Monthly Archives: October 2016

TODAY’S FAYRE

 

TODAY’S FAYRE – Sunday 30th October 2016

“Let me take this other glove off
As the vox humana swells,
And the beauteous fields of Eden
Bask beneath the Abbey bells.
Here, where England’s statesmen lie,
Listen to a lady’s cry.

Gracious Lord, oh bomb the Germans.
Spare their women for Thy Sake,
And if that is not too easy
We will pardon Thy Mistake.
But, gracious Lord, whate’er shall be,
Don’t let anyone bomb me.

Keep our Empire undismembered
Guide our Forces by Thy Hand,
Gallant blacks from far Jamaica,
Honduras and Togoland;
Protect them Lord in all their fights,
And, even more, protect the whites.

Think of what our Nation stands for,
Books from Boots and country lanes,
Free speech, free passes, class distinction,
Democracy and proper drains.
Lord, put beneath Thy special care
One-eighty-nine Cadogan Square.

Although dear Lord I am a sinner,
I have done no major crime;
Now I’ll come to Evening Service
Whensoever I have the time.
So, Lord, reserve for me a crown.
And do not let my shares go down.

I will labour for Thy Kingdom,
Help our lads to win the war,
Send white feathers to the cowards
Join the Women’s Army Corps,
Then wash the Steps around Thy Throne
In the Eternal Safety Zone.

Now I feel a little better,
What a treat to hear Thy Word,
Where the bones of leading statesmen,
Have so often been interr’d.
And now, dear Lord, I cannot wait
Because I have a luncheon date.”

 

Sir John Betjeman – poet laureate- 1906-1984

 

There was a 9 point gap in the polls in favour of Hillary Rodham-Clinton, as we head towards the last week of this truly abhorrent Presidential election campaign. Donald Trump will be marginally cheered by the fact that the FBI will be taking another look at Mrs Clinton’s private email account for any evidence of classified information.  I fear, though, that Mr Trump may clutching at straws. Maybe the retired folk from Florida may just trigger a glimmer of hope for the former reality TV star and property magnate.

 

Hopefully we will see the last of Ed Balls on ‘Strictly’ last night. I must say in terms of reinventing himself as TV personality from all areas of life, he has been remarkably successful and all power to his elbow. Personally speaking I just don’t get it! I did not get it with Alastair Campbell and I don’t get it with ED Balls.  Millions of people did and do!

 

Apart from the Nikkei, which added 1.52% last week on the back of a weaker Yen, most global indices ended the period just marginally below the Plimsoll line in terms of losses. On-going concerns as to the outcome of this very tawdry US Presidential election, a very mixed compendium of US 3rd quarter earnings and some further terrifying jingoistic behaviour by Russia’s Putin have rattled investors’ cage. By the by Putin has played an absolute blinder in comparison to his rather luke-warm, disinterested and anaemia peers – Obama must be singled out for a thoroughly inept performance over the past 8 years for refusing to be engaged in an on-going conversation with Putin, with Merkel, Hollande and Cameron not that far behind in terms of inadequacy.

 

It is generally thought that FED Chairman Yellen will put rates up by 25 basis points in December. She and her committee will have been greatly encouraged by Friday’s GDP estimate of 2.9% for 2016 posted on Friday – better than expected as was the UK’s 2.3% for the year posted on Thursday, thanks to an eye-catching performance by its service sector. As for the UK, the BOE has been hard to read in the last 2 years as to its interest rate policy. According to Simon French, Panmure’s excellent economist – “There is now only a 22% chance of another cut from circa 65% at the August Inflation report. I assume as Governor Carney doesn’t like zero or negative that this would be a 20bp cut. Different people calculate this in different ways but I use the 1-year ‘Overnight interest rate swap’, rather than the 1 month normally to calculate any change expectations.” He further comments – “In terms of expectations I think with inflation expectations (3% in summer 2017) and GBP where it is, this feels about right.  However I never believed that a November rate cut was, on despite MPC guidance to the contrary, as if they did need to provide further stimulus before the February report.”

 

 

We have seen quite a marked climb in yields on government bonds in recent weeks – 10-year gilt yield has rallied from 0.52% to 1.25% in three weeks. Simon French is of the view that “equity market valuations in developed economies are vulnerable to gradual tightening by the Federal Reserve – but this process remains an extraordinary slow one. The case for a rapid breakout of higher yields ignores the divergence trade (ECB, BOE, PBOC, and BOJ) and that structurally deflationary factors compressing prices (ageing demographics, industrial overcapacity, public sector austerity).”  He further says – “There is a bias towards expecting changes to be swift and dramatic but in the case of the fundamental drivers of higher yields, but like Brexit, the transition to the new state will be slow and gradual, punctuated by periods where question marks emerge to challenge the thesis.”

 

Much of last week was taken up by two issues – the UK bank reporting season with LLOYDS Banking Group, Barclays and RBS providing a very mixed bag of tricks. But for the dreadful performance of the UK banking sector, the FTSE would be some away above the 7k threshold. These three banks have surrendered 26%, 25% and 40% respectively in value in the last year. Apart from another £1 billion provision for PPI, taking LLOYDS total to an eye-watering £17 billion, the results in isolation were not too bad. HM Treasury has already eased out another 1% to the private sector leaving just 8.99% to be disposed of. How lucky were retail investors not to be lumbered with 9% of this bank at around 70p despite a 5% discount. LLOYDS’ shares closed the week at 57p?

 

Barclays’ shares have rallied quite strongly in the past 5 months from 145p to 191p on Friday (31.7%) as CEO Jes Stanley starts to make his presence felt. Investment banking driven from New York did well and the Bald Eagle continues with its asset disposals and redundancy plans with a degree of competence. Africa has gone as has its stake in Visa Europe. RBS was again dogged with litigation and impairment charges plus the threat of further expensive fines at the hands of the US authorities for Miss-selling US mortgage backed securities. A loss for the quarter of £469 million was posted. At least Tier One capital stood at 15%. RBS failed to sell the 317 branches under the brand of Williams & Glyn. It was required to do so by the end of December. There have been 2 bites of the cherry since those carpet baggers, working under the name of ‘Project Rainbow’ tried an IPO of £1.5 billion, to be followed by an abortive sale to Santander. We understand that Clydesdale has recently made a bid but due diligence will not be completed by the end of December. Hopefully the EU will extend the period. Failure to complete this deal could cost RBS £1.5 billion. HSBC posts in numbers on Monday week. Having offered verbal concessions to Nissan, not surprisingly drug Titans, Astra and Glaxo would like similar guarantees.  I am not sure they will get them as their Dollar earnings are very considerable.

