History about to repeat itself?

Well, as predicted politicians in the US have taken the Fiscal Cliff negotiations to the edge. The political process in the US has a habit of doing this, both sides usually playing their cards close to their chest right up to the final round, then bluffing and counter bluffing, not wanting to be seen to give anything based on their principles. In reality principles are difficult things to stick with when it comes to politics, they can get you into a world of hurt when the financial markets decide they don't like them.

2008 saw a taste of that when Congress initially voted against TARP. On principle there were many good reasons to vote against it, but faced with a market backlash of big market falls, the politicians quickly got back together to say what was for many perhaps a reluctant yes. Back then the market was in free fall as the financial crisis took hold, markets falling on the back of the TARP vote was the threat of worse to come if the politicians didn't play ball.

On Sept 15, 2008, Lehman Bros filed for bankruptcy sending the Dow plummeting 504 points.

On Sept 17, the Dow falls 449 points in reaction to AIG bailout.

On Sept 29, the Dow tumbles 777 points after House votes "No" on TARP.

On Oct 3, the House passes Financial Rescue Plan (TARP) The Dow falls 818 points.

Investors still lacking market confidence?

As we head towards 2013 with the FTSE approaching another attempt on 6000 and US politicians still talking over their fiscal cliff, it shows how much a confidence game investing and trading in shares is that a recent report suggests that investors still haven't totally bought into the recovery in markets since 2009 regardless of how strong it may look.

Assets in equity mutual, exchange-traded and closed-end funds increased about 85 percent to $5.6 trillion since the bull market began in March 2009, trailing the Standard & Poor’s 500 Index’s 94 percent advance, according to data compiled by Bloomberg and Morningstar Inc.

The retreat shows that even the biggest gain since 1998 failed to heal investor confidence after the financial collapse that wiped out $11 trillion in U.S. equity value was followed by record price swings in equities, a market breakdown that briefly erased $862 billion in share value and the slowest recovery from a recession since World War II. Individuals are withdrawing money as political leaders struggle to avert budget cuts that threaten to throw the economy into a new slump.

“Our biggest liability in the stock market has been the total destruction to confidence,” James Paulsen, the chief investment strategist at Minneapolis-based Wells Capital Management, which oversees about $325 billion, said in a telephone interview. “There’s just so much evidence of this recovery broadening.” 

http://www.bloomberg.com/news/2012-12-24/americans-miss-200-billion-abandoning-stocks.html

What applies to the US could equally apply to the UK. The FTSE may be knocking on the door of 6000, but that is still some way off the 6750 or so back in 2007 and a long way off the almost magical 7000 mark back in 1999. So, it has been a tough 12 years or so for UK shares and tougher to make money when there are so many bigger issue economic matters that always seem to put a stop on the possibility of markets going higher, they seem to be in a constant state of trying to get back to where they once were mode.

The fact is, and the internet, forum and blog comment is often a good guide to this, many people will have missed this bounce since 2009 because they probably thought worse was to come, the financial and economic world was at an end, never ending crisis to follow. Plenty of evidence shows how poor shares have been as an investment in recent times in the UK.

An HMV lifeline, sharing the loss.

Interesting story in the press about HMV and the potential cost to others from a shared liability with its suppliers should the High Street minnow go under. It could be as much as £150 million owed due to an old agreement made when HMV was part of EMI.

EMI guaranteed rental agreements on HMV stores when the retailer was spun out of the record label in 1998. It is understood that Universal then assumed these guarantees when it acquired troubled EMI.

The bill would only reach £150m if HMV collapsed into administration and the stores were not re-let. However, the precarious state of Britain's high street means demand for shops is fragile. 

http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/9766168/HMV-survival-boost-from-suppliers-liable-for-150m.html

Perhaps this explains why some of  HMV's suppliers are keen for the last man standing on the High Street in entertainment retailing to survive and why just before Christmas they stepped in with financial help. It might be cheaper for them to continue to support the company as a loss making concern that might just turn things around in time. On the other hand, much will depend on the banks and whether they are prepared to keep the financial lifeline going after HMV reports to them in January.

