I was out at a old (literally) mate’s 50th Birthday Party last night and because I wasn’t driving I probably imbibed far too much lager than is perhaps wise and as a result I got up extremely late today and I have consequently been in a bad mood and chasing my tail all day. Lord only knows when I will finish this Blog but I suspect I will be uploading it in the wee small hours and looking at the list of stuff I want to cover, I am not actually sure which day that will be on !!
First up let me just mention in passing that I have finally completed the Full Series of the Income Portfolio Blogs - I am pleased with what I have produced here but I won’t be lying if I say I am happy to see it finished - I always start things with huge enthusiasm and then as time goes on it starts to bore me and I have new ideas I want to be working on (not forgetting a long abandoned piece on a New Stock which I really will focus on finishing as my next Blog to come out - it is in quite a good state and I might end up splitting it into 2 parts just to get things moving).
In addition I have some thoughts on the Bitcoin Bubble which is nearly finished and I would like to get that out soon because it is highly topical - I even had a mate who has no interest in Stocks text me the other day asking if he should buy Bitcoin - I am not sure how much more evidence of a Bubble is needed before people wake up and smell the coffee - however, I suspect many people in the excitement camp lack experience of Markets and certainly have no real understanding of what features a Currency needs in order to be functional. Whilst on this subject, I must also put a Warning out to Readers to be extremely careful - there are a lot of Scams going on about Bitcoin and other Crypto-Currencies and a friend of mine was recently had with the Bitcoin Wallet/Exchange problem - he lost a fair bit so please be extremely careful if you do want to ride the Bubble. There are many Criminal Enterprises out there which are promising to give you Bitcoins in exchange for your Real Money and they create wonderful Websites where it looks like you have a lovely Wallet full of Bitcoin but in fact it is a Scam. Be careful.
I have finally broken the miserable run of Falls on my Portfolio and last Week my UK and Spreadbet stuff was up 1.3% and the Overseas Unit Trusts were down 1.6% which gave an Overall gain of 1.1% (the fall on the UTs was due to Currency effects mostly). As per recent Weeks the Markets have been quite Low Volume and choppy and my Stocks are all over the place with little consistent direction across them. I think CAKE did well after great results and the malaise in Big Divvy Big Stocks continues and surely this must change at some point - but many of them are still making Fresh Relative Lows which suggests more weakness rather than a Turnaround.
Great if you are buying for an Income Portfolio though.
US Tax Cuts
This is hugely significant and Trump managing to get his Bill past the Senate is probably the biggest achievement of his surreal Presidency so far - it needs to pass through Congress but my understanding is that this is more a detail thing than something that can actually stop the Bill - and Trump will at some point get it on his Desk for his Signature (assuming he can write - I guess he just dips his Hair in Ink and swabs it over the page).
I can’t remember the exact numbers but cutting Corporate Taxes down from 35% to 20% or whatever has to be a huge boost for US Companies and I heard some Geezer (‘Talking Heads’ - reminds me of that genius pee take of Trump to the tune of ‘Once in a Lifetime’ that was doing the rounds on Twitter last week - I will stick a link in in a mo) saying it could mean $1.50 of Earnings for the S&P500 next year - if you put that on a P/E of 20, which is not extreme by US Index standards, then it suggests a Target for the S&P500 of 3000 - it is currently 2642. Put it on a P/E of 22 and you get 3300 - so the potential for upside is obvious and from a Chart point of view it is clear that momentum is very much with the Bulls.
The other big thing of the Bill is the Repatriation of Cash held by US Companies offshore - just enabling this to happen will bring a huge Cash Injection into the US Economy - this clearly means US GDP Growth is likely to rise above 3% and this will mean it is one of the fastest growing Economies in the World - it is a very interesting experiment and if it works then it has to be likely that Europe and other countries who have suffered meagre Growth Rates for many years may copy their lead.
One of the truly bizarre Political stances of our Modern Polarised World is that Donald Trumpy and Jezza Corbes despite being seemingly at polar opposites on the Political Spectrum agree on one thing which is that in order to reduce Debt Mountains and to improve Living Standards for “the Many” they need to accelerate GDP Growth Rates. The difference is that Trump aims to follow the Reaganite model of reducing the Dead Hand of the State and enabling the Private Sector to crack on with doing things whereas Corbyn thinks he can achieve it by crushing the Private Sector and growing the Role of the State. The simple reality is that the Approach Corbyn outlines has been proven over and over again not to work whereas Trump’s Approach has had some success in the past - particularly with Reagan.
