Posted by IndependentInvestor on July 9, 2010 under Stock Market News | 
We’ve done a lot about how contracts for difference and spread bets are affected by the austerity budget and also about which sectors to look at. How about looking at which companies are likely to grow?
The first thing to do is to sell short companies that are dependent on government contracts. It is true that there will be a large amount of business shifted out to the private sector as this is an easy way to save money once the unions are broken, however this is not going to compensate for the cancelled expenditure and newly tough contracts that will be imposed.
This stretches wider than many people will realise. Two small examples are builders who will be hit very hard by the fall in school building and anyone exposed to the railways which will see a heavy cut in subsidies. Local government work should also be looked at as another area which will be cut back sharply. It is a certainty that local governments will be on the frontline of any cuts as they face a taxpayer revolt and lower settlements from the central government.
So what will do well? Companies with a large exposure to the private sector will do quite well. Looking at builders, it will be the house builders like Barratt, even if house prices go down as they need to sell houses rather than simply sit on high valuations. Similarly if you have an exposure to exports then you are likely to do well, particularly companies that export machinery to farmers and manufacturers.
Posted by IndependentInvestor on July 6, 2010 under Stock Market News |
The budget could have been harsher, but no one is really sure how. George Osborne raised taxes, cut spending and promised more pain. There are departmental budget cuts of 25% that are being talked about and there is a lot of shock across the political class.
The first thing to remember about the budget is that this was not in the script during the election. The Conservatives started talking about austerity but lost a large lead in the polls because of it. The Liberal Democrats agreed with Labour that while there should be some spending cuts, they didn’t need to be as sharp or as soon as the Conservatives were suggesting. And even if the party manifestos talked about the need for some belt tightening, the election campaign was dominated by promises of higher spending and tax reductions, although admittedly they were far fewer than in previous elections.
The public do not seem to accept that cutting the deficit involves real choices that will affect them, although this does seem to be changing.
So why are the government trying it? Well firstly the Labour Party is in disarray. Although Labour did far better than expected (although we called it) they realise that they have been roundly rejected and they are currently in a fight for the leadership.
There is also a distinct lack of rebellion on the Common’s benches. The Liberals are surprised to be in government, and the Conservatives are amazed to be there at all, 47% of Conservative MPs are new.
The budget is going to be cut faster than Labour would have done it, but it is not going to be cut as fast as they are claiming that it will be. Political reality dictates that they have put the most electorally painful measures first – unless they are forced by the markets.
This probably means that sterling is overvalued, that future interest rates are going to be higher than the market is predicting and that dividends are likely to be higher. So going long on the FTSE and short on the pound may be a good idea.
Posted by IndependentInvestor on June 21, 2010 under Stock Market News |
OK we called it wrong on BP. We still may be right, and the fundamentals look good, but management is all important at times of crisis and when you’ve got an American President who seems to blame the British for everything, a Swedish chairman who tells everyone that he really cares about “the little people” and a chief executive who says that he wants to get his “life back” then you are looking at a lot of trouble. And despite a recent relief rally, BP’s management has let down its shareholders. It may be oversold, but it’s oversold for a reason.
So we hesitate to recommend another B, this time BA. The arguments are almost the same. There’s a current squall, in this case a fight with its Heathrow based cabin crew and a business that is in a growth industry and with, finally, a grip on costs. It also has a strong management team and a divided union fighting it.
Unite, the union that is behind the current strike, is finding it hard to hide its irritation with its militant branch called the British Airlines Stewards and Stewardesses Association (BASSA) and realises that it needs some capital with the public if its going to hold the public to ransom over the public sector cuts that the bulk of its membership are going to suffer. And there’s the small matter of its ties to the Labour Party, which means that there will be enormous political pressure from a party that does not want to be seen as a stooge to the unions.
So sooner or later the strike will crumple and the union will be broken. BA will be a good stock to buy again. BP is still a long term bet due to its weak management, but BA has a strong management team and is set fair to break the back of the union. Go long.
Posted by MoneyWrite on June 15, 2010 under Stock Market News |
With the current debate about the rise of Capital Gains Tax many people are looking at spread bets as a way of getting around capital gains tax while still being exposed to the share market. Another area where both contracts for difference and spread bets really work well is with stamp duty.
Stamp Duty is charged at 0.5% for every transaction that is made. This may not sound like an enormous amount of money when compared to the 18% Capital Gain Tax, particularly when this rate could move to 50% for some of the highest rate tax payers. However the rates can be somewhat deceptive.
The first thing to remember about Stamp Duty is that it is charged on every transaction, and with most share deals there are two transactions – the buying and the selling. So it will cost 0.5% when buying and 0.5% when selling. If the share is at exactly the same point when bought and sold that will come out to about 1% of the value.
The other thing to remember is that there is no ability to offset losses, there is no annual allowance of more than £20,000 for a married couple and if there are two buy and sell transactions every month for a year then the stamp duty will be 48% of the value of the shares.
Contracts for difference and spread bets are both exempt from stamp duty. While this is not a big issue for a buy and hold investor, it is a big issue for a frequent trader and yet another reason to look at these great routes into investment.
Posted by MoneyWrite on June 3, 2010 under Stock Market News |
David Laws has been lost as the UK’s Chief Secretary of the Treasury. And verily there was much gnashing and wailing of teeth. According to George Osborne, the Chancellor of the Exchequer, this was the job that David Laws was “put on earth to do”.
So what does this mean for the markets, particularly for CFD traders and hedge betters? In the short and long term not a lot, but it could be quite significant in the medium term.
In the long term the government is either intent on cutting the budget deficit and keeping the UK government credit worthy, or it is not. The last Labour government did have signs that it was prepared to throw away Britain’s credit rating in order to get the next election, but this was temporary. The British government may very well inflate away a lot of the debt, but it will not formally default. The bond markets will keep the government straight.
In the short term the markets know this. David Laws is to this extent simply interchangeable with whoever else is there. The markets in the short term will look at the long term, and be happy.
It is the medium term that matters. In the medium term we are putting someone in as Chief Secretary of the Treasury who has not done anything remotely financial since he studied economics as a minor subject at university.
Unlike Laws Danny Alexander is a political animal. He will have to make a lot of financial decisions. It is a good idea to bet that he will get a lot of the decisions wrong in the short term as he makes the political decision first.
After all if the bond markets are going to keep the British government straight then they will need to administer some punishments as they do it.
So when there’s a difficult decision coming up then it may be a good idea to bet that they will take the wrong decision at first. There will be plenty of opportunities to short gilts and sterling in the next few years.