Update, 31/12/12

This is an interesting development;

HMV’s lenders plan to block efforts by turnaround fund Apollo to buy the firm’s debt as they plot a revival of its fortunes.

Music industry sources said Apollo Global Management had been planning to buy the retailer’s debt, which would give it control of HMV.

Apollo has already acquired ten per cent of the debt and must now negotiate with about six banks.

However, the lenders are understood to be reluctant to sell their loans too cheaply and are still hopeful that HMV can survive without a takeover.

A source said: ‘There is a feeling among the banks that they have come this far, so let’s see it through.’

http://www.thisismoney.co.uk/money/news/article-2254598/Lenders-debt-battle-plan-HMV-revival.html?ito=feeds-newsxml

Market update - A sea of red

So, after a period of Fiscal Cliff hope the markets are a sea of red this morning on the news that a Republican Plan B to reduce taxes couldn't even get enough votes from Republicans to get through Congress. However, with markets falling like a stone on such news it really does show how dumb they can be. Dumb because even though the markets seem to be going up on the news of this Plan B, it was clear from the start it was never going to get very far, President Obama had already clearly said if it got through he would veto it. 

Why then were markets going up on such news that would have lead to a sell off anyway? Plan B was never going to get anywhere yet markets were rising on false hopes. I suppose that is the way markets work, if you are looking for logic and rational behaviour then look elsewhere. At this stage with the politicians doing their usual let's take it right up to the wire act because that is what we always do as we play the game of politics, markets were clinging on to any hope. Still, the charts were showing that the current run was extended, for it to go further and extend the gains of the early Santa rally, more Fiscal Cliff good news was needed, even if a Plan B vote was doomed to fail the markets were clinging to anything.

So, FTSE 6000 which seemed very near just a few days ago is now in retreat. Santa probably won't deliver that present until the new year, assuming that the politicians in the US do cobble together some sort of deal. Looking at the FTSE and Dow daily, it does look like they are in the process of a move down, indicators look negative, the only hope being that the latest 20/50 dma crossover to the upside does appear to be offering the potential for support. Price is currently hovering between the 20 and 50 dma. However, the charts are telling us that the markets are set up for Fiscal Cliff failure if no deal is made.

Charts:

Should Vodafone cut its dividend?

One of the few things that Vodafone has going for it at the moment for investors is its dividend. The current dividend yield is between 6-7%, helped by the potential of growing payments to the company from its investment in Verizon Wireless. So, it will perhaps come as a surprise, especially to Vodafone investors, that at least one view from the city seems to be suggesting that the company should cut its dividend. Here's what Nomura had to say in a release today.

"Paying an inflated ordinary dividend has been discredited as a way to reward shareholders, it restricts strategic flexibility and it leaves Vodafone dependent on Verizon Wireless cash flows which compromises its ability to negotiate with Verizon. A review of cash return policy is overdue, we believe."

http://www.digitallook.com/cgi-bin/dlmedia/security.cgi?csi=10097&action=news&story_id=20580488

So, reading between the lines are they saying cut the dividend? Invest the money elsewhere in the business? Nomura does seem to think that the licence renewal for a company like Vodafone could act as a drag on the company and its share price for years to come.

The broker estimates Vodafone's spectrum bill to be at least £1.5bn annually for 2013-2016 (year-end March) and £20bn over 10 years. For the current financial year (ending March 2013), spectrum costs will be around £3bn, reducing controlled cash flow to £2.2bn, well below the dividend cost (£4.9bn).

Is the Vodafone dividend safe? Probably for now as I suspect that any announcement of a dividend cut on top of all the other perceived bad Vodafone news would see the share price going lower given the poor sentiment that surrounds the company at the moment. However, the fact that one city voice is suggesting, in their words, that "paying an inflated ordinary dividend has been discredited as a way to reward shareholders", suggests that Vodafone has a lot to do to improve sentiment towards it going into 2013.