To be fair to Corbyn, for a short period after Communism first took hold in Russia they achieved incredible Growth Rates (although of course they might have been measuring the numbers in a dubious way !!) but the bane of such a way of running an Economy is that the lack of Motivation/Incentives (‘The Profit Motive‘) means that after a while the Growth evaporates and we get stagnation - in many ways this is exactly what has happened to the UK and Europe since the Credit Crunch as ‘Middle Way’ Politics has been far to like Socialism and we are now paying the price. Something needs to change and I am in no doubt that we are getting near that ‘Flash Point’ where we get a significant Political response - unless the Conservatives can wake up to what is happening it is obvious a Far Left (or Far Right) response will happen in coming years. Neither will be pleasant.
Something else that is very possible is that if Trump does manage to give the US Economy a boost, then it will almost guarantee a Second Term for the Orange Nutjob - I can hear Hillary crying from here…….
Link to Talking Heads Trumpy video - so funny !!
I wrote a Blog on what Trump’s Economic Policies could mean here a while ago:
December Track Record
2017 seems to have been one of the fastest years of my Life - many people say that as you get older the Years whoosh past ever faster and I must say it is hard to argue with this (the Young amongst you please take note and don’t just let your Life drift by - Take Control !!) - as a result, December is upon us in an Instant and no doubt Santa will be munching Mince Pies very soon (to the tune of Rudolph crunching Carrots).
But we shouldn’t by any means despair - barring any utter disasters, 2017 should close out with reasonable Gains for most Portfolios (obviously on the proviso that they contain Quality Stocks and are sensibly diverse and appropriately managed) and I will be resetting my Numbers for the start of 2018 and I must start thinking about any changes to my Approach I really must make and what my Plans/Rules for 2018 need to be. The other cause for Celebration is that December is officially ‘The Best Month of the Year’ for Stockmarket Returns - Hurrah !!!
According to the UK Stockmarket Almanac I have (it is a bit Out of Date as it comes from 2016), on average the FTSE100 tends to gain 2.3% over December and since 1984 when the Index was first created, there have only been 5 years of falls - and that is over 29 years (this means that 82% of Years have given a positive return in December). Something else worth noting is that this is not just a UK phenomenon - across 70 Worldwide Equity Markets, December gives the best returns - this has particular significance that I will come on to in a bit.
A typical December sees 2 weeks of steady gains and then the Market “goes into overdrive” for the final 2 weeks - I find this interesting because from my memory it always seems that the first 2 weeks are a bit soggy - that is probably my misconception and yet another example of how Psychology can affect my interactions with the Markets.
The Legendary Robbie Burns (the Naked Trader) did a piece on ADVFN recently where he talked about playing the ‘Santa Rally’ with a Long Spreadbet on the FTSE100 which you place around 14th December - or something like that. He reckons you often get a 400 Point rise from then until the last Day of December and if you slam a Spreadbet on (with a Stoploss - although I did think the Stoploss he mentioned in the Article was a bit too wide) then it can be a sweet way to exploit a very well established Trend. I did this myself last year and did ok on it and I expect to be doing similar this Year - no doubt I will be entering this on my ‘Trades’ page (and Twittering) if it does happen but because of the Currency Impact with a volatile Pound Sterling I might instead go Long on the S&P500. The Catch with this is that the FTSE100 tends to outperform but I have a particular dislike of the Major UK Index at the moment because it is so hard to predict.
Other than that my Strategy remains the same - stay 100% Long and think seriously about how to reduce my Long Spreadbet Exposure a bit - but I am in no rush to do this although I want to get my Positioning right for 2018. At this point in time I am not worried about 2018 and I expect we will most likely see more Gains but perhaps they will not be so easy as the Gains in 2017 have been.
Something I noticed in Chris Dillow’s Economics Column on Page 12 of this Week’s Printed Investors Chronicle was that the NIESR is expected to report that UK GDP Growth has improved in the 3 months to November - and this will be corroborated by Data from the Purchasing Managers people and the ONS should report an improvement in Manufacturing Output - although the Data is mixed and there will probably be some less flattering reports. However, with a background of Economic Growth picking up Globally (and US Tax Cuts will help this a lot), my suspicion is that all the Doom Dealers will be proved wrong and the UK will be dragged up with everyone else. This could be extremely useful to avoid a Corbyn Government which is what Market participants really should be fearing.
Having a Long Portfolio of Stocks and Voting for Jeremy Corbyn are utterly incompatible.
