Thursday, 26 March 2015

On Bloomberg TV - Interviews on Europe/Greece, Crude Oil Outlook

I would like to highlight a couple of videos from my interview this morning on Bloomberg TV, looking at a number of Strategy issues including Oil and Europe.

Please click on the web links below to watch the videos:

On Europe

On Oil

Wednesday, 25 March 2015

As FTSE 100 hits all-time highs, it's time to take advantage of stocks and shares

Video  Link:

Stock market indices worldwide have been crashing through key psychological levels to new all-time highs: 7,000 on the FTSE 100, 5,000 on the technology-heavy Nasdaq index in the US and 12,000 on the key DAX index in Germany.

But most people have missed out on this market rally

While this stock market rally sounds very glamorous, one of the key features of the current run-up in stock markets worldwide is how few people in Europe have actually taken advantage.

Figure 1: Only 18% of UK, 13% of German Households Have Exposure to Shares

Source: Office for National Statistics, US Federal Reserve, Deutsches Aktieninstitut

Take the example of the UK: only 18% of households hold exposure to shares directly or indirectly via unit trusts or other funds (Figure 1). That means 82% of households have seen no direct benefit from the doubling in value of the FTSE 100 index since the early 2009 crisis lows.

In fact, matters are even worse in Germany, where only 13% of all households had any exposure to shares or equity funds of any sort.

And you may think the doubling in value of the FTSE 100 over six years is impressive. Well think again. The German DAX index of Germany's largest 30 stocks has risen from 3,600 in early 2009 (a similar level to the FTSE back then) to over 12,000 today, more than tripling in value over the same six years.

The 2008-09 financial crisis took its toll on stock market confidence

Clearly, the big hit to stock markets from the 2008 global financial crisis (when the FTSE 100 fell nearly 50%) has put many people off investing in stocks and shares, as we can see from the drop in value of unit trusts held in Isas from 2005 to 2008 (Figure 2).

Figure 2. Amount Invested in ISA-Based Funds 84%, When FTSE 100 100%

Source: Investment Association

Interestingly, the total value of funds held in Isas only rose 84% from the low in 2008 to the end of 2014, while the FTSE 100 doubled. Clearly, a lot of the money held in funds in Isas was not invested in shares but rather in other assets such as government bonds.

Yet again, more evidence that many investors have not taken full advantage of the current stock market rally.

Mostly about housing

So where is the net worth of UK households held? Unsurprisingly, given the strong rebound in the UK property market over the past few years, 42% is held in housing (both primary residences and second homes, plus buy-to-let; Figure 3). Meanwhile, 35% is held in private pensions and life insurance policies (including annuities). 

Figure 3. 77% of Household Wealth in Housing, Pensions and Life Insurance

Source: Office of National Statistics. Correct as of end-2013

And a full 16% of total household wealth is still held in cash savings, despite the historically low interest rates on offer. In stark contrast, only 7% of total household wealth is held directly in shares or unit trusts exposed to shares.

Time to build up your share exposure

These statistics serve to highlight most people have not benefited anything like as much as they could have from the rise in the FTSE's value. But it is never too late.

Looking today, I would make two observations. Firstly, Europe could be a good home for new share-based fund investments given the economic recovery under way and the consequent improvement in corporate profits. And secondly, one of the best low-cost ways to achieve this is through exchange-traded funds (ETFs), which are as easy to buy as any share and can be held in any self-select stocks and shares Isa.

Don't forget, time to fill up your Isa

Remember the limit for contributions to an Isa are £15,000 for the 2014-15, which ends on 5 April, two weeks from now. So if you haven't put much or even any money into a stocks and shares ISA, now could be a good time if you have any spare cash lying around earning a minimal rate of interest in a savings account.

A good ETF to buy to get exposure to the strong recovery in Continental Europe is the iShares MSCI Europe ex-UK UCITS ETF (code: IEUX), which is priced in pounds but gives exposure to the largest companies in France (21%), Germany (21%) and Switzerland (21%) within Europe.

Thursday, 19 March 2015

Bloomberg, CNN TV Appearances to Discuss the Fed, Greece/Europe, and Oil

Just to let you know that I appeared both on Bloomberg and CNN TV this morning.

