Thought it was about time I put pixels to screen and share some thoughts on what's been going on in the world recently. Well after another shock poll result we are looking forward to seeing the new oldest ever President in the White House next year. Now this has not stopped the market reacting in an unexpected fashion to this with the initial predicted plunge being replaced by all major US indices now soaring to new all time highs. I certainly can't recall any pundits predicting that, which just goes to show the perils of listening to pundits and forecasting in general.
Talking of forecasts we had the Autumn statement from the new Chancellor of the Exchequer in the UK this week with all its details and forecasts extending out to 2020 and beyond. Within this of course there were some downgrades to the previous long term forecasts which were put out just nine months earlier in the budget. Of course the blame for this is being laid firmly at the door of Brexit, but I also note that the recession for next year that was forecast by the remain campaigners has now mysteriously failed to materialise so far and in the forecasts too. So again this goes to emphasise the perils of forecasting and indeed relying too much on forecasts as these may be wildly inaccurate and subject to revisions. Therefore I'm not getting too concerned about or depressed by the pessimistic outpourings from the Institute of Fiscal Studies about real incomes stagnating for the next few years, although who know they could be right?
Having said that though markets are obviously taking a view on some of these changing trends as President Trump signals a fiscal reflation with tax cuts and a ramp up in spending planned. It is possible that this may lead to a decline in the influence of the Central Banks perhaps, but does seem to make it almost certain that we finally see another rate rise in the US next month. investors nevertheless seem to expect this fiscal reflation to boost to the economy and have therefore rotated out of bonds and into equities causing the moves we have seen in equities and a rise in bond yields. Whether this represents the start of an overdue normalisation of interest rates with higher inflation remains to be seen, but it does also suggest that markets also see less chance of a US recession next year - which is a good thing for equity investors. Similarly with the seeming absence of a recession in official forecast in the UK it seems that this cycle and the on going bull market might just be extended further into next year. This view is also being supported by the on going strength in the underlying equity indices and the recent further tick down in the US employment rate last month.
It has also meant that within the stock that we have seen a rotation from expensive, quality, defensive companies and bond proxies like Utilities, into growth and cyclical plays which will benefit from stronger growth. If the reflation view continues to prevail and the extra spending actually brings a boost to growth then some of these moves may prove to be justified and sustainable and indeed could have further to run. So if you share the view that this spending will help to boost the economy then more cyclical sectors may be a good hunting ground for cheap stocks especially if they have not moved significantly already.
On the other hand though some quality and defensive names have sold off quite aggressively and are therefore now offering better, if not outstanding value. These moves may therefore provides some opportunities to pick up some quality income / growth stocks for the long term at more reasonable prices, which may not be a bad idea if you think the boost from the increased spending will not be that great or long lasting given that it will come at the expense or further rises in debt. Personally I'm more interested in looking at the latter rather than chasing cyclical which will no doubt let you down again at some point come the next downturn.
As ever time will tell on the success or otherwise of Trump's policies and the UK's exit from the EU, but as ever its probably best to focussing on the underlying fundamentals of the shares you are interested in and not getting too worried or excited about all the economic news and views and the daily gyrations in the stock market.
Most of the commentary this week has been about the US Presidential Race and what Trump may or may not have said and done to women over the years. However, after the timing indicators warned last week about a possible recession ahead in the US - I thought I'd share some things I've seen recently which shed a bit more light on this.
So first up is a piece from the Economist looking at the probability of a recession during the next Presidents first term in office - which hopefully you should be able to read here, although you may have to get rid of the subscription offers first. Following on nicely from that was a piece from Reuters looking at Janet Yellen's High Pressure Policy designed to keep the economy if not boiling, at least simmering away.
Finally if you really want to dive down an economic rabbit hole I also came across recently some interesting stuff from Ray Dalio from the hedge fund outfit Bridgewater Associates. He has set out his thoughts on How the Economic Machine Works which includes a 305 page document explaining it all.