Knocking on the door of FTSE 6000

Well, it seems to be getting closer, I write this at 5975 and the FTSE100 is on the verge of touching 6000. A month or so ago this seemed about as likely as England winning a cricket Test Series in India, but life is full of surprises. Given the momentum behind the market right now it will probably be more of a surprise if it doesn't get to 6000 from here, the peak is now within touching distance. Looks like the Santa rally did arrive after all, although with just a few more trading days left for this year, there is still room, one way or another, for a Fiscal Cliff surprise.

Some observations on choosing a time frame to trade

This is a follow up to the post what time frame are you trading/investing in.

Choosing a time frame to trade that fits your personality and psychological makeup is one of the most important steps to make if success is to be achieved in the trading game. Some people like action, fast moving markets and volatility while others prefer a more slower, cautious approach. It's difficult to be able to do both and can be a nightmare if you get involved in a type of trading that you are simply not suited to, so it's better to find out as early as possible what time frame of trading you feel comfortable with. However, each time frame that can be traded throws up its own questions, so based on my own experience I thought I would post a few observations.

First, short term trading. I found very quickly that this did not suit me. To be a good short term trader, day trading where you may be using the tick,1, 3 or 5 minute chart, you have to be able to handle volatility and market noise. Many of the market moves over the very short term time frames are noise, with many potentially false signals, not only do you have to be able to trade quick, but also get rid of potential losing trades quickly. On shorter time frames potential big moves while they do happen tend to be rare. While it's certainly possible for those with the right psychological makeup to make decent money on perhaps just 5-10 winning points a day, no one should kid you that it's easy. If you like action then this time frame may be for you, but by and large, at least according to many reports, most traders, especially spread bettors who choose this "action" type day trading tend to lose.

No Christmas love for Vodafone

Despite the FTSE continuing to show a desire to rise as we go into the Christmas period, one company that just happens to be one of the biggest market caps in the index,Vodafone, just cannot seem to do anything to find any market love.

Vodafone's share price has been in a relentless fall, a look at any chart on more or less any time frame shows a series of red with just occasional hints of blue (or green in the case of the charts below), the latest fall this week coming because the market feels that Vodafone overpaid for its Dutch 4G airwave licence. With other countries, including the UK, getting ready to sell their licences there is a feeling that cash strapped Governments will raise the bar as high as they can get away with and telecoms companies like Vodafone will get taken for a ride.

Whatever happens, this is just another in a long line of bad news flow, at least as interpreted by the market, to further hit the share price. However, the warning signs were there in the charts, especially after the share price was  up to over 190p a few months ago, a potential top could be seen and since then it's been one of the most slowly grinding relentless sell offs in the FTSE index. Both the Weekly and Monthly chart look pretty ugly. Even worse, the fall looks in its early stages on the Monthly chart. If there is a saving grace for the moment it is that support is at the current 156-158 level and the price has just touched the 200 dma on the Weekly chart.

This is still a falling knife and even though Vodafone is in the market to buy its own shares right now with the Verizon dividend (Vodafone begins buyback), it isn't doing much thus far to prop up the ailing share price. Still, I suppose they might consider they are buying cheap. Charts suggest it might just get cheaper.

Charts:

Video market round up for week ending 14th December

A week ending round up of the markets from Steve Briggs YouTube channel.

A review of the markets for the last trading week, including the FTSE100, S&P, Dow and Dax.

Links:

Steve's YouTube site http://www.youtube.com/user/sjb5555.

Useful charts and analysis can also be found at http://www.flickr.com/photos/stevebriggspics/

HMV, struggling to find any Christmas cheer

HMV has been in decline for some time, fighting a rearguard action against the tide of technology that is moving away from its core products CD's, DVD's, a once member of the FTSE250 now languishes with the smaller company minnows, its share price at around 2.5p a mere fraction of the glory days of 225p+. The HMV story has been one of a classic value trap all the way down to its current sorry state and no matter what the company has attempted to do to put things right, another bolt to its chances of surviving always seems to be just around the corner.

So, today's news of further decline in sales and a probable breach of its banking agreement in the new year offset the news a few days ago that its suppliers were backing it over the Christmas period with financial support, the shares are currently down 35% so far on the day.

