Five things investors learned in the last week

21st April 2013

1) Tesco’s profits are down for the first time in 20 years. It brings its US experiment with Fresh & Easy to an end, but the write down is more than expected at £2.3 billion and more than just spare cash. Korea, the jewel in the group’s international crown, also hit a brick wall. It is stopping continued UK expansion.  It posted a 12.7% reduction in group trading profits to £3.284bn. The Guardian surveys the mixed bag of analysts’ opinions though some are upbeat.

2) China’s growth was a ‘mere’ 7.7 per cent in the first quarter of the year. Not all are concerned. Schroders says China is heading in the right direction. The Economist, in a similar vein, argues that speed isn’t everything.

3) The IMF is on a collision course with the UK government. As growth stays low, it wants to pace of fiscal consolidation slowed down as Sky News reports.

4) Fitch downgrades the UK to AA+. That is two ratings agencies out of the big three. Moody’s cut first but S&P is still a fan as the BBC points out.

5) Gold has had a torrid couple of weeks, and is officially in a bear market, but many investment professionals think this is a temporary phenomenon. F&C’s veteran market watcher Ted Scott is one who believes that the strategic case for gold remains strong.

17 thoughts on “Five things investors learned in the last week”

  1. Anonymous says:

    Hi Shaun,

    Firstly, with free movement of goods – Italy becomes a region. Measuring the EU economic output (especially in purchasing power parity) is fraught with difficulties due to EU expansion in 2004 and 2007. I suggest Italy’s GDP is heavily influenced by EU expansions.

    Secondly, the USA has started toward legalizing marijuana and prostitution is legal in Nevada. US fiscal position reportedly improving – I’m not sure how much improvement is due to pot taxes….

    Only a failing state registers illegal activities as GDP – surely the appropriate response is to either crack down on tax evasion either by legalization or prohibition enforcement. The FBI got Al Capone for tax evasion …

    1. therrawbuzzin says:

      “and prostitution is legal in Nevada.”
      This must be worrying for the unemployed. as, the way our govt. treats them, first it will be legalised, then taxed, and when it is, it will become just another job…
      DWP: “Jo/e Soap, you haven’t found a job in six weeks, we’ll be suspending your benefits if you can’t come up with a good reason why you shouldn’t hawk yer mutton.”

      1. Noo 2 Economics says:

        Many a true word spoken in jest – 7 years ago I copped a redundancy and signed on for contributory JSA whilst I sorted out setting up my business and waiting for the new tax year (Otherwise I would be paying 58% tax & NI on everything I earned – a disincentive to work!!).

        One day the “jobs adviser” showed me a job registered with the Job Centre – a pole dancer (and me a middle aged male!!) I pointed this out to him and he responded “they can’t exclude you on grounds of gender or age – thats sexism and ageism”!!!.

        I noted benefits could not be suspended if a claimant did not apply for that particular job, at that time, that may not be the case now……

    2. Anonymous says:

      Hi ExpatInBG

      I had a wry smile when I spotted this.

      ” ‏@cr3dit 22h

      if it’s in gdp, it’s endorsed by the state and should be legal. basic logic”

      1. therrawbuzzin says:

        Indeed, or the state has a disincentive to tackle the black economy & organised crime. (other than the obvious as in Birds of a feather…)

  2. midge says:

    Hi Shaun and thanks for another week of blogs.
    Just looked at Italy’s national debt clock which has been rising since end of last year and suggests debt as % of GDP just short of 138%.How can a economy like Italy ever service this debt?.

    1. Anonymous says:

      Hi Midge

      A debt servicing problem is one which mostly comes on very gradually a bit like a runner having weight added to a backpack ounce by ounce. But each rise in debt and weak GDP number leaves Italy more vulnerable to what can be a more rapid shock which is a rise in bond yields.

      For now the promises of the ECB and the worldwide chase for yield have reduced Italian bond yields and provided a haven in time, but they must not waste it.

  3. Anonymous says:

    I notice that Italy’s net debt at 132.6% of GDP is a whole 0.5% bigger than the figure you gave yesterday for the UK’s net debt, unless you exclude the “temporary” effects of financial interventions. Surely the Italians could identify something “temporary” to exclude from their figures?

    1. Anonymous says:

      Hi Ian

      Good point! However on a like for like basis (Eurostat) the UK was at 90.6% in terms of national debt to GDP at the end of 2013. So as we have a growing GDP we are better off although not so different as we might like to think.

  4. Anonymous says:

    No mention of this?

