Bull and bear: Markets say “buy! Buy!” as it emerged Buffett made a play for NYSE - The Share Centre Blog

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Michael Baxter

Bull and bear: Markets say “buy! Buy!” as it emerged Buffett made a play for NYSE

Written by: Michael Baxter on January 29th 2013

Category: Bull & Bear, News

Bull and Bear – an optimistic and pessimistic view of investment news. Today’s stories: Markets say “buy! Buy!” as it emerged Buffett made a play for NYSE. Sterling falls again as UK cars see export lift. Marks and Spencer in Chinese stumble. Amazon moves into advertising. Turkish stock exchange crashes

Markets say “buy! Buy!” as it emerged Buffett made a play for NYSE

Warren Buffett’s thoughts are often contagious. When he decides there is a reason to feel bullish, the rest of the world often catches the bullish bug.

It emerged yesterday that the great man made an offer for the NYSE Euronext last November. His bid for the massive stock exchange company was not successful; instead the spoils went to IntercontinentalExchange, which bid $8.2 billion. But, or so went yesterday’s reasoning, that is not the point.

The point is, continued the argument, that the world’s most successful investor thought the stock exchange company was worth a punt. And that rather implies that Buffett is feeling confident.

Of course, a stock exchange makes money out of volume. It can do well out of sell-offs as well as  booms, but what really matters is that lots of people want to buy or sell. In the medium term, however, bear markets are not so good for stock exchanges. And Mr Buffett is famous for his long-term approach.

So there you have it. The master thinks shares are set to rise. Since markets have already been coming around to that view anyway, the news on Berkshire Hathaway’s attempt at buying into the stock exchange business may well be enough to trigger another round of buying. It must be great to be Warren; to know that when word of what you did last year gets out, shares will rise. Presumably Warren can act on this knowledge and no one can accuse him of insider dealing, but if a third party found out in advance what Mr Buffett did, and acted accordingly, they could be accused of that crime.

News on US durable orders – up 4.6 per cent month on month in December – also helped the overall good mood.

Actually, markets paused in the US yesterday. The news on Berkshire Hathaway’s bid for NYSE and Euronext came too late in the evening to lift markets. But then again, with the Dow up 6 per cent so far this year, no one is complaining.

But the FTSE 100 enjoyed a good one, passing 6,300 yesterday and closing at 6294, which is the highest closing price since January 2008. The index has risen by 722 points since the last day of 2011, and is now just  427 off the 21st century high of  6721, set on 1 October 2007, and 636 points shy of the all-time high of 6930, set on the penultimate day of the last millennium.

And while equities rose, bond yields fell. The yield on UK ten year treasuries stands at 2.0889, which is the highest yield since 1 May last year. The yield on US treasuries has also seen strong rises in recent weeks.

So does this mean the bond rally is over, that the bubble is bursting? John Higgins at Capital Economics said: “An analysis of the seven major prior tightening cycles in the US since the early 1970s suggests that the 10-year yield may remain firmly anchored throughout most of 2014. Accordingly, our forecast for the end of next year is still only 2 per cent.”

Sterling falls again as UK cars see export lift

At the time of writing, there are just 1.1688 euros to the pound. That means sterling measured in euros is now at a 13 month low. In part this is down to investors buying into euros, rather than selling sterling. Recent hopes – naive hopes maybe, but real hopes nonetheless – that the Eurozone is past its worst have helped lift the currency.

But sterling is also down against the dollar. There are 1.574 dollars against the pound at the time of writing, which is a six month low.

Okay sterling’s falls against the dollar are not as steep as the falls against the euro. But it is clear that investors are worried about the UK, and its safe-haven status is being questioned.

It is fascinating to note, however, that – according to the Society of Motor Manufacturers and Traders – the UK car industry exported no less than 82 per cent of all cars made in the UK last year. In all 1.2 million cars were exported, and that was a record. The cars exported were high margin vehicles too – luxury cars, including the mini (it’s odd isn’t it to see the mini described as a luxury car). The German car markets enjoy a similar proportion of exports, but in France only 62 per cent of cars produced were exported and in Japan the ratio is 52 per cent.

But in the UK, Brits like buying their cars from abroad. A high proportion of domestic UK car sales are imports. This meant that overall the UK still had a trade deficit in cars, albeit at a mere £150 million in 2012, which is the smallest deficit for the sector since 1975.

There are many reasons for the UK’s relatively good performance in car manufacturing, but the fact that in 2012 sterling was cheap relative to the euro compared to a few years earlier must have helped, and recent falls in the pound must be helping some more.

Assuming sterling’s weakness continues (and remember, the Bank of England says the UK needs the pound to be cheaper) then the UK’s exporters should be the beneficiaries. This is something that investors may want to bear in mind.

Marks and Spencer in Chinese stumble

According to a report in the ‘Telegraph’, Marks and Spencer’s sales in its 12 outlets in China are 30 per cent down on internal targets. See: Marks & Spencer missing Chinese sales targets 

In the UK Marks has problem, and the problem is dowdy clothes, at least that is how it seems from the writer’s perspective.

The company’s CEO Marc Bolland recently suggested that the company is enjoying positive trade in India and China.

But M&S has no God given right to rule high streets across the world. For all the talk about strategy and acquisitions, it needs to sell good products at good prices and present its wares well. It is not doing that in the UK, so let’s hope it is not failing in similar ways in China.

Amazon moves into advertising

In the battle between the giants – that’s Apple, Google, Facebook, Microsoft, and Amazon – the online retailer has made an interesting move.

Amazon is moving into online advertising. The principle is simple: if Amazon doesn’t sell a product, companies that do can advertise on Amazon. So that means advertising as well as promotions to buy products from Amazon on its Kindle range of products, for example.

It’s a positive move, but probably not a surprising one.

But what is the difference between advertising and online sales these days? So Amazon sells a product but doesn’t stock it. Instead, whenever an order is received, it buys the product in from a supplier and ships it out. Sometimes the supplier can send the product to the customer directly.

You can see how the boundary between advertising and online selling is blurring.

But that is an important point. As advertising and retail become much the same thing, money that might once had been spent on rent for a High Street location, or a widow display, or in store presentations, is spent on advertising and search engine optimization. That is why the revenue opportunity for the big players in this game is so vast, and relatively so untapped.

Turkish stock exchange crashes

Shares in the Turkish stock exchange fell nearly 5 per cent yesterday.

Credit Suisse got the blame, or at least it got the partial blame. In a note, it warned that the recent strength of Turkish banking stocks may not last.

But don’t write off the Turkish economy. Despite yesterday’s fall, the ISE 100 (that’s Turkey’s main stock index) is up 3.5 per cent this year and up 40 per cent since the start of 2012.

Was yesterday’s fall one of those corrections you get in a bull rally or something more sinister?

This question will re-visited here shortly.

These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Tags: Amazon advertising, car exports, equities versus bonds, ISE 100, Marks and Spencer China, Sterling pound euro, stock exchange Turkey, Warren Buffett NYSE Euronext

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