...conditions meant the business was facing "material uncertainties" and warned of a "probable covenant breach at the end of January 2013".

But, the chain added that it was in "constructive discussions" with its banks and was keeping them fully informed on current trading.

First-half sales at HMV slipped 13.5pc to £288.6m, while like-for-like sales fell 10.2pc, with the chain saying it had been affected by a "poor release schedule" across the summer months as suppliers avoided events such as the Diamond Jubilee.  

http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/9741691/HMV-faces-probable-banking-agreement-breach.html

Losses of £37.3million were actually down from £48.1million for the same period from the previous year, but apparently Christmas is off to a slower than expected start this year. HMV has always made most of its money in the second half, especially over the Christmas period, can they afford for it to be a bad one? Much will depend on the banks that back them.

Unlike Dixons and Home retail Group (Argos), HMV has not been able as yet to turn things around and is now a pure gamble play on any long term recovery. It's the type of share which at a price of 2.5p you would simply buy and probably forget, but only with money that you can afford to lose and assuming you think that there is still the potential there for recovery. If it goes under and there is a chance of that, then you gambled and lost. If it recovers then there is the potential of a Dixons type gains from here. The problem is that its debt makes HMV the Greece of the UK High Street and one wonders how it can ever get back to making enough profit to repay what it owes. As the last man standing in entertainment retailing on the UK High Street, the last thing HMV needs is another bad Christmas.

IDOX delivers

Mentioned IDOX about a month ago, the results from which came in today and they did not disappoint (Public Sector watch, IDOX).

AIM-listed software and services provider IDOX posted a 50 per cent rise in its revenue to 58m pounds in the year ending October 31st, according to annual results published on Wednesday morning.

Adjusted profit before tax was up 36% to £14.8m from £11.6m a year earlier and earnings before goodwill, impairment, amortisation, depreciation, restructuring, corporate finance and share option costs rose 44% to £16.7m. 

http://www.sharecast.com/cgi-bin/sharecast/story.cgi?story_id=20560559

And despite the rise in share price over the last month or so longer term there could be more to come. The shares were up 4.8% today.

 

Market Update - FTSE100

The FTSE100 is still looking positive as we go into Christmas and the possible Santa rally, but is it possible that the market is running out of steam? The recent run is now well extended and it could be that Santa came early this year.

The last few days have seen the market largely going nowhere, no doubt waiting on more Fiscal cliff news, but the charts are beginning to look more positive towards a continuing move to the upside, although it is tentative. We have a 20/50 dma crossover to the upside, backed up by various indicators. The potential negative is that the FTSE is now facing resistance and the MACD on the daily chart could be weakening, the market might not go much further without good news to push it on. Still, the charts are nicely set up for a Fiscal cliff move to the upside if a deal comes in the next week or so. However, if there is no deal or the talks suddenly go bad, then we could see that MACD weakness on the daily chart roll over quite quickly as we get the next downward move. On balance and given no bad news, the charts look better for bulls than bears, but after the recent run you would expect a pullback soon anyway. 

Charts:

Vodafone begins share buyback

In its latest report to the market Vodafone announced that it would use this year's Verizon dividend to buy back its own shares. It looks like this may well have begun.

The instruction to Barclays will run for the period from 10 December 2012 and end no later than 20 February 2013 (the "Period"), for an amount of no greater than £550 million, as is determined in accordance with the agreement between Vodafone and Barclays.

The purchase of Shares in the Period by Vodafone following the agreement with Barclays and the £1.5 billion share buyback programme will be executed at all times only in accordance with Vodafone's authority to make market purchases of Shares.

http://www.4-traders.com/VODAFONE-GROUP-PLC-4006195/news/Vodafone-Group-plc-Transaction-in-Own-Shares-15583873/

Vodafone Group PLC (VOD.LN) said Tuesday that it has purchased 7.5 million of its ordinary shares on the London Stock Exchange from Barclays Capital Securities Ltd. at 161.4013 pence per share, which will be held in treasury.

http://www.4-traders.com/VODAFONE-GROUP-PLC-4006195/news/Vodafone-Group-plc-Vodafone-Group-Buys-Back-7-5-Million-Shares-161-4013P-15586686/

Given the share price has lagged recently the size of this buyback may help support the price, but whether the low (Vodafone - where's the bottom?) is in for the company remains to be seen.

