TODAY’S FAYRE – Sunday, 17th January 2016
“There is a smile of love,
And there is a smile of deceit,
And there is a smile of smiles
In which these two smiles meet.
And there is a frown of hate,
And there is a frown of disdain,
And there is a frown of frowns
Which you strive to forget in vain;
For it sticks in the heart’s deep core,
And it sticks in the deep back bone.
And no smile that ever was smil’d
But only one smile alone,
That betwixt the cradle & grave
It only once smil’d can be;
But when it once is smil’d,
There’s an end to all misery.”
William Blake – poet and painter – 1757-1827
TOMORROW IS MARTIN LUTHER KING DAY
Having read some extremely complimentary critiques of the Canadian/Irish film ‘ROOM’, we felt we should scuttle off to see it. We were not disappointed. This film is the story of the bond between parent and child. The mother has been imprisoned by ‘Old Nick’ in a shed for 7 years, where she was persistently molested, resulting in Jack’s birth 2 years later. ‘Ma’ has created a whole universe in ‘Room’ for 5 year-old Jack, where they have both lived for Jack’s whole life. But when Ma decides they have to escape, she risks everything to give Jack the chance to make a thrilling discovery, This film is a real tear jerker beautifully acted and it will come as no surprise if Brie Larson (Ma) and Jacob Tremblay (Jack) come up for ‘Oscar’ nominations.
What a wonderful weekend of cricket with England winning the series 2-0 in Johannesburg inspired by a brilliant spell from Stuart Broad when England really needs him he’s there to pull the rabbit out of the hat. In Australia Virat Kohli has just made a vintage hundred at the MCG. Stephen Smith may be world N: 1 batsman, but in terms of grace and style he does not hold a candle to Kohli, Root or Williamson.
Since the turn of the century we have seen massive falls in equities values – TMT in 2000/1; ‘9/11’, Iraq war in 2003, and then the financial crisis in 2008/9. They were brutal and in their own way they had a very marked effect on society. This year’s sharp reversal had been smouldering like a festering boil or carbuncle for about a year, but no one has really wanted to believe it. Dole queues in all mature regions had been falling. Stock markets had hit record levels; we knew that China had been economical with the truth about growth. There is little doubt that the Chinese authorities allowed the Shanghai Composite to be fuelled by the availability of copious amounts of credit for aspiring retail investors. This act of folly triggered a 150% gain for the Shanghai Composite between June 2014 and June 2015. This rally was encouraged despite the fact that China’s economy had started to slow measurably.
The necessary introduction of QE in 2009 and the maintenance of persistently low interest rates has contributed to, not only an unprecedented stock market rally, which restored much needed confidence, but it also led to an explosion of bank lending and the issuance of a gargantuan number of bonds. With inflation virtually non-existent, it has proved very difficult for many corporations to increase their levels of profitability. Many also believe that the FED has been guilty of poor management of forward guidance, which was meant to be constructive, but has actually turned out to be mischievous and counter-productive, much of it down to prevarication by the FED and its chairman Janet Yellen. Consequently many borrowers are under considerable duress to service their debt in a competitive environment of limited profitability. One sector, which has suffered badly in recent months has been the energy sector – not really very surprisingly. It seems very unlikely that against a background of declining global growth the FED will be able to implement its policy of wanting to increase rates by another three hikes of 25 basis points in 2016.
Yesterday, amongst the rubble from the carnage that manifested itself on the Street of Dreams, was the deeply distressing performance of the banking sector. Citibank’s results were hardly stellar but superficially they did not warrant the trashing of its share price – down 7.9%. JP Morgan, Wells Fargo, Goldman Sachs and Morgan Stanley also went in to reverse losing 3.2%, 3.63%, 3.56% and 8.5% respectively. Word on the street would have us believe that there is a surfeit of bad loans to the ailing energy sector, which has to pull back from any new exploration and development plans as well as production, resulting lower profits and redundancies.