 

Tesco and Wm Morrison have enjoyed a strong rally in their respective share prices this year – more so than J Sainsbury, which posts numbers on Thursday week. It will be interesting to see how much of a contribution Argos has made. Acolytes of Alphabet were pleased with their earnings.  However Apple posted the first drop in sales for a decade and Amazon alarmed its followers over a slightly worrying festive outlook though the company will be employing 120,000 temporary employees. Nonetheless these three are massive contributors from the US tech sector.  This week we hear from Facebook.  We have seen two large IPOS withdrawn from the UK market as a results of market conditions – The £10 billion regurgitation of Telefonica’s ‘o2’ and the same for a £5 billion sale of Misys. So far this year there have been 49 IPOS. Those from the FTSE all-share have advanced by an average of 14.4% and those from AIM by 14.4% and small-caps by an average of 10%. In the wake of this IPO contraction, apparently Anglo American is considering a spin-off of some South African assets valued at £2 billion.

 

There has been plenty of speculation about the future tenure of Mark Carney as Governor of Bank of England.  Some politicians and luminaries have aired their views that the Governor has too many strongly held political views which he should maintain a neutral stance over. Though I, like many others, believe that ‘forward guidance’ is an unhelpful tool, whose track record globally is lamentable, I think he is a fine Governor, who has put together a strong team.  Any talk of his resignation or departure before his contract is up, should be greatly discouraged.  Any early exit would send the wrong signals to the rest of the world. FCA CEO Andrew Bailey has quickly come indirectly to the defence of Mark Carney in terms of his downbeat assessment of the UK’S economy by stating quite succinctly that “it’s not all over, yet!”

 

UK companies posting results this week – Monday – WPP, Senior, Centamin, Tuesday – Standard Chartered Bank, Go-Ahead, Moneysupermarket, BP, Royal Dutch Shell, Shire Pharmaceuticals, Weir Group Wednesday – JD Wetherspoon, Persimmon, Next, Just Eat, OneSavings Bank, Thursday – Inmarsat Wm Morrison, Smith & Nephew, Centrica, Prudential, Tate & Lyle, Randgold, RSA, Friday – Paddy Power Betfair, Informa

 

US companies posting interim results this week – Monday – Zimmer, Loew’s, Tuesday – Ford (sales), Pfizer, Kellogg, Pitney Bowes, Archers Daniel Midland, Match, Wednesday – Time Warner, Facebook, Thursday – Costco, Cigna, Hyatt Hotels, Kraft Heinz, Metlife

 

 

Economic data this week – Monday Chicago PMI, Tuesday – UK manufacturing PMI, US Manufacturing PMI, Wednesday – BRC Shop Price Index, UK PMI Construction, US FOMC statement, Thursday – UK PME Services, Inflation Report, MPC meeting

 

David Buik


Market Commentator – Panmure Gordon & co
+44 (0)20 7886 2775


Mobile – 0044 7788 144 877


Panmure Gordon & Co


One New Change | London | EC4M 9AF

TODAY’S FAYRE

TODAY’S FAYRE – Thursday 27th October 2016  

 

“How happy is he born and taught

That serveth not another’s will;

Whose armour is his honest thought,

And simple truth his utmost skill!  

Whose passions not his masters are;

Whose soul is still prepared for death,

Untied unto the world by care

Of public fame or private breath;  

Who envies none that that chance doth raise,

Nor vice; who never understood

How deepest wounds are given by praise;

Nor rules of state, but rules of good;  

Who hath his life from rumours freed

Whose conscience is his strong retreat

Whose state can neither flatterers feed,

Nor ruin make oppressors great;  

– This man is freed from servile bands O

f hope to rise or fear to fall:

Lord of himself, though not of lands,

And having nothing, yet hath all.”      

 

Sir Henry Wotton – poet – 1568- 1639

 

Thank goodness the Western world is just starting to wake up to the very real danger Russia imposes, as ‘The Big Bear’ threatens the very fabric of a peaceful society! I think the general public has been awake for years to this problem, but the West’s political paralysis and lack of real leadership has exacerbated this problem. Many admire John Kerry’s tireless efforts, but his futile attempts to win over Lavrov (and ergo Putin) make America look flaccid and impotent. President Obama should be very disappointed with his personal efforts on this most vital of roles he has, as Commander in Chief of the US! The efforts of Merkel, Hollande and Cameron have also been pitiful!

 

So there is a God! The head of the World Trade Organisation, Roberto Azevedon has vowed to ensure Britain will not face a trade “vacuum or a disruption”, however tough its exit from the European Union. He did not believe for one moment the Brexit vote was “anti-trade” and dismissed fears that Britain could suffer a sudden seizure of trade during or after its negotiations with the EU. At last someone in authority is starting to get it!

 

I have always been a huge fan of The John Lewis Partnership, Chairman Sir Charlie Mayfield and its exiting CEO, Andy Street. I have always admired their business ethics and culture and the way they involve all the staff as partners. It really works in retail. So the appointment from within of 43 year old Paula Nickolds, who will take over from Andy Street in January 2017, will be well received. She has worked for the retail group for 22 years, joining as a graduate trainee in the haberdashery of the Oxford Street store in London. She is perfect casting to modernise this very popular retail operation.

 

I fail to see how someone who falls to the ground against his/her will was not pushed or shoved.  Isaac Newton proved that perception to be impossible with that splendid apple.  So the EU and French police are right to have the drains up over Steven Wolfe’s misfortune.

 

Mark Carney was rather wistful and playful when recently talking to the House of Lords Committee. Will he or won’t he see the UK through the travails of BREXIT in his capacity as Governor of the Bank of England? Who knows?  People say that PM is at odds with Mr Carney.  I doubt that.  Her Birmingham speech was for the party faithful.  I doubt they have met more than a couple of times. The relationship between Osborne, Cameron and Carney is totally different to Mrs May’s rather arms-length relationship with Philip Hammond. I wish the Governor did not occasionally get sucked in to the political debate.  However he’s a fine diplomat. His chances of political appointment in Canada have rescinded with Justin Trudeau now very popular.  I think Mr Carney just needs to be loved and appreciated.  Put an arm round him and he’ll stay. The UK does not need a new Governor.  It would send out the wrong signal to the rest of the world.