TARP now more than 90% repaid, but how?

You might have thought that a headline of TARP almost being repaid would be met by cheers in the markets and I seem to remember that at the time some thought that the money going to TARP would never be repaid or that as the financial world was ending there would be worse to come. Regardless of the rights and wrongs of the various bailouts, and there is a lot to be annoyed about in rescuing the feckless, it might come as a surprise to some that TARP is apparently 90% repaid.

The U.S. Treasury said Tuesday more than 90%, or about $380 billion, of the $418 billion spent under the Troubled Asset Relief Program (TARP) during the financial crisis has been recovered through repayments and other income.

http://www.marketwatch.com/story/tarp-program-now-more-than-90-repaid-us-2012-12-11

The trouble is, does this tell us the entire story? Perhaps not, back in July of this year it was reported that many of the banks that had borrowed TARP funds were in fact repaying with further Fed loans.

Of the 707 banks that received taxpayer money from the government's Troubled Asset Relief Program starting in 2008, also known as TARP, about half have repaid the Treasury.

However, 137 of those banks used a government-loan program to repay their taxpayer debts, according to the quarterly report to Congress of the Office of the Special Inspector General for TARP.

Of the 325 banks still propped up with taxpayer money, 203 have missed dividend or interest payments, with some missing as many as 13 payments since receiving capital injections at the height of the financial crisis, the report said. 

http://www.msnbc.msn.com/id/48313448/ns/business-us_business/t/many-tarp-banks-used-federal-loans-repay-taxpayer-debts/

The financial system is such that as usual all is not necessarily as it seems on the surface.

IG Group, still looking for volatility

A while back I posted that spread betting provider IG Group seemed to be a company that needed volatile markets to help it go forward (IG Group, a company that needs volatility), today we see more evidence to back this up.

Revenue in the period was £169m, 14% lower than the prior year's. Sales for the second quarter, at £87.5m, were 7% higher than in the first quarter although still 9% behind the prior year. 

The group said the performance reflected the particularly tough comparators which the group faced due to extreme levels of volatility in financial markets in 2011 and the continuing subdued markets which were impacting client activity currently. 

During the period the business did respond well to short spells of heightened market activity and continued to grow market share in its biggest markets. 

http://www.digitallook.com/news/20557816/First_half_revenue_falls_at_IG_Group_as_volatility_remains_muted.html?username=&ac=

The chances are that if and when the markets become volatile again, IG and other spread betting companies will probably do well, but what do they offer if it doesn't happen? In the case of IG a decent enough dividend, but they need clients to want to trade and subdued markets seem to dampen that. The unfortunate thing for spread bettors however, is that while they may well crave volatility most of them are probably going to lose if it happens.

Average Brit to make a million by 56 according to the Pru'

No, that doesn't mean that every Brit will win the lottery by the age of 56, but according to the Prudential that's the amount of money that Mr and Mrs Average would expect to earn by that age. For men it's even better, you should expect to reach the figure by 50 while for women, still lagging behind in the money equal opportunities stakes, it is 72. By 65 you should expect to hit the £1.2 million mark. Along the way however, you will on average pay £137,101 in income tax and £84,129 in income tax mark 2 otherwise known as National Insurance.

Of course, most of the above will be well and truly understated if you happen to be in your 30's now given the rate of monetary credit inflation that banks and central banks like to create. Winning a million on the lottery probably won't be much help in 50 years time either, by then it will probably be lottery billions.

http://www.moneyvista.com/news/news-articles/average-brit-to-make-a-million-by-age-56/

Tesco to give up on the USA?

Tesco reported to the market today and while expectations were low on what to expect, the company did actually say something that the city has probably wanted to hear for some time, that the company is considering what to do with its loss making US operation, Fresh and Easy.

It is now clear that Fresh & Easy will not deliver acceptable shareholder returns on an appropriate timeframe in its current form.