It is also worth considering that Stockmarkets tend to fall when there are Economic Slowdowns and Recessions - if Global Growth is strong, then that is a sweet backdrop for 2018 but of course things can change quite quickly.
Things had gone quiet with regard to “Little Rocket Man” but at the end of last week the People’s Republic launched yet another Missile. I don’t think we need to panic yet as this coincides with the US and South Korea doing yet more Military Exercises and there is a clear correlation. Something else to keep me reasonably relaxed at the moment is that I saw some sensible sounding ‘Expert’ saying that it is one thing to create a Missile which can reach the US but it is entirely another to be able to achieve the same once you stick a Heavy Nuclear Bomb on the top with the technical challenges that presents. As ever with ‘Experts’, and particularly with Politicians, you need to turn on your own brain and think deeply about what they are saying and how likely what they say is to be the truth. I think this Guy was pretty much on the ball and it means that NK is probably about 18 Months to 2 years away from creating a viable weapon - so this could drag on for a long time yet.
However, before we get too horizontal (“more laid back than a sliced smoked salmon” as we used to say) we need to consider that Trump seems to be almost utterly irrational (and Little Rocket Loon is almost matching him on this scale) and there are voices in the Republican Party calling for the US Administration to remove all US Nationals from South Korea and it seems almost inconceivable that Trump would allow NK to get a viable Weapon that could hit not just Hawaii and Guam etc., but also US Mainland Soil. Of course China is key to all this and they could turn off the Crude Oil Taps to NK - but as yet they don’t seem to be doing this. It is a complex problem - as much as China probably doesn’t want NK to have proper Nuclear Capability, they also don’t want chaos on their Border and the Migration problems and consequent instability within China that War with NK would bring - so this could drag on and on.
It is hard to believe that the US would act without China’s permission but we mustn’t underestimate either the Military Might of the US or the craziness of its President - and War although unlikely is certainly possible. If we do get to such an awful situation, then I have no doubt that Stockmarkets would Collapse big time - this is the normal course of events and we saw it with both the Iraq Wars which were just a minor Regional Skirmish compared to the significance of the US in effect going up against China. It would be extremely ugly and that might be just about the only scenario where Gold actually goes up !!!
Talking of which we had some excellent News from Golden Prospect GPM this week - it essentially means we get a FREE Option on the Gold Price whereby if it rises we can make a lot of Money and people who don‘t hold GPM still have time to get in and qualify for the FREE Option. If the Gold Price falls, then we don’t need to take up the Option - it is very sweet.
Anyway, as yet I don’t see a need to panic but it is a problem which is likely to rumble on next year and it must be monitored for signs of the Worst Possible Outcome actually happening - “Keep Calm and Carry On” (apologies for the War connection……..)
My Mood has now shifted from plain Bad to Depressed……
These Blogs on a Sunday Night are supposed to includes loads of Charts but I seem to have got majorly distracted this Week and because I am running late I will just keep writing and shoving in the odd Chart until I feel like I have timed out and need to bring things to a close and get on with the Proof Read and uploading it to the Website. Anyway, we are finally on to some Charts I hope but no doubt a few words first (I can never be accused of being ‘Brief’ and ‘Skimpy’ with my wordsmithing).
When working on the final Income Portfolio Blog it came to my notice that many of the Big Diversified Commercial Property REITS (Real Estate Investment Trusts) have got pretty beat up and are now on quite wide Discounts to NAV (Net Asset Value) and also are due to pay pretty meaty Dividend Yields. What seems to be causing this is the Fears around London Property Prices as a result of Brexit due to Banks leaving London for the EU and uncertainty in general around Brexit with regards to Big Companies. On both counts I suspect this is wrong and therefore at some point these kinds of Companies could be excellent Buys with considerable Upside.
Firstly with regards to the ‘Banks’ Brexit Exodus’ this looks hugely overdone and if anything Banks are actually adding to their Office needs in London. It is clear that many Banks are setting up EU based Operations but mostly this is ‘Nameplate’ Offices which are merely to Hedge their Bets with regards to the Outcome of the Brexit Negotiations. My hunch is that all the concerns from the ‘Remain’ side are incorrect and once all the Political Posturing is played out we will find that UK Banks have full access to the EU based around a Special Deal which is related to the ‘Equivalence’ Rules which the EU has.