 

This week has seen an amorphous of quarterly results on both sides of the pond – the good the bad and the indifferent. Yesterday Nintendo, despite its massive influence slightly disappointed. Santander was OK, though its UK earnings suffered under the fall of the Pound. SAP, Phillips and Bayer seemed to excel; Novartis disappointed and Heineken does not seem to be the force it once was. In London yesterday Lloyds Banking Group was the first bank to post its numbers. A profit of £1.9 billion was acceptable. A further £1 billion provision for PPI taking the total to £17 billion was unacceptable. The PPI game finishes in 2019, but hopefully the Black Horse can see the end of the tunnel before then. Tier One capital above 14% was comforting. Antonio Horta Osorio seemed full of the joys of spring in exhorting the government to spend on infrastructure to protect the economy. He also felt that the bank had not been adversely affected by BREXIT. The share price is still dire – down from 79p a year ago to 56p today. At least HM Treasury has sold another 1% of its stake taking its holding down to 8.99%. How retail investors will be pleased that they did not pick up the final 9% of the taxpayer’s stake at the 70p level, even with a 5% discount!  In the US, Apple’s efforts were hugely disappointing with the first quarterly fall in sales for a decade.  That was surprising as Samsung will have their Galaxy 8 ready to go by February 2017. Apparently some of the equipment required to make Apple iphones, like the glass front is made by Samsung. Christmas is important for Apple.  What a time to capitalise of Samsung’s temporary misfortune.

Yesterday the US main indices eased a smidgen over slight concern about the healthcare sector and Apple’s disappointing results (NASDAQ -0.5%). In London the FTSE 100 fell by 59 points to 6958 thanks in the main to a drop in value of the mining and oil sectors.  Whitbread also failed to satisfy its acolytes and eased by 4%. The fall has continued today – at 10.00am the FTSE 100 was down 20 at 6940, having hit just above 7000 at 9.25pm. The mood is sepulchral despite much better than expected GDP numbers – 3rd quarter +0.5% thanks to the robustness of the service sector and the forecast for the year is 2.3%. BT’S Gavin Patterson posted great numbers – profits +24% and dividend up 10%. BUT the pension deficit has risen to £9.5 billion.  Mr Patterson seemed ambivalent about the issue – totally unconcerned.  Analysts tend to disagree! Shares down 1.96%

Before commenting on Barclays, Deutsche Bank returned to profitability in the last quarter – a profit of €619 million – not spectacular but a start. Shares dipped a little to €13.29.  Let’s not forget the share price has rallied 30% in the last month or so. Barclays’ numbers were competent with a gross profit for 9 months of £2.9 billion. Tier One Capital was lower than I would have liked at 11.6%.  It must get above 12%. There was a £600 million PPI impairment cost.  The bank is selling property and cutting expenses with many redundancies completed and in the pipeline. New York remains the spearhead for investment banking which remains very profitable. Until this morning Barclays share price had fallen 27% in the last year.  However there had been a  22% rally in the last 3 months admittedly from a very low level – just below crisis level of 148p in 2009. Today the shares are up 1.98% at 185p. CEO Jes Stayley is slowing making a very favourable impression.

 

UK companies posting results this week –Thursday – Barclays, Debenhams, BT, DS Smith, C&C, Bloomsbury, Kaz Minerals, Inchcape, Friday – WPP, RBS

US companies posting interim results this week –Thursday – Raytheon, Amgen, Altria, Blackstone, Bristol Myers Squibb, Conoco Phillips, Marathon Oil, Amazon, Linkedin, Friday – Xerox, Abbvie, Exxon Mobil, Chevron, MasterCard, Hershey, Weyerhaeuser   Economic data this week – Thursday – UK 3rd quarter GDP, Initial Jobless Claims, Friday – UK lending & money supply, US Michigan Consumer Confidence, US GDP

 

 

David Buik Market Commentator – Panmure Gordon & co +44 (0)20 7886 2775 Mobile – 0044 7788 144 877 Panmure Gordon & Co One New Change | London | EC4M 9AF

David Buik]]6 Market Commentator

D +44 (0)20 7886 2775 Panmure Gordon & Co  One New Change | London | EC4M 9AF | United Kingdom www.panmure.com

MARKET UPDATE

It is just about 2.35pm. The FTSE 100 is up 60 points at 7047, thanks to weaker Sterling, having been 30 points lower at 7017 30 minutes ago. It’s been the mining sector that has been on the bridle with Anglo’s encouraging statement providing the impetus for a 4% rally with Glencore in close order up 4.5%. Also cyclical sectors have been in demand.

 

Otherwise a few results have driven price dissemination – Whitbread was down 3.9% over the perceived under-performance of London as a catchment area. GKN just slightly under-performed in terms of outlook – down 2% in value. On the positive side, St James’s Place, a stock that Panmure’s Barrie Cornes has admired for some time is up 2.5% and National Express has done even better – up 3.66%. Carpetwright was initially down 2% but is now up 0.64%. There was also a wonderful fashioned hostile takeover bid – no messing – no cat and mouse – 50% premium resulting in MP Evans adding 46%. Hopefully job done!

 

Most people had more interest in US earnings with their necks cricked looking across the Atlantic at those reporting. Procter & Gamble (+4.34%) were first out of the traps beating expectation on EPS 103 cents against 98 cents. Merck (+0.54%) also beat consensus – 107 cents against estimation of 99 cents. United Utilities (+1.2%) was again a winner 47 cents against 37 cents and GM’s sales were up just over 8% though its shares were down 2% in early skirmishes. DuPont pleased their acolytes with EPS of 34 cents against 21 cents. Eli lily (-2%) did not pass muster 86 cents against hopes for 96 cents. Also Caterpillar lowered guidance but results were better than expected +1.9%. The DOW was down 18 points at 2.35pm

TODAY’S FAYRE – Tuesday 25th October 2016

“Season of mists and mellow fruitfulness,

Close bosom-friend of the maturing sun; C

onspiring with him how to load and bless

With fruit the vines that round the thatch-eves run;

To bend with apples the moss’d cottage-trees,

And fill all fruit with ripeness to the core;

To swell the gourd, and plump the hazel shells

With a sweet kernel; to set budding more,

And still more, later flowers for the bees,

Until they think warm days will never cease,

For summer has o’er-brimm’d their clammy cells.

 

Who hath not seen thee oft amid thy store?

Sometimes whoever seeks abroad may find

Thee sitting careless on a granary floor,

Thy hair soft-lifted by the winnowing wind;

Or on a half-reap’d furrow sound asleep,

Drows’d with the fume of poppies, while thy hook

Spares the next swath and all its twined flowers:

And sometimes like a gleaner thou dost keep

Steady thy laden head across a brook;

Or by a cyder-press, with patient look,

Thou watchest the last oozings hours by hours.”
  John Keats – poet –1795-1821

 

The movement of homeless immigrants from their ghetto near Calais yesterday and the forthcoming dismantling of the ‘Jungle’ today is a terrible indictment of our society. It is easy to be wise after the event but the hostilities starting in Iraq going back to 2003 made it abundantly clear that a stampede to civilisation from the Middle East and North Africa in to Europe was a ‘short-priced’ certainty – yet no contingency plans – hence desperation and sorrow!

