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.