The End is Nigh
Quantitative easing has been a long time dying but it is soon to be no more. If you never understood what this clumsy phrase actually meant, don’t bother finding out now, it is too late. We can leave economists to agonise over whether and to what extent it worked.
The Federal Reserve has decreed that it will cease to pump money into the US economy in November. It will continue its well established policy of reducing the infusion by $10 billion a month in the meantime with a final $15 billion in October. This is one piece of forward guidance that is clear and will be adhered to.
Any talk of reducing this life support for the world’s largest economy has been met with a fall in shares prices but this effect has gradually worn off and the reaction this time, although negative, was more muted.
I’ve said it before and I will repeat this one last time in October. This is excellent news for equity investors. It means the world is getting back to normal. It’s a long, hard rocky road with many obstacles, mainly within the eurozone economies, as Portugal has reminded us this week. But let us be thankful for small mercies.
At least the recovery in the UK continues unabated despite the impact of a strong pound, which reduces the translation of overseas earnings into sterling. The other side of the coin is that oil prices are being held down so UK companies are not being hit by inflation.
The FTSE 100 index has once again baulked at setting a record, although the Dow Jones Industrial Average briefly topped 17,000 points for the first time. The Footsie has been pulled about by specific sectors such as banking and mining but each fall represents a buying opportunity.
Still a Game of Two Halves
Once more, Marks & Spencer (MKS) has seen food sales grow strongly while clothing and homewares struggle. Once more we are assured that womenswear is showing signs of recovery. Stop me if you’ve heard this one before.
I sometimes wonder if M&S puts out the same announcement every quarter, simply adjusting the actual figures accordingly. I must check some time.
Food sales were up 4.2% in the 13 weeks to 28 June, although the figures were flattered somewhat by the late Easter, which fell in March in 2013. General merchandise was down yet again and within that category clothing edged up only a fraction. Internet sales were hit by the move to a new site, so they should pick up from now on, but international sales are nothing to write home about.
All in all, it is hard to see why M&S shares jumped when the figures were released. That blip presented a very short-lived selling opportunity as reality soon set in and the shares fell back. It is hard to feel confidence, especially as chief executive Marc Bolland admits that the outlook for the full year is unchanged.
I’m not too worried that, days later, a leak forced M&S to admit that its finance director Alan Stewart is leaving. The finance department isn’t the problem. However, the fact that Stewart is jumping from the frying pan into the fire by joining Tesco (TSCO), where the challenges are if anything greater, does make you wonder.
What a great investment M&S would be if it could only sort out its clothing, particularly womenswear. Until then, the shares remain no more attractive than many others in highly competitive High Street retailing, where costs generally rise faster than sales.
Dig Deep
A fellow tweeter this week asked for my views on mining stocks. At the time they had taken a dip, dragging down the Footsie, but they soon bounced back. The sector is too volatile for me but there are some solid stocks with decent yields, most notably Rio Tinto (RIO) and BHP Billiton (BLT).
I wouldn’t touch mining stocks with poor yields and I wouldn’t buy as a proxy for gold or silver. Mining share prices do not necessarily follow price movements in precious metals.
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.