French-speaking Wallonia from Belgium, one out of 28 members could not agree to the trade deal with Canada after seven years of bartering (though there is a 5% chance of a change of heart). Pitiful! What does that tell us? No chance of the UK dealing satisfactorily with the EU over its exit or, probably more the case that it is impossible for 28 members of a club to agree a deal on anything, if they can’t even decide what they want for breakfast. Perhaps it might be better for the UK to just say ‘goodbye’ and negotiate individual trade deals with all the members, all of whom from a pragmatic perspective, should remain our friends. That comment will wind up the obsessive ‘single-market’ acolytes. However it might just be the only solution.

 

Eurozone agrees €2.8 billion ‘bail-out’ for Greece. Soon there will be nothing left of the can which has been kicked down the Streets around the Piraeus for much of the last 5 years!

 

Markets in Europe were rather mixed. Yesterday the FTSE eased by 0.49% thanks to lack-lustre performances by the oil and mining sectors. The defense titan Cobham posted yet another profits warning resulting in its shares nose-diving by 13%. After Sunday’s announcement in regards to its future, retailer French Connection seemed to attract plenty of interest from rumoured investors, which saw its share price rally by 13%. Unfortunately for BATS, Fitch the rating agency stuck its nose into the tobacco giant’s business, where it was not appreciated. Fitch said that the purchase of the remaining 58% of Reynolds American could cause BATS to lose its ‘A’ credit rating because of excessive debt.

 

Conversely the DAX added 0.47% nudging a recent ‘HIGH’ and the CAC grabbed in 0.36% in value. So far 182 S&P 500 constituent companies have posted results and 78% have been expectation, though one often wonders whether expectations have been posted so that they can be beaten. Today there are a slew of earnings, which will give a little more guidance as to corporate profitability. The three main US indices closed up by 0.5% with some credit going to decent US manufacturing data. However, in fairness to the NASDAQ, it added 1%.

 

Much of the market’s attention was focused on the $84.5 billion AT&T deal to buy Time Warner. Though there will be enthusiasm for the deal – the synergy being obvious, with AT&T having access to 100 million users, this looks like a regulation minefield and a debt laden quagmire. I think we could be talking about this in a year’s time. However I think the idea will trigger others in to action. In the UK expect the magnifying glass to be more than just glossed over ITV and Sky! I still cannot forget the day in 2000 when AOL bid $75 billion for Time Warner. The joint value of the 2 companies at the height of the tech bubble rose to $226 billion! In 2002 AOL wrote off $99 billion of goodwill and by the end of that year the joint venture was only valued at $20 billion! The tech bubble had well and truly burst!

 

Talking of regulation it is interesting to observe in today’s FT the degree of protectionism that has been invoked by countries within the EU, US and UK against Chinese predators on deals totalling $40 billion in value, which may or have been blocked. One of those deals in China-Chem’s acquisition of Syngenta which looked like it was about to hit the buffers. However it was announced this morning that that China is prepared to make some concessions to get the deal through, though it may not be consummated until early 2017.

 

Asia had a mixed day. GDP figures were somewhat dispiriting in South Korea. The ASX closed up 0.6% with the NIKKEI better by 0.75% thanks to a weaker Yen. Towards the close the Shanghai Composite was up a smidgen 0.1% and the Hang Seng was down a similar amount. At 9.30am the FTSE 100 was up 40 points at 7025. Whitbread posted a steady set of numbers with Alison Brittain the new CEO in the plate. The performance of London was slightly worrying as a region; so investors took the shares down 2.5%. Whitbread’s shares have fallen from £50 to roughly £38 in the last year with Panmure’s Anna Barnfather currently rating the stock as a ‘HOLD’. Five years ago Whitbread shares stood at £15. Anglo American pleased its acolytes today. Shares rose 4.25% on good production numbers mainly nickel and iron ore, to 1110p – up from 226p in January 2016 – Not a bad little ‘Arfur Daley!’ St James’s Place also performed with aplomb – +2.5% with Panmure’s Barrie Cornes rating this financial titan a ‘BUY!’

 

UK companies posting results this week – Tuesday – Whitbread, St James’s Place, Anglo-American, GKN, Carpetwright, National Express, Pentair – Wednesday – Lloyds Banking Group, Genel, Cobham, GSK, BAT, Antofagasta, Metro Bank, Bunzl, Thursday – Barclays, Debenhams, BT, DS Smith, C&C, Bloomsbury, Kaz Minerals, Inchcape, Friday – WPP, RBS,

  US companies posting interim results this week – Tuesday – Whirlpool, Baker Hughes, Apple, Sprint, GM, Procter & Gamble, United Technologies, 3Ms, KKR, Valero Energy, JetBlue, Lockheed Martin, Corning, Juniper Networks, AT&T, Wednesday – Biogen, Boston Scientific, Coca-Cola, Comcast, Northrop Grumman, General Dynamics, Boeing, Dolby Systems, Thursday – Raytheon, Amgen, Altria, Blackstone, Bristol Myers Squibb, Conoco Phillips, Marathon Oil, Amazon, Linkedin, Friday – Xerox, Abbvie, Exxon Mobil, Chevron, MasterCard, Hershey, Weyerhaeuser

  Economic data this week – Tuesday – BBA Mortgage applications, Preliminary GDP, Wednesday – UK Consumer Confidence, Thursday – Initial Jobless Claims, Friday – UK lending & money supply, US Michigan Consumer Confidence, US GDP

 

 

David Buik Market Commentator – Panmure Gordon & co +44 (0)20 7886 2775 Mobile – 0044 7788 144 877 Panmure Gordon & Co One New Change | London | EC4M 9AF

“REFLECTIONS OF ‘BIG BANG’ 30 YEARS AGO – THURSDAY 27th October 1986”

“REFLECTIONS OF ‘BIG BANG’ 30 YEARS AGO – THURSDAY 27th October 1986”

By David Buik – Panmure Gordon & Co

 

In August 1986, my colleagues and I at Godsell, a subsidiary of Exco International invited Cecil Parkinson, the then Secretary of State at the DTI to lunch with some clients, with a view to being briefed over the government’s official interpretation of ‘BIG BANG’ and what ministers hoped to achieve.  I doubt that we could have had a more charming lunch guest.  The DTI had a mandate to finally erase a cartel of fees and brokerage charges within the financial sector, which were bordering on illegal and in danger of damaging the City of London’s reputation. Also at that time market participants seemed to be cocooned within a fortress of protectionism. However, it was less than apparent that Cecil Parkinson had much of an inkling of how dramatic the sudden deregulation of financial markets would have on London as the global epicentre for financial services.