If that all sound a bit too daunting then there is also a 30 minute video explaining his theories in pretty simple terms, although there are some important messages in the last third or so if you do start watching it and think it is too simplistic. You can also watch the video below which I think might be a better use of your time than watching some fat former politician making a fool of himself on a dancing show or a middle aged woman trying to be a fake rapper - but hey each to their own - take your pick below.
just a quick note to confirm that I'll be taking a break from Blogging from today until the New Year. In the meantime the Scores have been updated today and won't be done again until the end of the year ahead of the year end update that I'll have for you early in the New Year.
So all that remains is for me to offer you seasons greetings and wish you a Merry Christmas whatever you are up to & to say:
Today we have had updates from two UK fund management Companies Jupiter (JUP) & Polar (POLR) which showed contrasting fortunes. Jupiter, which features in the Compound Income Scores Portfolio saw net inflows of £77 million in Q3 despite the difficult market background which therefore wiped £884 million off their funds to leave them overall at £33.5 billion, down by 2.3% on the quarter. The inflows were aided by demand for their European equity and dynamic bond funds.
Meanwhile Polar Capital saw continued outflows, primarily from their Japanese funds, although at a slower rate given their improved performance. Thus they saw outflows of $710m which, in contrast to Jupiter, was greater than the market effect which was $616m in Polars case, although they were reporting on a six month period rather than Q3. This left their assets under management at $10.9 billion, down by 10.8% over the six months to the end of September and by 11.4% over Q3.
On value and quality grounds they are similar, although Polar is smaller and has been around for a shorter period of time so perhaps has more to prove but also maybe therefore has more scope to grow organically. The other main difference is in the yield where Jupiter yields around 5.7% whereas Polar yields about 1% more with a 6.8% yield, but if you are a fan of momentum, then you would probably favour Jupiter over Polar. However on the charts / technicals, while both look toward the bottom of their range, Polar perhaps looks more oversold and may have greater short term upside reflecting its poorer recent momentum.
So as ever you pay your money and take your choice and with contrasting fortunes they both may be interesting short term recovery plays if you think markets can maintain their recent form and sustain a year end rally. Of course if you think we have entered a bear market then you would probably not want to be long fund management companies.
..as we have had a few results from small cap. stocks today which I have mentioned in the past. The first one was one I wrote up recently when I looked at some "cheap" retailers, SCS Group the sofa and carpet retailer. They announced final results today which looked OK and had a reasonably upbeat current trading statement, but with a hint of caution going forward given tougher comparatives. They are however opening new stores and concessions in House of Fraser so this should help to boost overall growth.
The numbers saw revenues which seemed a little behind forecast but the adjusted earnings came in ahead at 13.75p which is also ahead of the current years forecast. Given this and the positive start to the current year I guess this may leave scope for upgrades which is usually positive for lowly rated stocks such as this one trading on 11.4x at 157p.
On the dividend they achieved their IPO goal of a 14p dividend with an 11.2p final in these figures. This alone gives a 7%+ yield while the forecast unchanged 14p for the current year potentially gives a near 9% yield. This is backed up by £21.2m of cash on the balance sheet. So with a positive start to the year against an improving consumer background this one should be OK in the short term. However, as it is not the great quality and did go bust in the last recession it may not be one for the long term.
However in brief talking of quality for the long term we also had another set of record results today from the AIM listed flooring provider James Halstead (JHD). This is a good quality company but it is expensively rated at 25x given the quality and the steady delivery of rising profits earnings and dividends in recent years. So I'd definitely suggest holding this one for the long run, but it might be worth waiting for another downturn to see if you can pick it up more cheaply if you are not currently in it.
Finally on the talk front I note some interesting results from Netcall (NET) a software as a service provider in the customer engagement sector or contact centres to you and me. The results seemed to be in line but the main surprise was on the dividend where they announced a 2.2p dividend against the 1p full year dividend expected which unusually they pay jsut annually. This did however include an in line 1p payment plus a special of 1.2p which is part of a three year plan to bring their cash down £10m. Again not the cheapest in the world with a PE of 18 to 19x but it does now sport a 4%+ yield with the special dividend. It also seems to be reasonable quality and is currently trading well so might be worth a closer look.