    “former US Treasury Secretary says that EU officials approached him in the white heat of the EMU crisis in November 2011 with a plan to overthrow Silvio Berlusconi, Italy’s elected leader.

    “They wanted us to refuse to back IMF loans to Italy as long as he refused to go,” he writes.”

    1. Pavlaki says:

      In a similar vein it has emerged that they forced Papandreou from office in Greece. A bit like the Irish vote on the Lisbon treaty – if you don’t do what they EU wants they will force the issue. I notice that the so called bank stress tests are already being watered down with Dexia now a special case! Quite happy to move the goal posts when it suits their ends!

      1. Anonymous says:

        Papandreou lost his nerve and cancelled the referendum. His CHOICE ! A referendum would be good result for Greek democracy – whatever the outcome.

        The EU and IMF does not use tanks or paramilitary thugs in plain clothes. If Papandreou had managed Greece’s finances responsibly – he would not need to go cap in hand to the troika.

    2. Anonymous says:

      lenders do have the right to set loan conditions. given the IMF is funded with taxpayers money, I’m glad to hear of responsible action against reportedly crooked leaders.

      The Economist has many articles about Berlusconi and corruption. How do you think Bunga Bunga Berlusconi became Italy’s richest man ?

      1. therrawbuzzin says:

        Do you not mean, “ELECTED crooked leaders”.
        If the IMF won’t lend to countries with crooked leaders, then I suggest they set up their headquarters in Antarctica.

  5. theyenguy says:

    Italy is playing a pivotal role in the unfolding of global economic events.

    The apostle Paul presents the concept in Ephesians 1:10, that Jesus Christ has been tasked with the economy of God, to mature and perfect all things in every age, bringing them to maturity and perfection, much like a ship’s captain completes the manifest before setting sail.

    The age of currencies, was fathered by Milton Friedman with his Free To Choose Manifesto, and the age of credit was fathered by Ben Bernanke with his QEs, Mario Draghi with his LTRO1, 2, and OMT, and Hiroki Kuroda, with this Abenomics.

    God purposed for a debt based money system, and provided the Banker regime to establish currencies and credit to achieve His purposes. It was by God’s design from eternity past, and ongoing fulfillment of His will that the central bank leaders’ provision of currencies and credit, provided seigniorage, that is moneyness, for investment gain, and very little stimulus for economic recovery since the Great Recession, as the investor was ordained from eternity past to be the centerpiece of economic activity.

    Each of economic geniuses, Bernanke, Draghi, and Kuroda, provided his own credit stimulus for trust in risk on investing; these birthed and defined the investor as the centerpiece of economic activity.

    The sovereign’s monetary policies defined investment choice and established both the confidence and the platform for risk-on investing, and resulted in peak banking equity wealth, IXG, on May 13, 2014, and resulted in peak credit wealth, AGG, on May 15, 2014, thus establishing peak moral hazard.

    Sovereign monies, that is Major World Currencies, DBV, such as the Euro, FXE, are now trading lower. This loss of seigniorage communicates a dwindling of sovereign authority.

    As is seen in Revelation 6:1-2, Jesus Christ, on October 23, 2013, partially opened, on then again on May 13, 2014, fully opened, the First Seal of the Scroll of End Time Events, thereby releasing the Rider on the White Horse, who has the Bow of Economic Sovereignty, that is the Bow Without Any Arrows, to effect coup d etats world wide, to transfer sovereignty from democratic nation states to fascist regional leaders and bodies, by calling the Benchmark Interest Rate, ^TNX, higher from 2.49%, thus destroying the monetary authority of the world central banks, and establishing the economic authority of regional governance in the world’s ten regions, and totalitarian collectivism in mankind’s seven institutions, as is seen in Revelation 13:1-4.

    Wealth destruction commence on Tuesday, May 13, 2014, in the Eurozone on the failure of credit, specifically the failure of trust in the world central banks to continue to stimulate investment gains as well as global growth. With the trade lower in Italy’s Sovereign Debt, ITLY, and Italy, EWI, and the European Financials, EUFN, the world has passed through an inflection point: the world has pivoted from the age of credit into the age of debt servitude.

    On Tuesday, May 20, 2014, the world entered Kondratieff Winter, the final phase of the Business Cycle, with a credit market reversal and a partial equity market reversal, as investor’s greed turned somewhat to fear, specifically fear that the world central banks’ monetary policies, no longer sustain investment gains and global economic growth, and have made money good investments bad.

