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Bull and Bear – an optimistic and pessimistic view of investment news. Today’s stories: The last hurrah, US sees more good news on eve of self-destruction. Advisors look at VCTs. Microsoft finds itself a new ally. Capital Economics’ predictions for next year. Companies in the news, Weir Group, IGas Energy, Mulberry, Burberry diamonds


The last hurrah, US sees more good news on eve of self-destruction

The good news on the US economy keeps coming in, but the bears can remain happy. US politicians showed they are quite determined to make up for the good news with crass stupidity.

So here is the last piece of good news: it relates to the US housing market.

According to the National Association of Realtors, sales of existing homes in the US rose by 5.9 per cent in November on a year ago. That took total sales to 5.04 million, and that was a three year high.

Meanwhile, official data on US growth was revised upwards. It now appears (appears being the key word here) that the US economy grew by 3.1 per cent on an annualised basis in Q3. The previous estimate had the economy expanding at 2.7 per cent.

What with US employment at an all-time high and unemployment falling to 7.7 per cent in November – the lowest level since Obama moved into the White House – and with US consumer confidence recently approaching a five year high, there are reasons galore to be bullish on the US economy.

Except that corporate profits are not so good, and while consumers may feel more confident businesses don’t, with investment being disappointing. It is a little odd. Households are still heavily in debt, and yet they are more confident. US companies have so much money they don’t know what to do with it, but they lack confidence.

But then US politicians came along and did their very best to turn bulls into bears.

It is very hard to think of better words to describe the attitudes of some politicians than ‘bloody minded’.
So the story runs like this. Obama has agreed to increase the upper tax rate for those earning more $400,000 a year. Republican leader of the House of Representatives, John Boehner, was willing to agree to increasing tax paid by the very richest, but only those earning more than $1 million.

So the compromise stood between $400,000 and $ 1 million.

So what does Mr Boehner do? Why, he decided to put his plan to the Republican controlled House of Representatives. If his bill had been passed, it would then have been put to Senate, which is controlled by Democrats. Senators would surely have rejected the plan, but at least, then Mr Boehner could have claimed the moral high ground, and said: “Well, I did my bit”

Alas, last night the Boehner plan collapsed, because there was insufficient Republican support.

Looking at this from the point of view of an outsider, it rather looks as if the Republicans have shot themselves in the foot. Will the American people forgive them?

But there is one point to make: the attitude to taxation in the US seems to be little short of hysterical.

Americans are subjected to a deluge of biased advertisements and editorial, and there seems to be little attempt at any form of objectivity at all. The UK media might be bad, but frankly they are saints compared to some parts of the US media.

There seems to be a genuine feeling in the US that high taxation is destroying the country’s enterprise culture.

Why Americans should think this when taxation is not far off a post world war 2 low, and US government spending to GDP has barely changed since the 1960s, is a puzzle.

Advisors look at VCTs

According to Albion Ventures, one of the largest independent venture capital investors in the UK, an overwhelming majority (83 per cent) of advisors are encouraging their clients to supplement their pension with other retirement saving strategies as a result of the changes announced in the Chancellor’s pre-budget report.

As a result of the changes, nearly half (45 per cent) of advisors think more investors should consider Venture Capital Trusts (VCTs) as a tax efficient way to supplement pension savings.

Microsoft finds itself a new ally

HTC, the Taiwanese smart phone and tablet company, appears to have sided with Microsoft. For the Seattle based software company this may well prove to be a major coup.
So this is what has happened.

According to Bloomberg, HTC is working on a 12 and 7 inch tablet to work off Microsoft Windows RT, using ARM technology. The products are due to be released in the latter half of next year.

According to researcher Canalys, at the end of last year HTC sold more smart phones In the US than either Samsung or Apple. And according to Interbrand, HTC stands at 98 in the list of the world’s most valuable brands.

In the battle between Apple, Android/Google and Microsoft, the key lies with critical mass. Long term success depends on the software or, more specifically, the apps. And support from apps producers only comes if hardware makes a format attractive to support.

If Microsoft can count HTC as an ally, then its chances of wrestling in on the tablet market and hitting critical mass will increase significantly.

According to Bloomberg, Microsoft initially rejected HTC as an early stage partner in Windows RT, but the two companies have since been working together more closely.

Capital Economics’ predictions for next year

Capital Economics predicts that in 2013 growth in advanced countries will remain low, while the combination of austerity and woes in the euro areas will hit the UK economy hard.

It reckons Japan’s economic performance will be poor too.
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As for the US, it reckons the economy will grow at what it calls a decent pace, and that US unemployment will continue to fall down to 7 per cent. I’m not sure how it thinks this prediction will be affected if the US does indeed fall off the so-called fiscal cliff.

As for QE, it expects more; more in the US, the UK and Japan. Not that this will make much difference, and it also remains very doveish on inflation.

As for emerging markets, it anticipates slower growth, with the slowdown in the West and structural problems in the BRICS combining to hit emerging markets. It does however anticipate slightly higher growth in China.
It reckons stock markets will struggle and the S&P 500 will lose 4 per cent over the year. But it thinks stock markets in emerging markets will do even worse. For example, it says Eastern Europe is vulnerable to the problems in Europe. It reckons the MSCI will lose 14 per cent.

As for bonds, it expects high grade government bonds to remain popular, supported by loose monetary policy but anticipates problems for lesser rated bonds. “US corporate bonds and dollar-denominated emerging market bonds have returned 10 per cent and 18 per cent, respectively, in 2012. But they may struggle in 2013 as investors batten down the hatches,” it said.

It thinks most commodities will lose next year, falling in price with the notable exception of gold, which it expects to rise to $2,000 an ounce during the course of the year.

Companies in the news

Bull: At the ‘Times’, Tempus turned the spotlight on Weir Group, which has invested £1.1 billion on equipment serving the US shale gas market. The company is looking to build a vertically integrated operation in the shale gas sector, which it can then export to China. This is why Tempus likes it.

As for the UK shale gas opportunity, Tempus took a look at IGas Energy. It said that the company is a speculative but potentially profitable punt.

Meanwhile at the ‘Telegraph’, Questor’s Gary White reviewed diamonds and gem stones . He likes what he sees.

Luxury goods companies Mulberry and Burberry got the thumbs up. Both companies have a great future said Gary White, especially Burberry, which is more diversified. But Mr White felt share prices were a fair value of the potential so he said “hold”.

 

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


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