 

The deregulating included changing the role of stockjobbers and stockbrokers on the London Stock Exchange. Business through the LSE was be conducted through market makers or agency brokers.  It was possible for one company to do both, provided ‘Chinese walls’ were erected. Market adopted a much more competitive approach with the demise open-outcry and the introduction of electronic, screen-based trading. ‘Big Bang was the result of an agreement in 1983 by the Thatcher government and the London Stock Exchange to settle a wide-ranging anti-trust case that had been initiated during the previous government by the Office of Fair Trading against the London Stock Exchange under the Restrictive Trade Practices Act 1956.

 

By 1986, London, as Europe’s leading financial centre, was already under a ‘wet sail’ for two major reasons.  Firstly in the ‘70s London assumed the mantle of the home of the ‘off shore’ Euro Dollar market.  By the end of that decade there were nearly 300 trading banks in London, with 26 Japanese banks easily the most prominent in terms of raising deposit and trading fixed interest assets. Markets exploded with activity! However the abolition of exchange control in 1980 was an even more influential act than ‘BIG BANG!’  PM Margaret Thatcher and Sir Geoffrey Howe, the Chancellor pulled the gun trigger that the UK was at last open for international business across the spectrum.

 

Global financial institutions were given plenty of notice as to the UK Government’s intentions over deregulation. So those banks with the deepest pockets were weighing up the ‘pros and cons’ as to who would make the ‘best fellows!’ It was fairly obvious that there were going to be far too many markets makers. However very few wanted to miss out. So out came the cheque books.  At least 30 years ago the amount of money that found its way in to the partners or shareholders of many financial institutions that were purchased bore little resemblance to the amount of money that was made as a results of ‘Big Bang.’ The mushrooming of the derivative markets in the late eighties plus the gargantuan level of M&A activity, much of it centred around the IPOS of government owned services such as British Gas, British Airways and the privatisation of many building societies such as Halifax, Abbey National, Northern Rock and the like in the ensuing years helped the explosion of investment banking activity and market making.

 

The likes of Salomon Brothers, Goldman Sachs, Deutsche Bank, JP Morgan, ABN Amro, Lehman and Nomura Securities were attracted to London by the opening of LIFFE in 1982 under the canny chairmanship of Sir Brian Williamson to pit their wits against the existing establishment – Barclays, Midland, NatWest and Lloyds. LIFFE was pivotal in the expansion of fixed interest, equity and option markets. At that time HSBC was still a sleeping giant in London. Citibank, Chase Manhattan, Chemical Bank and Bankers Trust were prominent in money and fixed interest markets, but had yet to show their teeth in equities and M&A activity.  

 

So the chase was on. Wedd Durlacher and Ackroyd & Smithers were key as the two man stockjobbers.  Wedd fell comfortably in to the embrace of Barclays, who also bedded down with De Zoete & Bevan. Swiss Bank Corporation swept up Warburg, who had already agreed terms to buy Akroyd & Smithers, Mullens & Co and Rowe & Pitman.  Soon after this group was acquired by UBS, who had added Phillips & Drew and Paine Webber into their portfolio. These two seemed initially to be the two strongest units and they referred to each other with disparaging affection as ‘BeezieWeezie’ & ‘WARMCRAP.’ However Deutsche was having none of it and Morgan Grenfell, Pinchin, Denny, Pember & Boyle and Bankers Trust were acquired under the leadership of Edson Mitchell. Citibank, not to be out-gunned, pooled resources with Salomon Brothers and part of Schroder. HSBC took its time ‘to get hold of the bit’, but galvanised themselves into action by buying James Capel, Chemical, Midland Bank, which had swept up Samuel Montagu and W Greenwell & Co.  Chase Manhattan was less ambitious in buying Vickers Da Costa.  NatWest settled unambitiously for Fielding Newson Smith. ABN found common ground with Hoare & Co and RBS found solace with Charterhouse Japhet. Lloyds Bank tried to grow organically without much success. Hill Samuel was slow out of the blocks but eventually a few years later found love with TSB, but brought nothing to the investment banking party. Lazard expressed no interest in competing; nor did Cazenove & Co – a good result for them and Schroders kept hold of their fund management operation.

 

It soon became obvious that there was nothing like enough business to go around, even though business was expanding.  Never was it more obvious than the Gilt market.  At the end of 1986 there were no less than 21 GEMMS (Gilt Edge Market Makers) and 4 Inter-dealer-brokers. The New York bond market was ten times bigger London’s Gilt market. They had the equivalent of 5 market makers. I once asked Nomura’s CEO Tonamura-San why he had not thrown his hat in to the Gilt ring, His retort was classic – “Ah, David-san – It is a professional market – Too small for Nomura to be a big player.  I am good enough to play baseball with you in Regents Park, but not cricket at Lord’s!” Within a matter of a couple of years, the market was dominated by about five global players.

 

The whole culture of trading and customer relations during this embryonic time changed unrecognisably.  Markets became very much more competitive. The big players quickly started to dominate. Official regulation made its presence felt with Chinese Walls being strictly observed.  Brokers and market makers quickly learned that they were working for their employers, as it became more apparent that clients were becoming increasingly price and cost conscious. P&L and bonuses ruled OK! The bonus culture changed dramatically and became significantly more meaningful. Income tax was reduced from 83% to 60% in 1984 and to 40% in 1986. The fact that one was now taxed on spending ability rather than ability to earn contributed greatly to creation of wealth, despite the fact that CGT was introduced at the same time.

 

The one story that confirmed the change in business culture and procedure was the Guinness/Distillers saga. In 1986 Guinness, run by Ernest Saunders thwarted Jimmy Gulliver’s Argyll Foods from buying Distillers. Guinness, advised by Morgan Grenfell mounted a $4.1 billion bid for Distillers, using what was termed as unorthodox help to assist with the purchase of shares, resulting in 4 people – Saunders, Sir Jack Lyons Gerald Ronson and Anthony Parnes being given prison sentences – no more ‘wink and the nod’ and no more manipulation! 

 

TODAY’S FAYRE

TODAY’S FAYRE – Thursday 20th October 2016

 

 

When I have fears that I may cease to be

Before my pen has gleaned my teeming brain,

Before high-pilèd books, in charactery,

Hold like rich garners the full ripened grain;

When I behold, upon the night’s starred face,

Huge cloudy symbols of a high romance,

And think that I may never live to trace

Their shadows with the magic hand of chance;

And when I feel, fair creature of an hour,

That I shall never look upon thee more,

Never have relish in the faery power

Of unreflecting love—then on the shore

Of the wide world I stand alone, and think

Till love and fame to nothingness do sink.”