It really has been the worst possible start to the year – in fact probably the worst since 1928. The Dow has lost 8.2%, the S&P 500 8.1%, the NASDAQ 10.8%, the DAX 11.5%, FTSE 100 7.1%, the Nikkei 9.9%, the Hang Seng 10.9%, Shanghai Composite 18% and the Shenzen 22%. Having heard so much positive news in recent weeks from Obama in his valedictory ‘State of the Union’ address, Mrs Yellen and the like that the US economy was in great shape, it was dispiriting to hear that retail and manufacturing activity had dropped in December. Energy costs had plunged 3.4% in December including at 23% fall in the cost of Diesel. We are even seeing shipping volumes dropping dramatically. Apart from RBS’s comments that markets could be cataclysmic – ‘sell everything’, SG’s Albert Edwards was also seen beating the same drum of despondency that he has been thumping for 25 years. BlackRock’s Larry Fink chucked his two cents worth in on Friday suggesting the retrenchment had not finished. I loved it when all these gurus pop their heads above the parapet when the horse has already bolted. Then Goldman’s Abby Joseph Cohen tried to sound upbeat on Thursday; she was ignored.
In the UK there were better numbers from J Sainsbury, Tesco, and Burberry, Ted Baker and even ASOS, but one swallow doesn’t make a summer. In the US some noticeable brands were larruped on Friday apart from the banks – Amazon -3.39%, Netflix -2.82%, Microsoft -3.99%, IBM -2.2%, Apple – 2.48% and Intel 9%! Oil fell 5% last week and the dropping of sanctions to Iran may exacerbate the problem. Commodities did not fare much better. Here in London BHP (-6.3%), thanks to $4.9 billion impairment cost fell 4% and Anglo American (-11%) and Glencore (-6.5%) were also in the doldrums. The alumni of US indices fell between 2.2% and 3% on Friday and the FTSE was easier by 2%.
Is this market heading in to genuine ‘Bear’ market territory? I don’t think so as volumes in the last 2 weeks have not been that great. If the FTSE goes below 5500, then the writing is probably on the wall. A few larger IPOS may be forced on to the back burner until sentiment improves. Clydesdale is thinking of proceeding at a rumoured knock down price, possibly lowering the value by as much as £1 billion. Apparently a decision by NAB and their advisors will be made this coming week.
My colleague and friend at Panmure Gordon, David McCreadie makes the following very interesting and amusing observation – somewhat poignant as markets hit the buffers!
“I can’t quite believe this but Sony have made a movie, Money Monster, based on CNBC’S Jim Cramer. It tells the story of a viewer whose latest trade didn’t work out very well. He goes after the host. What took them so long? With George Clooney in it, (you’ve never seen us in the same room together), Julia Roberts and directed by the lovely Jodie Foster. I’ll be going to see it anyway. I’ve often joked though about the ‘villagers and their pitchforks,’ rising up when they realise the impact of policy makers decisions, aided and abetted by commentators like Cramer, since the GFC and the massive transfer of wealth that has taken place since then from American citizens to Wall Street. I just didn’t envisage it happening with George Clooney wearing a suicide vest in a movie. There is a good side to this. Policy makers are slowly realising that they have messed things up and there is a dim and flickering hope that when markets collapse in the coming months, rather than another round of QE the Fed deploys a more intelligent use of resources to stimulate the economy at ground level rather than focusing on asset prices. That’s when we look at infrastructure stocks. The movie is due for release in May which ought to sync nicely with the market low.”
UK Companies posting results this week – Tuesday – UNILEVER, IG GROUP, BHP BILLITON, CAIRN ENERGY, EVRAZ, Wednesday – PETS-AT-HOME, GENEL, JD WETHERSPOON, WH SMITH Thursday – NCC. ST JAMES’S PLACE, BRITISH LAND, HALFORDS, LAND SECURITIES, SAB MILLER, ROYAL MAIL, MONEYSUPERMARKET, Friday – COMPUTACENTER, CLOSE BROTHERS.
US Companies posting interim results this week – Tuesday – BANK OF AMERICA, UNITED HEALTHCARE, CHARLES SCHWAB, MORGAN STANLEY, TIFFANY’S, NETFLIX, Wednesday – GOLDMAN SACHS, VILINX, Thursday – VERIZON, BANK OF NEW YORK MELLON, AMERICAN EXPRESS, STARBUCKS, SCHLUMBERGER, Friday – CITIZENS
Market Commentator – Panmure Gordon & Co