, whereas the FTSE 100 only added 4.9%, weighed down by mining, oils and banks!

Though this years’ profits, as a sector, were up, each of the reporting banks disappointed last week for a variety of reasons. In the case of Lloyds Banking Group, it was the ongoing PPI issue that irritated analysts. £500 million was added to the existing tally to make a total of £13.9 billion, almost twice as much as any other bank, with claims for interest on interest and credit cards to come. I must of course doff my titter to Morgan Stanley and Chancellor Osborne for dribbling out a not insubstantial taxpayers’ shareholding in this bank from 25% to 9.89% in the last year with the minimum of fuss. I am amazed that the likes of Hargreaves Lansdown and others have seen over 250k applications for Lloyds’ shares at a 5% discount next year. Even with the discount it does not look the most exciting investment in the world to me. There are still too many skeletons that keep falling out of the cupboard.

Though Barclays Chairman Jon McFarlane has fought like a tiger to reinvigorate a somewhat disenchanted and unfulfilled management team, this bank has looked rudderless. McFarlane may be the most energetic of operators but at 66 he is hardly Charles Atlas and thank goodness he has to his cost had to learn that the art of good management is delegation by appointing Jas Staley as CEO from 1st December 2015. Investors were underwhelmed that another £1 billion of capital to supplement its ring fenced operations was required together plus just short of a £1 billion to meet foreign exchange, interest rate and mortgage misdemeanours and liabilities. However politically correct and well-meaning the appointment of Sir David Walker, Marcus Agius, Bob Diamond and Antony Jenkins were, they turned out to have negative connotations. Despite the contempt Mr Diamond was held in, it would be churlish and unbalanced to forget that over a decade Barcap contributed between 40% and 60% of Barclays’ profits. In the case of RBS it is work in progress. A 3rd quarter pre-tax profits of £951 million was posted but there were still some weeping carbuncles of concern with PPI, foreign exchange and asset sales, despite RBS having ditched the final 20% of Citizens Bank for $2.7 billion. The taxpayer has seen its stake drop from 78% to 73.9%. The Chancellor is keen to shift the taxpayers’ stake ASAP, but patience may be the order of the day. RBS is still not fit for purpose and even though strenuous efforts have been made to expand SME lending, but genuine demand is still not these. In the last 5 working days Barclays has surrendered 8.1%, Lloyds Banking Group 5.8%, RBS 3.3% and HSBC, which reports on Monday at 8.30am 1.7%

 

Concern has also been expressed by BOE’s Governor Mark Carney at the acute increase in house prices and the fact that ‘a house price bubble’ threatens. One thing seems certain that with 60% of bank assets lent in the way of mortgages the prospect of a really sharp in increase in interest rates is very unlikely unless the authorities want mortgages to keel over and die, thus sending the economy into a vortex of despair.

 

Oil prices have dropped 40% in the last year and that was reflected in the results of Royal Dutch Shell and BP. Shell suffered the most with an $8 billion write-off of aborted development plans. The acquisition of BG is still expected to go through. However the financial mechanics of this deal is now under considerable strain. Many fund managers also feel that it is unlikely that Shell can sustain a yield of 7% for much longer. Though crude oil has fallen dramatically, petrol has only fallen 14%! There was still plenty of M&A gossip and activity last week Rumours abounded that Pfizer was thinking of jumping in to the sack with Allergan, which bought Activus. Pfizer had their interest in Astra Zeneca contemptuously dismissed in the spring. So it looks though that GSK, which posted greatly improved numbers on Thursday has also had the heat taken out of its kitchen as has Shire, which announced a new eye drug last week. However CEO Sir Andrew Witty will need to placate shareholders that there is an adequate pipeline of drugs in the wings.

 

 

Hyatt is running the ruler over Marriott, which saw IHG bounce out of the traps. Those short of substance to talk about kept droning on about of a possible takeover of Ocado, which no doubt saw Chairman Rose purr like a Cheshire cat! Even Imperial Tobacco came back on the agenda as a possible bid candidate. M&S, which leaked an idea that CEO Mark Bolland may sign on for another 2 years, announces half year numbers on Wednesday. A rather parsimonious £270 million pre-tax profit is expected. It is also felt that M&S may consider acquiring brands such as the White Company and Jaeger. M&S needs to deal with falling cloths sales, which may be down by 1.2% to 1.7% in the last trading period.

 

 

With Mark Carney and Kirstin Forbes seemingly keen to see rates on the rise; that could make the vote 5-4 at the next FOMC with McCafferty already committed and Weale requiring little encouragement. However many doubt that the housing market could take more than a symbolic rise. We understand from the Sunday Times that the Governor is on the war path on ‘cyber-crimes’ and hacking and will checking the defences of the largest financial institutions.

Monday – RYANAIR, HSBC (8.30am), Tuesday – JUST EAT, JARDINE LLOYD THOMPSON, WEIR GROUP, STANDARD CHARTERED BANK, DIRECT LINE, AB FOODS, Wednesday – M&S, GLENCORE, VEDANTA, PERSIMMON, OLD MUTUAL, L&G, STAGECOACH, JD WETHERSPOON, Thursday – EASYJET, SPIRENT COMMUNICATIONS, CRODA, RSA, AMEC, TATE & LYLE, ASTRA ZENECA, SAB MILLER, HIKMA, RSA, JUST RETIREMENT, PARTNERSHIP, SCHRODERS, Friday – INMARSAT, 3iiis

US companies posting interim results – VISA, LOEW’S, Tuesday – CIT, SPRINT, KELLOGG’S, HYATT, ZYNGA, GROUPON, Wednesday – MOTOROLA SOLUTIONS, WENDY’S, ALLERGAN, TIME WARNER, QUALCOMM, Thursday – METLIFE, MARATHON OIL, RALPH LAUREN, MOLSON COORS, PIXELWORKS, KRAFT- HEINZ, Friday – LIBERTY GLOBAL

ECONOMIC DATA – Monday – UK & EU PMI, Tuesday – UK CONSTRUCTION PMI, Thursday – BOE MPC, INFLATION REPORT, Friday – US NON-FARM PAYROLL DATA & UK INDUSTRIAL PRODUCTION.

 

David Buik

Panmure Gordon & Co

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