Stephanie Flanders (a ‘Remain’ Voter) was on the Daily Politics on Friday on BBC2 and she had to admit that the talk of Banks moving to within the EU has just not happened and that Economists have been proved wrong on pretty much everything (the only correct prediction was the fall in Sterling and this could even have been down to the Bank of England dong the Emergency Rate Cut) - and her only continued claim along these lines is that “in the Long Term” there will be such a move to the EU but clearly if the UK gets access via the Equivalence Rules then this is highly unlikely. There are several reasons why London will remain the dominant force it is within the Global Financial Industry - firstly something like 65% or more of the EU’s Funding requirements with regard to Bond Issuance and suchlike is performed in London - the basic fact is that the Skills to do this kind of work do not exist within the EU and a major flaw with the argument that Banks will move to the EU is that, as always, the Political conflicts within the Bloc with all of the constituent Countries being only really interested in their own narrow desires mean that they will be unable to decide if the Centre for Finance in the EU will be in places such as Amsterdam, Frankfurt, Paris, Brussels etc. etc. - this in itself means that the work will stay in London.
It is a fantasy of the Remain Side that London has no particular specialisms and Banks can simply just move to within the EU. There is a unique combination of History, Culture, Appropriate Regulation, Attractive Personal Tax Rates, Language advantages, unrepeatable Skills, Network Effects which make relocation impossible, Timezone advantages, Rule of Law etc. etc.
As I mentioned above, if UK Banks get Access to the EU under Equivalence then there will be little movement to the EU and even if such Access is not granted it will have limited impact and the Banks are already preparing for such an Outcome by opening EU Offices.
With regard to the Big Companies that are not Banks etc., as I have consistently said, as long as the move towards Escape from the EU is slow and measured (so far this has very much been the case despite all the nonsense being said about Brexit on the BBC etc.), then Brexit will have very little negative impact on the UK and over the Long Term the freedom we gain will be of huge benefit - providing of course that we avoid a Corbyn Government which will be dire for all people within the UK. Such avoidance of an Economic Calamity will mean that the Fears over London and the knock-on to London Commercial Property Prices means that the Sell-off in REITS with London Exposure is probably mistaken - and at some point the Falls should bottom out and then start to be reversed.
It is important to understand what a Big Discount to NAV actually means. There are 2 ways to interpret this - firstly it could be that my hunch is correct and the Discounts are unfounded and ‘The Market’ has got it wrong but alternatively it could be that The Market is correct and the Discounts to NAV are a precursor to Commercial Property Valuations being downgraded and the Share Prices are anticipating this.
There are 2 reasons why I think the latter view is wrong - firstly from reading what the Big London REITS are saying, they have all been able to raise Rents and this doesn’t sound like an Environment where Property Valuation Downgrades make sense. Secondly, the reasons I gave above on why the Banks’ Exodus is probably wrong and why UK Economic Growth is not falling off a Cliff (another Remain fantasy) support my view that the Discounts are unwarranted.
So what does this mean in terms of the Charts and stuff - let’s look at some:
British Land BLND
This one is now on a Forward Dividend Yield of 4.9% and a Discount to NAV of around 30% which are pretty attractive numbers - even just for the Dividend. Note as per my Chart below in the bottom Right Hand Corner, BLND goes ExDiv on Thursday 4th January 2018 for 7.52p per Share (as always, these Wonderful Charts are from the Divine ShareScope Software which I use and if you click on them they should grow bigger for you and you might be able to see some details).
I had forgotten that I looked at BLND in my Weekend Charts a few Weeks back - and it looks like what I was most likely talking about with regards to a Triangle Breakout to the Upside has come to pass. Beautiful. If you look at my Chart below, the Triangle is formed between the Black Line (Black Arrow) and the Blue Line (Blue Arrow) - and where my Green Circle is, the Price has popped out to the Upside - it’s a truly gorgeous Chart and suggests more Upside here - so maybe the Market is now starting to agree with my thoughts on the Brexit Fundamentals.
Zooming in, my Yellow Circle is pointing out an ‘Inverted Hammer’ Candle from Friday - this suggests we might get a Pullback a bit in coming Days - so Buyers of BLND might want to see how that plays out before committing in a big way.
Note also the movements of the Blue Wiggly Lines which are the 50 Day and 200 Day Moving Averages (if you look at the ‘Graph Legend’ Box in the Top Right Hand Corner you should be able to figure out which these are. ‘Graph Legend’ makes me think of Zak Mir…….) - the 50 Day looks like it is curving up towards the 200 Day from underneath - if it crosses over we get a Bullish ‘Golden Cross’ and this would be superb news for Bulls (I want to make some Bull noises now but I am not really sure how to do this in Words - maybe some Snorting and Hoof stamping - go and sniff your Bovril Jar if you want some realism and ‘SmelliVision‘).