 

 

John Keats – poet –1795-1821

 

 

I know the margin of victory for the ‘BREXITEERS’ was narrow.  I accept that 16 million voters are dispirited. However that is democracy! The rhetoric on racism is despicable and some of the talk on immigration is over the top and excessively visceral.  Immigration, properly policed, is brilliant for UK PLC. It has been proven without question. The visual media, virtually to a man, are ‘remainers’, despite protestations to the contrary that their presentations are balanced.  Viewers see it, feel it and occasionally hear it. Whatever a few people think, the UK is not going to change its mind. Dream on! PM May is in a bit of bind over with the EU in attempting to deal sensibly with some understandably uncompromising individuals. Maybe I am being naïve, but when she goes to Brussels, other European capitals or meets EU politicians, couldn’t the media be a tiny bit supportive, rather than subvert what she is trying to do in such a sour manner!

 

The test match in Chittagong has been compulsive viewing. The wicket has been interesting to say the least.  The bounce has been variable and when the spinners have pushed the ball through, it has turned sharply. Bangladesh play good cricket on this kind of surface and are more than giving England a run for their money. As I write, the brilliance of Stokes and Bairstow, who have mastered the conditions better than most, may not be enough to avoid defeat.

 

Lovely bit of spin by BBA’S Anthony Browne that bankers are quivering to leave London and head for Europe if BREXIT negotiations are hard. The Observer, virulently ‘Remainers’, has yanked the warning chain. Mr Browne is right that contingency plans will be made to move people out of London in their thousands at gargantuan expense and against their will. However at the end of the day it is all about negotiation. Frankly Frankfurt is a town of 750k and Paris a city of 5 million.  People in financial services are more comfortable speaking English and they love living here and London is not going to surrender 70 years of infrastructure without one hell of a scrap. This is posturing and project fear rearing its ugly head again.  A bit more clarity from the government would help to allay fears.

 

When looking at the performance of the main indices last week (S&P 500 -0.3%, FTSE +0.1%, European bourses +1.3% and NIKKEI +1.95%), one could be forgiven for thinking that it was a lack-lustre period apart from Germany, France and Japan.  As we all know that would have been a poor assumption.  Investors have had to digest and digress about the appalling US Presidential debate in Las Vegas last Wednesday and how fearful the outside world views these candidates.  UK PM May made her first official visit to the EU and the reception was courteously frosty.  Let me tell that boorish Juncker, Mrs May will be no pushover so maybe it would be better for all if he learnt some diplomacy and some basic manners.  There was also a major debate across the world on interest rates, the threat of inflation and the long-term role of QE.  Should that facility be reined in by the world’s main central banks? Then there was the 3rd quarter earnings season both in the US and Europe to contend with – Adequate, but not spectacular.

 

Finally there were two major M&A deals in the pipeline which certainly keeps the smouldering embers of expectation burning. BAT, whose main brand is Lucky Strike is negotiating to buy the remaining 58% it does not own of Reynolds American (Camel) in a $47 billion deal. Reynolds share price rallied by 14% and BATS was down -0.3% on Friday. The market also heard that AT&T were in advanced talks to buy Time Warner – owners of HBO, Warner Bros and CNN in an $74 billion deal, AT&T (-3%) was unsuccessful 2 years ago but are keen to add Time Warner (+7.8%) to their portfolio which already has DirectV.  This will go some way challenging T-Mobile and Verizon in all areas of entertainment. The tablet and the mobile is the way forward!

 

Despite the rather neutral behaviour of UK equity markets last week it is as well to take stock of what has happened since 23rd June 2016, the FTSE is up 13% but down 5% in Dollar terms and the FTSE 250 is down 14% in Dollar terms. There are also signs of investors pulling out of emerging market bonds and more worryingly out of UK stock funds, due to uncertainty over hard BREXIT. Ahead of the banking reporting season this week, RBS (+10% this week), Standard Chartered (+8.2%) and Barclays (+7.7%) were under a bit of a wet sail.  However Lloyds Banking Group which reports on Wednesday will not be without issues. Its pension hole may be growing and many expect a £1.2 billion impairment charge to meet this liability which affects 275k employees and retirees. Lloyds may now think twice about buying MBNA In the case of RBS on Friday, the EU (ha!ha!) will give this bank until the end of December to sell its 300 branches, which should have gone in Williams & Glyn and then on to Santander, now run by Nathan Bostock.  But that idea appears to have been shelved or it has hit the buffers.  There may be a deal with Virgin, Clydesdale and Yorkshire or the EU will do its worst unless Philip Hammond interjects. RBS will also have to make provision for a $10 billion fine or a significant amount for miss-selling in the US.  We will be looking to Barclays to see how the disposal of non-core assets is getting on and the downgrading of investment banking apart from New York. CEO Jes Stayley has started to make his mark.  Last week Laird the software operator surrendered 46% of its value and Keller and Senior gave up double digits of value for sharp profits warning. Pearson failed to impress with its update – down 6.9%

 

It will upset the ‘remainers’ but GDP posted on Tuesday is likely to hit 1.8% in 2016 and 1% in 2017 rather than the rather parsimonious 0.5% suggested by many economists.

 

Finally to the Sir Philip Green saga.  Sir Philip always wants a deal!  This issue that has persuaded Parliament to ask the authorities to strip of his knighthood, should have nothing to do with a deal.  We all know that he has done nothing illegal.  But it is generally felt that he is guilty of sharp practice or moral insensitivity. To fail to agree with the Trustees a figure to fill in the pension hole after 5 months is too long. People have run out of sympathy.

 

UK companies posting results this week – Monday – Petra Diamonds, Tuesday – Whitbread, St James’s Place, Anglo-American, GKN, Carpetright, National Express, Pentair – Wednesday – Lloyds Banking Group, Genel, Cobham, GSK, BAT, Antofagasta, Metro Bank, Bunzl, Thursday – Barclays, Debenhams, BT, DS Smith, C&C, Bloomsbury, Kaz Minerals, Inchcape, Friday – WPP, RBS,

 

US companies posting interim results this week –  Monday – Visa, Tuesday – Whirlpool, Baker Hughes, Apple, Sprint, GM, Procter & Gamble, United Technologies, 3Ms, KKR, Valero Energy, JetBlue, Lockheed Martin, Corning, Juniper Networks, AT&T, Wednesday – Biogen, Boston Scientific, Coca-Cola, Comcast, Northrop Grumman, General Dynamics, Boeing, Dolby Systems, Thursday – Raytheon, Amgen, Altria, Blackstone, Bristol Myers Squibb, Conoco Phillips, Marathon Oil, Amazon, Linkedin, Friday – Xerox, Abbvie, Exxon Mobil, Chevron, MasterCard, Hershey, Weyerhaeuser

 

Economic data this week – Monday – CBI realised sales, Tuesday – BBA Mortgage applications, Preliminary GDP, Wednesday – UK Consumer Confidence, Thursday – Initial Jobless Claims, Friday – UK lending & money supply, US Michigan Consumer Confidence, US GDP

 

David Buik


Market Commentator – Panmure Gordon & co
+44 (0)20 7886 2775


Mobile – 0044 7788 144 877


Panmure Gordon & Co


One New Change | London | EC4M 9AF

 

David Buik

Market Commentator

 

D +44 (0)20 7886 2775

Panmure Gordon & Co 
One New Change | London | EC4M 9AF | United Kingdom
www.panmure.com

 

SIR PHILIP GREEN – “LET’S HOPE MPS HAVE NOT THROWN THE BABY OUT WITH THE BATHWATER!”

