Shall We Dance?
Common sense prevailed rather sooner than I had expected when I warned readers not to chase shares too high. Remember the motto to buy on the dips. The UK and European economies are far from being out of the woods.
There are genuine signs within the UK economy that suggest we are over the worst, although we may bump along the bottom for a bit longer
There was a moment at the start of February when the FTSE 100 index surged above 6,300 points and looked as if it could even run all the way to a new high at 7,000 points before the year was out. Commentators began to upgrade their year-end forecasts in indecent haste. Across the Atlantic, the Dow Jones Industrial Average almost broke its previous peak.
This was all very much at odds with economic data that could be described at best as patchy. In particular, the eurozone as a whole continues to struggle, Spain and Italy still have problems in borrowing and the EU bureaucracy seeks to soak up more and more of the cash that is needed by the individual states.
However, there are genuine signs within the UK economy that suggest we are over the worst, although we may bump along the bottom for a bit longer and find the upward path slow going.
According to the Office for National Statistics, exports grew by 1.9% in December, reducing the trade gap from £3.6 billion to a still unsustainable £3.2 billion, but it’s a welcome step in the right direction. It raises the possibility that the shrinkage of GDP shown in the first set of figures for the third quarter of last year will be revised favourably.
What is really encouraging is that we are at last growing our trade with non-EU countries, something we desperately need to do.
Similarly the rise in manufacturing output of 1.6% in December should carry through into 2013, though that is by no means certain. Manufacturing singularly failed to respond to weakness in sterling, thus demonstrating that devaluation is not a cure for economic ills, and its performance has remained patchy. Still, we can live in hope.
All in all, we should feel encouraged but not elated. In the continuing economic climate, stock markets here and abroad are likely to bounce up and down for the foreseeable future. They will lead us a merry dance in which the prospects of making money keep presenting themselves like spot prizes.
Don’t Bank On It
One of the great unmovables of the past five years has been the undying belief among bankers that they did nothing wrong and that they should be allowed to get back to fleecing the rest of us. The higher up the banking chain, the greater the belief. I have no doubt that Eric Daniels and Victor Blank still think that they pulled off the deal of the century when they masterminded the 
Lloyds (LLOY) takeover of HBoS.
Quite a few top bankers have admittedly bitten the dust, usually making it clear that they were the ones who should have been entrusted to get us out of the mess they created and often turning up on boards elsewhere. Examples of true contrition are somewhat rarer.
The effect has been the destruction of shareholder value, fines that ultimately come out of shareholders’ pockets but an absence of prosecutions of those in authority who presided over various scandals such as PPI, Libor and interest rate swaps that were nothing short of fraud.
However, we saw three signs this week suggesting that the mood is changing. Antony Jenkins, chief executive of Barclays (BARC), told the Banking Standards Commission that he is shredding part of the legacy of his predecessor Bob Diamond and is creating a ‘fundamentally different culture’.
Actions speak louder than words and we need to see Jenkins in action. After all, he was part of the discredited banking culture and he carefully gave the impression that provisions against compensation for mis-selling scandals would come out of the bonus pot when in fact the ‘impact’ on bonuses could actually be quite small. Nonetheless, we have at least got past the point where bankers are blindly defending past actions.
As Jenkins faced the committee, John Hourican was clearing his desk at the Royal Bank of Scotland (RBS), where he was chief executive of markets and international banking. He is leaving with £700,000, a whole year’s salary, but he is at least giving up bonus entitlements. Others have departed from various banks with much more.
What’s really intriguing is that the chairman and chief executive of Lloyds told the Banking Standards Commission that bonuses there would ‘undoubtedly’ be the lowest of any bank. This was stated as something to be proud of. When did that last happen?
Meanwhile the provisions against mis-selling to cover fines and compensation continue to mount across the board. The eventual recovery of the sector keeps getting put back.
Incidentally, I treat Chancellor George Osborne’s proposals to reform the banking sector as a great non-event. Ideas about how to prevent another financial collapse have been bandied around for the past five years but they never get anywhere, mainly because each cure is likely to make matters worse rather than better.
Rodney Hobson is a long-term investor commenting on his own portfolio; his comments are for informational purposes only and should not be construed as investment advice.
Market Performance: February 4 - 8
FTSE 100 Index: -1.31%
FTSE 250 Index: +0.75%
FTSE All Share: -0.99%
FTSE Small Cap: +0.63%
FTSE AIM 100: +0.72%
FTSE Fledgling: +0.71%
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