Please find below two links to comments I made regarding the US Federal Reserve, and Europe-Greece.

Best regards,

Wednesday, 18 March 2015

CNBC Closing Bell: Guest Host Videos

Please find below links to 2 videos from my appearance on CNBC’s Closing Bell programme as Guest Host:

George Osborne election budget: Tax cuts predicted but no giveaway

That man of the people, Chancellor George Osborne, is sure to mimic Mr Robertson in giving us all some jam in the Budget on 18 March. After all, we are merely two months away from a May general election and the Conservative Party is sure to want to play its usual low tax card.

I would also wager that the Blues will attempt to sway the grey vote their way with further presents for pensioners, in the form of the granting of further pension freedoms. After all, it is clear Ukip have had particular success in appealing to the fiftysomething-plus Saga generation, which has traditionally been the core of Tory support over the post-war decades.

Higher personal allowance on the cards

So let's start with the most obvious tax-oriented measures – the raising of the threshold for the paying of income tax in the form of the personal income tax allowance, currently £10,000 per person per tax year. Firstly, this is one measure the Conservatives and Liberal Democrats continue to agree on. Secondly, the strength of the UK economy allows Osborne to relax his fiscal shackles a little and give back to UK households.

I would pitch for an immediate increase in the personal allowance up to perhaps £12,000 per year (saving all taxpayers £200 per year), with a further pledge to continue raising this threshold if the Conservatives are returned to power.

Of course, some of this largesse is likely to be clawed back via indirect taxes such as higher petrol duty, given how oil prices have collapsed over the last six months or so, allowing UK motorists to buy unleaded petrol today 18% cheaper than it was back in July 2014 (Figure 2).

Benefits for savers – via Isas

Secondly, Gorgeous George will want to help savers, given the paltry interest rates now on offer from high street banks and building societies.

The current Individual Savings Account (Isa) limit has already been raised substantially to £15,000 for the current tax year (from £11,520 previously), and is set to rise to £15,240 under existing government commitments. However, it could go further and perhaps round this amount up to a more generous £16,000, allowing savers to shield earned more interest, dividends and capital gains from income and capital gains tax.

Targeting pensioners – via pension bonds

Remember Pension Freedom Day is approaching with the new tax year, on 6 April.This allows those holding private pensions to liberate them once aged 55 or older, effectively offering a far wider set of financial alternatives for current or those fast approaching retirement. However, this is likely to prove very complicated for the man on the Clapham omnibus, given pensions were an impenetrable subject even before the announcement of these welcome changes.

One set of pensioners who are likely to be targeted by the current government are those who have already used their private pensions to buy an annuity (a product that provides a guaranteed level of income for the remainder of one's life). The potential to trade in an existing annuity for a lump sum instead could well be a new measure introduced in this Budget, extending the liberalisation of private pensions.

A second measure benefiting pensioners could be the extension of the popular Pension Bonds offered by the government-run National Savings & Investments. Currently, pensioners are limited to investing a maximum of £10,000 in each of a 1-year 2.8% bond and a 3-year 4% bond. The government could well increase the amount of these bonds on offer to pensioners to allow more to benefit from these market-beating interest rates, or to increase the amount that a pensioner can invest in each bond.

Caveat voter: All budget commitments could be unwound come May

But you would do well to remember any pre-election giveaways from the chancellor can be unwound following the May general election by any eventual winner. So it would pay not to get too excited by and long-term measures announced during the Budget.

Thus far, the one fact that I can safely state is that there is a record level of uncertainty over the result of this upcoming election, with the two main parties polling less than two-thirds of the total UK vote, a post-war low (Figure 3).

Greatest certainty: Another hung parliament

Taking these average poll results and translating them into parliamentary seat swing predictions, no combination of two parties (apart from Conservatives and Labour) looks capable at present of forming a majority coalition government (Figure 4).

Even a putative Labour and SNP coalition would not yield the necessary minimum Parliamentary majority of 326 seats, falling short by eight MPs.

So what can we conclude from all this? Firstly, any tax giveaways will be limited by the coalition nature of the government, with the Liberal Democrats putting the dampers on any excessive Tory tax cuts.