SIR PHILIP GREEN – “LET’S HOPE MPS HAVE NOT THROWN THE BABY OUT WITH THE BATHWATER!”

 

So MPs have approved, without a vote, a decision to adopt a call for former BHS owner and current Arcadia owner Sir Philip Green to be stripped of his knighthood.  The motion is not binding as any final decision would have to be taken by the Honours Forfeiture Committee.

I have to say that looks a precipitous decision.  I hope, but I suspect that Frank Field did not give Sir Philip a time frame to deliver his solution on the pension deficit. If he didn’t, I fear that was an antagonistic and confrontational stance, which will bring the worst out of Sir Philip, who will be legally well advised and also by that wily old ex-journalist Neil Bennett.

I fear that the threat of the loss of his gong will not in any way encourage the Monaco based tycoon to step up to the plate and make a meaningful contribution to the pension hole. Perhaps Frank Field and his committee have lost patience with what looks like stalling and prevarication in the extreme.  However at this juncture talk and pontificating about ethics and morals is a waste of space and but a mere bagatelle.  The pensioners needed a result from Sir Philip.  They may not get one over unnecessarily hasty posturing by MPS. MPS are right that this pension issue has been outstanding throughout the whole summer, when torsos were receiving an excess of sun rays on the Cote D’Azur and maybe Cornwall in the case of the trustees, when greater efforts could have been put into this issue. Maybe there were intense efforts but MPS and the public have scant information.

In essence the silence has been deafening from the BHS Pension Trustees.  Perhaps they are exacerbated with Sir Philip. It would at least been interesting to know what they have to say for themselves as many think they have much to answer for.  Let’s hope the House of Commons has not thrown the bay out with the bathwater!

MARKET UPDATE

London’s performance yesterday seemed somewhat innocuous, however thanks to the oil sector and mining to a lesser degree bouncing out of the traps the FTSE added 20 points at 7021 in what seemed a rather lack-lustre performance. Travis Perkins’s numbers failed to pass muster. The outlook was murky resulting 30 outlets being closed and 600 redundancies. Life at Wickes looked rather rosier with 12 news shops being created. Shares were given a bit of a whipping – down 5.6%. Barratt Development could have done without the adverse publicity it received – with Alastair Baird being arrested on suspicion of misconduct. Laird, the UK tech provider for smartphones for Apple lost 48% of its value yesterday – a huge profits warning down from £75 million for the year to £50 million. Margins have been squeezed and exacerbated by foreign exchange issues.

New York was pre-occupied with the Presidential debate; so not surprisingly, with a rather sour and vituperative tone to the occasion expected, activity was muted; but the Street of Dreams stayed in positive territory – DOW & S&P +0.22% and the NASDAQ just above the Plimsoll line at +0.05%. eBay rather let the side down for NASDAQ with a poor outlook taking the shares down 8.9%. This was in complete contrast to Morgan Stanley’s stellar results (incidentally Goldman also made a monkey of the market’s expectations) – up a short 2% which I though was rather parsimonious of the market. The Presidential debate did not disappoint! It was embarrassingly awful. I so love the US. I feel for them sorrow and fear. Putin will have laughed!

 

Asia seemed happy enough having digested the news from Las Vegas. Activity was hardly ‘chipper’ apart from Tokyo – closed up 1.4% thanks to a weaker Yen. The ASX finished the session up 0.1% and the Hang Seng and Shanghai Composite towards the close were up 0.3% and unchanged respectively.

 

Inertia really has set in this morning with the FTSE down 10 points at 7010 at 9.50am. Volumes are derisory. The LSE posted decent numbers – shares up 1.5%. However it is all about the so-called merger with Deutsche Boerse. Everything seems to be tickety-boo here in London. Regulatory bodies in Brussels and Berlin have it all to do. We probably won’t have an answer before February. Senior and Keller posted profit warnings this morning and metaphorically both had the skin ripped from their faces by shareholders – shares down 25% and 18.6% respectively – ouch! Since Monday the two stock exchange debutantes have fared differently. Biffa – shares issued at 180p price (having lowered their sights from 200p) today 18p. In the case of Luceca shares were issued at 130p and are trading at 154p today.

TODAY’S FAYRE – PRESIDENTIAL ELECTION & SIR PHILIP GREEN’S PLIGHT

 

TODAY’S FAYRE – Thursday 20th October 2016
“Deep in the shady sadness of a vale

Far sunken from the healthy breath of morn,

Far from the fiery noon, and eve’s one star,

Sat gray-hair’d Saturn, quiet as a stone,

Still as the silence round about his lair;

Forest on forest hung about his head Like cloud on cloud.

No stir of air was there,

Not so much life as on a summer’s day

Robs not one light seed from the feather’d grass,

But where the dead leaf fell, there did it rest.

A stream went voiceless by, still deadened more

By reason of his fallen divinity Spreading a shade:

the Naiad ‘mid her reeds Press’d her cold finger closer to her lips.  

 

Along the margin-sand large foot-marks went,

No further than to where his feet had stray’d,

And slept there since. Upon the sodden ground

His old right hand lay nerveless, listless, dead,

Unsceptred; and his realmless eyes were closed;

While his bow’d head seem’d list’ning to the Earth,

His ancient mother, for some comfort yet.      

 

John Keats – poet –1795-1821
Well at least the last US election debate was finally completed in Las Vegas, Nevada. It seemed just as messy and unappetising as the previous two. Though there was a touch more time spent on policy rather than exchanging insults, the 90 million people or so watching the debate, I hope, would have been a little embarrassed by the content.

Anyway, barring unforeseen accidents, Mrs Clinton looks ‘home & hosed’ to become the 45th and first Lady President of the US on 8th November. Even the FT couldn’t resist the opportunity of chucking its ‘two cents worth’ in to the ring in the hope of preventing a Trump administration, by reporting an alleged money launderer linked to a Trump project – another pebble tossed to create further ripples in the waters of uncertainty!