The Chart below backs up the Inverted Hammer and is consistent with the idea we might get a Short Term Pullback - my Black Arrow is pointing to where the Peak on Friday Intraday hit the Upper Bollinger Band (the Blue wobbly Lines here) and then turned down.
On the Chart below my Black Arrow is pointing to where we were treated to a Bullish ‘Golden Cross’ between the Red Squiggly 13 Day Exponential Moving Average (EMA) and the Green wobbly 21 Day EMA. This is a good hint that we can expect more rises here, although we might get a little Pullback as I have suggested before continued upside.
EMAs are similar to MAs but the way they are calculated gives more emphasis/weighting to recent Day’s moves.
Land Securities LAND
As with many of these REITS they are not entirely London-focused and they have a diverse mix of Commercial Property types - I am not fully in the know on what LAND holds but I think it has a lot of Retail stuff and Offices - which might explain why it is a weaker Chart than the BLND one - Retail is a pretty unloved Sector at the moment (BLND has little Retail exposure I believe).
With a nod to the Fundamentals, LAND is on a Forward Dividend Yield of 4.7% which isn’t too shabby and it is on a Discount to Forward NAV (according to Peel Hunt estimates of 1432p) around 35% which is pretty wide.
But like I mentioned, the Chart looks ropey still and BLND would make a better Buy at the moment I would postulate. On the Chart below my Red Line with the Red Arrow is showing a Long Term Downtrend Line which will be quite tough for the Price to get over - and before that happens there is a lot more crossing of Resistance that needs to be achieved as I will show in a tad.
My Blue Arrow is pointing to a Bearish ‘Death Cross’ between the wiggling Dark and Light Blue Lines which are the 50 and 200 Day Moving Averages - check out the Zak Mir box in the Bottom Left Hand Corner.
On the Chart below I have zoomed in and the Red Line at the top with the Red Arrow is the same one as on the previous Chart but I have now introduced 2 Parallel Black Lines which are marking a Downtrend Channel which is currently very much in force and this would not be a Stock to Buy until we see the Price breakout above the Upper Line of that Downtrend Channel which I have marked with my Black Arrow - this means a move up above about 980p maybe.
Down below I have put a Green Horizontal Line (Green Arrow) at about 912p - as long as this Line holds as Support, then maybe the Price is starting to Bottom-Out - a break below this Line would suggest more falls and I would guess 900p would be an Important Support Level. At the moment, this is not a Stock to buy but of course the beauty of this is that if it keeps falling in the Near Term, then the Gains to the Upside will be bigger when the Breakout finally comes. It is one to stalk.
ConvaTec Group CTEC
This is one that came up on Twitter this week and I thought it would be a good Chart to look at. They came to Market in an IPO recently and looked to be something that might have potential but as it turned out, things have gone a bit smelly (must be all those old Catheter Bags as they do Medical Equipment) and they have been quite troubled. No doubt at some point this will change and it could be one to keep an eye on but it needs some time in Rehab before it becomes something worth buying I suspect.
It is on a Forward P/E of 14.9 and a Forward Divvy of 2.5% - of course there is a Risk they miss these Numbers and I think that is very possible - it is rare for a Profit Warning to be on its own and normally they come in a series over time and the Analysts have to downgrade their Forecasts again and again.
The Chart below is remarkably similar to the situation at LAND - this goes back to the Full History of CTEC since the IPO and you can see the Uptrend after it Floated and then the Downtrend which has followed. My Green Arrow is pointing to a cracker of an ‘Inverted Hammer’ Candlestick and it is uncanny how this predicted the problems - it does make me laugh when ‘Fundamentalists’ poo poo this Candlestick stuff. My Yellow Circle is highlighting where we had a Bearish ‘Death Cross’ between the 50 and 200 Day Moving Averages (the Dark and Light Blue wobbly Lines).
My Black Line (Black Arrow) is pointing to a Dominant Downtrend Line which needs to be broken above for Bulls to really make progress - this looks some time away unless CTEC gets a Takeover Bid or something, which is perhaps a possibility. To the immediate Downside, my Red Line (Red Arrow) at 182p must Hold as Support - if this fails, there could be a fair bit of Downside Risk here I suspect.
Right, I would love to write more tonight but I have timed out as it is now 12.30am - I need to Proof Read it and stuff so I need to close it off here. I hope everyone has an enjoyable and bounteous week on the dosh front,
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