We have therefore appointed Greenhill to assist with the review of options. In recent months, we have had a number of approaches from parties interested in acquiring either all or part of Fresh & Easy, or in partnering with us to develop the Fresh & Easy business. We will communicate progress on this process when we present our full year results for the current financial year in April 2013.

http://www.digitallook.com/news/rns/20544734-10091/TSCO-Strategic_Review_of_Fresh_Easy_html

The chances are that this side of the business will be sold or at the very least a US based partner will be taken on, I expect it will be the former. There is a good chance that once this decision is finalised, Tesco's share price could see a boost, if only because it is one less negative for them to worry about. They got out of loss making Japan, so no one should be surprised if and when they do exit the US.

AIM stocks in ISA's from next year?

For UK investors perhaps one of the best things to come out of today's Autumn statement is that from next year AIM stocks may be allowed into ISA's. I say may because while the Twittersphere was saying that they would be allowed from 2014, it was clear that many hadn't read or heard what Chancellor Osborne actually said, so here it is.

And we will consult on allowing investment in SME equity markets like AIM to be held directly in stocks and shares ISAs, to encourage investment in growing businesses.

http://www.telegraph.co.uk/finance/budget/9724128/Autumn-Statement-2012-the-full-speech.html

So, it actually says that he will consult about allowing AIM stocks to be held in ISA's. Chances are that it may well happen, but consult means what it says, they could decide against it - after consultation.

 

FTSE100 Update

Surprisingly perhaps, the FTSE 100 is actually looking more positive on the longer term charts. It's a surprise because over the weekend lots of negative comment regarding the US fiscal cliff seem to dominate the financial news. So far this week the markets seem to have taken it in their stride. In part this is a continuation of the recent recovery trend that can be seen on the charts, but it also might be suggesting that despite all the political position taking by the politicians, the markets are pricing in a deal that has to happen. There is some justification for this as history shows.

....seasoned Washington hands say that once this rather gloomy back and forth has played out - and it might take another week or more - the work towards reaching a solution that both sides can sell to their parties and their lawmakers will begin in earnest.

A deal by Christmas, a week before the fiscal cliff deadline, remains uncertain but not out of the question. The so-called fiscal cliff is a combination of U.S. government spending cuts and tax increases due to be implemented under existing law in early 2013 that may cut the federal budget deficit but also tip the economy back into recession.

The pattern of little happening until very close to a holiday is well-established on Capitol Hill. The past three pre-Christmas seasons brought important eleventh-hour developments on health care in 2009, tax cut extensions in 2010 and the payroll tax holiday in 2011.

It's so ingrained that many Capitol Hill veterans routinely, and sometimes mistakenly, dismiss as theater pronouncements of progress or stalemate that occur more than a few weeks before the holiday.

"The Congress doesn't work on the clock; it works on the calendar," said Republican Senator Roy Blunt of Missouri, who in 15 years of serving in Congress, including leadership jobs, has been through plenty of tough scrapes.

"There is just that required moment when something has to happen because you've run out of time," said Blunt. In the meantime, "there is a desire to maximize your negotiating position until you realize you don't have any room any more to negotiate. It almost invariably works that way."

http://articles.chicagotribune.com/2012-12-03/news/sns-rt-us-usa-fiscal-congressbre8b205w-20121202_1_fiscal-cliff-representatives-john-boehner-payroll-tax-holiday

So, there you have it, politics will play its part and its a system where things regularly go down to the wire because that is part of the game. On this occasion neither side will want to be seen as being responsible for there being no deal that results in a panic and puts the US economy back towards recession.

For the markets the time up to Christmas with no deal in sight is still likely to be a rocky one, but if a deal is reached then the charts suggest we are setting up to go higher. The Santa rally may still be on.

Charts:

Video market round up for week ending 30th November

A week ending round up of the markets from Steve Briggs YouTube channel.

A review of the markets for the last trading week, including FTSE100, S&P, Dow and Dax.

Links:

Steve's YouTube site http://www.youtube.com/user/sjb5555.

Useful charts and analysis can also be found at http://www.flickr.com/photos/stevebriggspics/