    The see saw destruction of fiat investments commented Tuesday May 20, 2014. While World Stocks, VT, and Nation Investment, EFA, may trade higher, Global Financials, IXG, and Dividends Excluding Financials, DTN, as well as Credit Investments, AGG, are trading lower, as the bond vigilantes have control of the Benchmark Interest Rate, ^TNX, which traded lower to 2.51%, but remains above support at 2.49%.

    The failure of credit, that is trust in the monetary authority of the world central banks, is beginning to cause the death of currencies, starting first with the Major World Currencies, DBV, such as the Euro, FXE, the Swiss Franc, FXF, the British Pound Sterling, FXB, and the Swedish Krona, FXS. And coups throughout the world, such as in Thailand, and the Ukraine, are starting to cause the dissolution of traditional democratic nation state governance.

    Inflationism is turning to destructionism.

    The world has pivoted from the age of currencies and the age of credit … and into the age of diktat and the age of debt servitude.

    On going disinvestment of currency carry trades and debt trades will introduce the much feared economic deflation on a worldwide scale.

    And out of soon coming economic chaos, people will come to trust in new sovereign authority and monetary and economic policies of regional economic governance and schemes of debt servitude to establish regional security, stability, and sustainability, where the debt serf is the centerpiece of economic activity, and ever increasing poverty is the way of economic life.

  6. Anonymous says:

    Hi Andrew

    You make a good point about the G-8 as Italy’s economic stagnation both absolute and relative has challenged its position on such a body.

    By the way interesting news from Canada “The Consumer Price Index (CPI) rose 2.0% in the 12 months to April,” has it created much of a stir in what are supposed to be times of disinflation?

    Was it the Canadian Dollar? “The larger year-over-year rise in the CPI in April compared with March was led by energy prices, which increased 8.4% in the 12 months to April, after rising 4.6% in March.”

  7. Anonymous says:

    Wow, Shaun, I am constantly impressed at how you keep
    yourself abreast of everything that is happening in the world economy, even the latest Canadian inflation numbers. The 2.0% inflation rate for April amounts to
    a forecasting error of Carneyesque proportions by the Bank of Canada as the April 16 Monetary Policy Report didn’t see the CPI All-items rising to the target rate until 2016Q1. It is all the more surprising as a big hike in the
    inflation rate in April was virtually inevitable.

    In April 2014 British Columbia reinstated a provincial sales
    tax (PST), eliminating the Harmonized Sales Tax (HST) it had had since July 2010. (BC voters most unwisely voted to get rid of the HST in a referendum in 2011.) Prince Edward Island instituted its own HST, replacing its PST, in the very same month. The HST is so called because it is harmonized with the federal Goods and Services Tax, which is basically a VAT. The provincial portion of the
    HST, which in BC was at a 7% rate, was applied on a lot of services that were not covered by PST. It also applied to new housing purchases, but due to special rebates, the effective rate was considerably less than 7%.

    Therefore BC returning to the PST led to a 1.1% decline in
    prices from March to April 2013. April 2014 was influenced by the exit effect of this one-shot decrease from the 12-month rate of price change, so BC inflation went from 0.1% in March to 1.5% in April, stimulating a big increase
    in Canadian inflation rate as well. Of course, the April 2014 change in tax regime in PEI had the opposite effect, but this lovely province is so small the exit effect of its move to an HST had little impact at the national level.

    The BC HST exit effect can be seen in a number of series at the national level. Food purchased from restaurants went from 1.0% in March to 2.1% in April, taxi services from 0.3% to 1.7%, clothing materials, notions and services from 2.5% to 3.4%, housekeeping services from 0.9% to 2.0%, household maintenance and repairs from 0.8% to 1.5%. (The latter would have had a bigger impact on the Canadian CPI and likely the increase in the component itself would have been stronger, were it not for the ill-advised decision to remove replacement expenditures, such as retiling of roofs, from the CPI basket,
    effective with the 2005 basket update). The Canada-level index for homeowner’s replacement cost of depreciation actually went from 1.6% in March to 1.5% in
    April. Nevertheless, the BC HST exit had an important impact on this component too. In BC the same index went from -2.0% in March to -1.6% in April.

    While BC switching back to a PST regime was a one-shot
    event, which caused the Canadian monthly inflation rate to go negative in April 2013 (-0.2%), from May 2013 to September 2013 the monthly inflation rate always
    lies between 0.0% and 0.2%. Therefore, just a repetition of the 0.3% monthly inflation rate for April 2014, month after month, will be enough to generate continuous increases in the inflation rate, exceeding the 2.0% target rate, to
    the end of the third quarter. Andrew Baldwin

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