The Vase Is Half Full
There is no financial crisis that cannot be made worse by the Chancellor. Given that he patently has no idea how to get us out of the financial mess, we should be thankful that George Osborne has done very little in his Budget.
I cannot feel that 0.5% knocked off the buying price is much compensation for the extra risk in AIM stocks.
When the two main items that will help to get the economy moving are 1p off a pint of beer (which may not get passed on to consumers anyway) and a tax break for the ceramics industry you get a fair idea of what Osborne thinks will ease the lot of the downtrodden masses, or plebs as we used to call them.
You would think that after the ill-fated pasty tax and caravan tax he would have learnt the dangers of messing about with narrow sections of the economy but chancellors, as I have often remarked before, do so love to make the tax system more complicated.
The best bit of news was what he won’t be doing, which is putting up the price of fuel in the autumn. That will help to hold down inflation, which has started creeping up again thanks largely to increased fuel and energy prices in a trend that by all expectations has a good deal further to go.
From an investor’s perspective, the proposed reduction in corporation tax to 20% will be welcome. But while Gordon Brown decided he was so clever at forecasting the state of the economy a year ahead, Osborne has gone one step further and is now introducing measures to take affect two years hence.
The £3 billion boost for infrastructure, which we need now, starts in April 2015. Why anyone bothered to leak the Budget when we get it so far in advance anyway is a bit of a mystery.
The other item that affects investors is the removal of stamp duty on shares quoted on AIM. The investing community, particularly the London Stock Exchange, has campaigned in the past for the abolition of stamp duty on all UK listed stocks but the plea has fallen on so many deaf ears that most people have decided to save their breath.
The concession to AIM is dressed up as helping small and growing companies but we must hope that the anomaly this measure creates will eventually lead to the impost being scrapped for all equities.
In the meantime, AIM securities just got a little more attractive but one must heavily stress the word little. I cannot feel that 0.5% knocked off the buying price is much compensation for the extra risk in AIM stocks. I shall be sticking to the main market unless I see an investment opportunity on AIM that represents good value in its own right.
Generally the stock market gave little credit to the Budget, falling back in the afternoon after it was delivered and sliding more heavily the next day. Any benefits are, as far as UK investors are concerned, far overshadowed by events in Cyprus.
The one sector to fare well was house building, which had already powered ahead for several months. My view in this column a few weeks back that the sector had risen far enough proved premature. I feel even more strongly that the sector is now fully priced. Previous attempts to stimulate mortgage lending have failed to live up to expectations and the same could well happen again.
Russian Roulette
The possibility of Cyprus falling into Russian hands would once have caused great consternation in the Western world. Now it should be considered with a sigh of relief. Better that Russia has to pay the price of the financial mess than us and perhaps this warning shot will at last bring some sense into the European Union.
Since it is widely believed that the Cypriot banking system has got into difficulties mainly because of its role in laundering dirty Russian money, there is some poetic justice in having Russia sort it out. Whoever does the rescuing will find it expensive in the long run.
The real benefit from Cyprus’s financial crisis could, however, be that in rejecting the bailout terms the tiny country has stuck two fingers up to the mighty European Union. For Cyprus to drop out of the eurozone would not be a disaster for anyone and could do a great deal of good if it concentrates a few minds at the heart of the EU, where there is considerable reluctance to understand how the people who pay for its policies feel about the ever increasing impositions, not only in terms of bailouts but of its money squandering.
Market Performance: March 18-22
FTSE 100 Index: -1.49%
FTSE 250 Index: -1.05%
FTSE All Share Index: -1.41%
FTSE SmallCap Index: -2.11%
FTSE AIM 100 Index: -1.69%
FTSE Fledgling Index: -0.27%
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