‘Caution – good times ahead’ was the heading on a Christmas card I received this week. I commend it to investors after stock markets continued their plunge in the wake of the Paris terrorist outrage.
Perhaps a similar card had been received by the Bank of England’s rate setting committee, which once again voted 8-1 to keep rates on hold. This caution is starting to look like a sign of weakness, an indication that the UK economy is much more vulnerable than it really is.
Has the Fed, which votes next week on US interest rates, also got the message? I have had my doubts whether the Americans would grasp the nettle this month, suspecting they would hang on until January, but I rather hope my guess was wrong. Just a quarter point rise would be enough to indicate that caution is at last beginning to give way to good times. Perhaps then we could see a similar move this side of the Atlantic.
Economic data from the US continues to support an optimistic view, the UK is managing strong if unbalanced growth and the rest of Europe is keeping its head above water. India has taken up the baton from China in leading Asian expansion.
The low price of oil is keeping inflation at bay and helping to hold down costs across the board. Why many economists think this is a bad thing is beyond me.
The good times are not yet here for stock market investors but you sell out at your peril. If a merry Christmas looks increasingly unlikely, at least prepare for a prosperous New Year.
A Tale of Two Travel Companies
It’s been a long time since I learnt that non-recurring items have a habit of recurring and I was reminded of the fact this week when Stagecoach commented on the impact of the Paris bombings on people’s travel arrangements.
There’s always something happening somewhere in the world to put you off leaving home until you remember that more people die in their own beds than anywhere else. You could have forgiven holidays group TUI (TUI) for pointing to not only Paris but Tunisia, Syria, Sharm-el-Sheikh in Egypt, refugees flooding into Mediterranean resorts and so on as an excuse for not doing better.
Except it wasn’t TUI doing the moaning. The group reported strong earnings growth on turnover 8% higher and promptly raised its dividend from 33 cents to 56 cents. Despite the suspension of flights to Sharm, TUI has stuck to earlier guidance on future earnings growth. Bookings for the current winter season are a bit flat but the UK is performing particularly well.
TUI shares jumped 5% on the results, which was possibly a bit of an overreaction given the difficulties that all holiday companies face but not unreasonable after a slide from 1271p at the beginning of October to around 1170p now.
No, it was rail and bus group Stagecoach (SGC) complaining that the Paris atrocities were putting people off visiting city centres in the UK and across Europe. Funnily enough, it also complained that traffic congestion was holding back the potential for bus travel in jammed city centres. Are these the same cities that people are supposedly avoiding? Is it possible that people would rather pay hefty parking charges rather than outrageous inter-city rail fares?
Stagecoach has enough trouble in the US, where long distance coach travellers are finding it cheaper to drive their cars. It is cutting costs by reducing the services - at least, I assume that is what is meant by “better matching the level of vehicle mileage to current demand”.
In many ways the interim results were quite good and the dividend has been increased from 3.2p to 3.5p but one just got the feeling from the report that Stagecoach was not being entirely upfront about the problems, so the shares were heavily punished.
I feel that Stagecoach has too many issues to deal with to make a sound investment.