 

It’s D-Day for Sir Philip Green, though it should not be today, as we have not heard the whole story yet! Until we know what he intends to do with the pension black hole of £570 million, I think it is wrong to strip a person of his raiment until the entire saga has unfolded.

 

BHS was a private company and its shareholders (the Greens) were at liberty to do what they wanted with profits and dividends, provided it was in within the law and there is no evidence to the contrary. You might well conclude that more money should have been ploughed back in to the business – so maybe there has been some negligence but certainly nothing illegal.

 

Let’s accept his apology for poor judgement in selling BHS for a £1 to Dominic Chappell in good faith. He was also poorly counselled by his professional advisors and the £1 for sale sign should immediately set the alarm bells ringing. Sir Philip, after initially offering £80 million towards the pension black hole as an opening shot across the bows, has promised to come up with a plan to settle this matter. Let us hear it before there is any condemnation. Metaphorically speaking Judge Jeffries Black cap can wait in abeyance. What Frank Field and his committee have every right to do, is to complain about the interminable length of time it is taking to complete these pension deliberations. We do need an answer. In fairness to Sir Philip he WAS NOT a trustee of the pension fund. The conversation between Sir Philip and the trustees seems to have been very limited as far as the public knows. In my humble opinion the trustees have much to answer for as has Dominic Chappell for his incompetent handling of BHS once he and his consortium took it over.

 

MARKET UPDATE TO FOLLOW

    UK companies posting results this week – Thursday – LSE, Morses Club, Senior, Keller Friday – Acacia Mining, IHG, Computacenter, Dechra Pharmaceuticals

US companies posting interim results this week –  Wednesday – Reynolds American, Halliburton, Morgan Stanley, BJ Restaurants, American Express, eBay, Xilinx, Mattel, Thursday – American Airlines, Walgreen Boots Alliance, Pulte, PayPal, Schlumberger, Microsoft, Friday – GE, Honeywell, McDonald’s

   Economic data this week – Thursday – CBI Industrial expectations, ECB press conference

   

 

David Buik Market Commentator – Panmure Gordon & co +44 (0)20 7886 2775 Mobile – 0044 7788 144 877 Panmure Gordon & Co One New Change | London | EC4M 9AF

David Buik Market Commentator

D +44 (0)20 7886 2775 Panmure Gordon & Co  One New Change | London | EC4M 9AF | United Kingdom www.panmure.com  

Stock Market Crash – 19th October 1987 – It felt like it was all over even though we knew most of the world’s economy was in good shape!

Stock Market Crash – 19th October 1987 –

 

It felt like it was all over even though we knew most of the world’s economy was in good shape!

 

Most people remember Thursday 15th October for BBC’S Michael Fish’s inaccurate weather forecast. Unforeseen damage and devastation shattered many parts of the South East of England, which cost 18 lives. Many felt that it was the precursor to ‘Black Monday’ on Monday 19th October which precipitated the collapse of global stock markets.

 

On that fateful Monday the DOW fell 22.6%, wiping $500 billion off valuations. FTSE 100, only in existence since 1984 (30 before that), lost 22% and the loss was exacerbated by the end of October – down 24.4%.  In the same period HK fell 45% and Australia -41%. They also closed the Hang Seng for 4 days (Tues to Fri) & the exchange Chairman was arrested, attempting to run for the hills! Happy days! The Nikkei over the same period fell 18.5% to 22000 – a mere bagatelle.  We must remember that the Nikkei regained its poise to 38900 in 1989 until their equity bubble burst.

 

In those halcyon days James Baker was the US Treasury Secretary and Alan Greenspan had only been chairman of the FED since 11th August 1987.  Cheap money policy in the latter years of the Reagan administration made financing deals too easy.  Add that to the fact that takeovers and M&A activity struck at ludicrously inflated prices, made share valuations look far too very rich.  Many companies used to sell junk bonds to finance these transactions.  Those of you over 50 years of age plus will remember Michael Milkin of Drexel Burnham Lambert fame.  He was one of the great exponents of this instrument. 1986-7 were stellar years for stock markets. They rose sharply. Frankly they over-heated, aided and abetted by some excessive and sometimes shady IPO business.  This compendium of items created a very toxic cocktail for a crash.  The market was delivered it in Spades!

 

LIFFE was still fairly immature. Though this futures exchange started hostilities in 1982 under the innovative guidance of Sir Brian Williamson, it was still fairly impotent in comparison to the copious futures exchanges in Chicago. Also TIFE did not get its act together until 1989 and Singapore sometime after that. So it was left to the Chicago futures markets and LIFFE to ‘take arms against a sea of troubles.’ To use the vernacular, its ‘spivs & vagabonds’, alias floor traders, joined in all the fun of the fair. They correctly perceived that the market looked weak bloated and hopelessly over-priced. These traders waded in to the ring and ‘gave it some welly!’ – Just sell, sell, ell!

 

The situation was exacerbated by the emancipation of BIG BANG in 1986.  Hence Goldman, Salomon Bros, Deutsche Bank and UBS were rampant as the ‘heavy hitters’ of the day.  Fortunes were lost by retail and wholesale investors. 

The cash market traders did not know what hit them. The market makers and execution brokers had hardly got their feet under the desk post the change of the rules, when this metaphorical tornado all but up-rooted their desks. There was no bottom to the market with the futures traders always in the driving seat. The standard of media reporting at the time – both written and visible was moderate at best, apart from a few Ivan Fallons, Christopher Fyldes, Patrick Sargents and Anthony Hiltons. So communications were poor. Technology was not much better than ‘Heath Robinson’ class at best. Bloomberg was non-existent.  Reuters was not terribly sophisticated and Telerate and Knight Ridder were embryonic.

 

 

At the time meaningful spread betting in indices had just got under way.  IG, which was set up by Stuart Wheeler and City Index owned by Jonathan Sparks and later by Michael Spencer had to find fresh investors from their very rich friends to stay in business.  Many of their clients were unable pay their margin calls after the 87 crash! IG has risen like the phoenix from the ashes and is now valued at £3.07 billion!

 

Could this kind of catastrophe happen again? One can never say never but unlikely. Why?  Regulation is much tighter. Credit management is better controlled as are dealing limits.  Also technology and screen based trading is on a different level.  Its quality offers so much more security and it is appreciably more sophisticated. 

 

Those were the days!

 

 

 

David Buik

Market Commentator

 

D +44 (0)20 7886 2775

Panmure Gordon & Co  One New Change | London | EC4M 9AF | United Kingdom www.panmure.com