Secondly, tax-free saving and pensioners should get a boost. And thirdly,  the chance of an inconclusive May election is at present running very high, with the risk of even needing a second election soon after the first...

There remain two months for the main parties to sway current voting intentions their way but they had better get on with it. In the meantime, make sure to use up your current ISA allowance of £15,000 by 5 April (perhaps buying exposure to the current UK & global stock market rally), or else it will be too late.

Thursday, 5 March 2015

Véronique Laury aims to renovate and add value to B&Q and Screwfix owner Kingfisher

Kingfisher (UK code KGF), the owner of DIY businesses B&Q and Screwfix, has been taking flight over recent months, climbing from 286p in November 2014 to 374p today.

But what you may not realise is that Kingfisher's biggest business geographically is in fact not in the UK, but actually in France with the Castorama and Brico Depot Do-It-Yourself chains of stores. The company's chief executive, Véronique Laury, is also based in France and took the reins in January after previous boss Sir Ian Cheshire stepped down.

Kingfisher's performance of late can be best described as somewhat schizophrenic. On the one hand, its two UK businesses have been performing well, in particular the Screwfix catalogue/online building supplies division, which posted 25% year-on-year total sales growth in the third quarter (to end-September 2014).

However, on the other hand, the French Castorama and Brico Depot DIY chains of stores have suffered from a weak French DIY market, hit by a triple whammy of fragile consumer confidence, higher taxes and declining house prices. These factors have led to an 8% fall in French retail profit in the third quarter (adjusted for currency movements).

The good news for Kingfisher is French consumer confidence is now in fact surging and has touched a three-year high, due to falling petrol prices (boosting purchasing power) and unemployment that has finally started to decline (Figure 1).

Acquiring Mr. Bricolage

With some of these gains in French purchasing power likely to be found in better home improvement sales going forwards, combined with the ongoing restructuring programme ("Creating the Leader" self-help initiatives), Kingfisher's French profitability should turn around sooner rather than later.

Helping this rebound in French profitability is the recent acquisition of smaller French DIY retail chain Mr Bricolage, which should result in further cost savings across the group's three French operations from enhanced purchasing power and closing of weaker stores to focus on the most profitable sites. Kingfisher's management has already indicated this acquisition should boost the group's earnings per share, delivering welcome profit growth from the other side of the Channel.

UK DIY market looking sturdy

At the same time, the buoyant nature of the UK housing market and record high UK consumer confidence (at its highest level in 10 years) should continue to propel continued growth in the UK B&Q and Screwfix divisions, after strong 11% UK retail profit growth in the third quarter.

Up to now, the push-pull effects of weak French performance and strong UK performance have seen Kingfisher's share price go on a rollercoaster ride, falling from a 2014 high of 440p to a September-October low under 300p, before recovering of late to 374p (Figure 2). While it has lagged the FTSE 100 index over this period, it is catching up fast.

As part of ongoing restructuring, Kingfisher has already taken action to curb its money-losing operations outside of Europe, agreeing late in 2014 to sell 70% of its China operations (including 39 B&Q home improvement stores) to local supermarket giant Wumei for £140m. This sale has allowed Kingfisher to launch a £200m dividend and share buyback program spanning fiscal year 2014-15, with £180m already spent in 2014, and more to be spent going forwards.

Key to Kingfisher's fortunes going forwards will be the strategy update that Laury is to deliver in a month – this could prove a true catalyst for further upside in Kingfisher's shares, should her vision for Kingfisher, as DIY shopping habits change, prove revolutionary.

Takeover target?

The final wildcard that could play out in Kingfisher's favour is that it could become a takeover target (according to the Evening Standard), given its dominant position in European DIY retail, with private equity groups holding record amounts of cash and looking for potential companies to buy. All in all, Kingfisher shares may prove more alluring than the challenge of some weekend DIY.

Why I like Cisco Systems (CSCO) Now

Please find below a link to a 1-page PDF format report on why I think Technology mega-cap Cisco Systems (CSCO) is such a good value stock here, following a strong positive recent Q2 earnings release.