Through the Ceiling
Persistent gains starting at the end of last week and spilling over into the current one have pushed the FTSE 100 decisively through the ceiling that has prevailed for the past three months at around 6,130 points. A strong run to Christmas is in the offing.
One has to feel that if 
Glencore (GLEN), with all its problems of heavy debt and lower commodity prices, can double its share price in a matter of days then a new mood of optimism has replaced the nerves of summer.
Glencore has now decided to slash zinc production. This is a sensible decision, reinforcing the growing belief that the cumbersome giant is at last facing up to reality. However, it underlines the mountain that Glencore has to climb. This remains far too risky an investment for my liking.
It seems to me that if the commodities markets really are bottoming out, and they may well be, then there are better prospects with simpler operations. I would rather be in one of the oil giants – I have retained my holding in Royal Dutch Shell (RDSB) – or try something in mining that is simpler than Glencore, such as Antofagasta (ANTO).
It is worth noting that the stock market is very good at anticipating turning points. It is hard to see where global growth is going to come from but the clear signal is that it will come from somewhere. The market has quickly shrugged off another gloomy assessment from the IMF, which has reduced its forecast for global growth for this year from 3.3% to 3.1%. While that is the weakest since 2009, it is still growth.
The IMF does not have a great track record in economic forecasts and tends to be behind rather than ahead of events. After all, we are now into the fourth quarter. I would much rather trust the markets.
The latest meeting of the Bank of England’s monetary policy committee has offered reassurance that there will be no premature rush to raise interest rates and risk choking off growth in the UK. The vote to stay at 0.5% remains 8-1 in favour. We are not going to see four more members vote for an increase this side of Christmas.
Who Gains at Lloyds?
Delight at the thought that a politician – in this case Chancellor George Osborne – is keeping a promise is somewhat tempered by the naked political opportunism that may yet rebound on him. The retail offering of shares in Lloyds Banking Group (LLOY), which will achieve the commendable outcome of ridding the government of the last vestiges of its holding, will provide riches for the investment advisers, a poorer return for the taxpayer and a gain for shareholders that will be hardly worth the effort.
Dribbling out the shares into the market 1% at a time has worked extremely well. Existing shareholders like me have seen the government stake reduced drastically without depressing the share price, and another 1% was disposed of this week.
Next spring investors will be offered a pitiful handful of shares in the retail offer, a move that has already driven Lloyds lower. The prospect for applicants to make money is limited by the small number that will be allocated to each applicant; the taxpayer loses because the issue will be at a discount; the disposal is delayed for several months; the City advisers who did so well out of the Royal Mail (RMG) outrage collect their fees.
Quite why we need more than one person working part time running the Government’s various shareholdings is beyond me. Instead we have a whole department that still need to bring in outside advisers to get anything done.
Lloyds’ shares are worth buying in the market below 80p, in my opinion. Morningstar’s own valuation is that the shares have an intrinsic value of 98p apiece. My own holding is showing a modest profit at current levels. It will be worth applying in the retail offer, when it comes, but be sure to stay within the maximum set by the government or you will get nothing. Then hold on until you get bonus shares in a year’s time.
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.
