Boris to Win 43 Seat Majority Says Meta-Poll

You’ve heard of meta-analyses, where academics who can’t be bothered to do their own research just nick everyone else’s hard work, crunch the numbers a bit, and come out with a super-accurate result? Well here is our META-POLL. After much reading of the papers, surfing the net, and even talking to people, we have concluded that the Tory party will win. (Bet you saw that coming eh?)

Why do we think that?

  1. Farage folded, as predicted here recently, avoided splitting the leave vote, and crowned the Tories as winners

  2. The Labour manifesto was written to appeal to hard-line left wingers – who would have voted for Jeremy anyway. Only the naïve or those too young to remember the 1970s could think that nationalisation is the answer. (See our earlier report on rail user numbers pre- and post – nationalisation). The “free” broadband idea went down well, but the practicalities are horrible. By the time it is built, at five times the original cost, technology will have made it obsolete. And the big beneficiaries will be the farmers and isolated rural communities – who will not be voting Labour under any circumstances. Meanwhile, their fence-sitting on Brexit feels a bit like “Follow Me….. I don’t know where we are going, but Follow Me!”

  3. The Liberal Democrats have shown themselves to be neither liberal nor democratic. Their reverse Article 50 campaign can only appeal to the most die-hard europhiles. Meanwhile, Jo Swinson has not done well. Her claims to be PM in waiting invite the retort that she’ll be waiting a very long time.

  4. The Tories have avoided a May-style manifesto-suicide-note. Divisive figures such as Rees-Mogg have been kept out of the limelight. Boris himself has picked his battles carefully, with more to lose than win.

So what happens now?

There are still considerable risks for Mr Johnson. Will the left-leaning students be too busy recovering from their end-of-term parties to vote?

Students preparing to oversleep and miss voting

Just how many people were too embarrassed to tell pollsters that they would vote Tory (but will anyway)? Will tactical voting have any impact? Will Mr Trump try to intervene? He is not great at keeping his thoughts to himself is he? That could hurt Boris. In this last week, we expect the Tories to try to refocus on Brexit as the major issue – and Labour to try to talk about virtually anything else!

What does it all mean for Asset Prices?

The market had a lost year in 2019, with too much uncertainty. A Tory win is about 70% baked into the market, so we expect a moderate bounce on 13 December. This will be most pronounced for the likes of BT and other nationalisation victims. Despite longer term trading arrangements still being in the air, we feel that 2020 will turn into a log bull run for equities and commercial property, as investors get back to the serious business of making money.

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FTSE Forecast; Brexit Supports, World Economy Undermines

It is that time of the month when we ritually kick ourselves for making what turned out to be a stupid forecast six months ago – and then, without learning from our mistakes – we go on to make a crazy forecast for where FTSE will be in another half year.

Will go up, will go down, but not necessarily in that order

BUT this time, we weren’t so far wrong. Back on 15 April, we had failed to leave the EU on the second deadline, and a new exit-date of 31 October had been decreed. Wisely, or perhaps by luck, we guessed that on 15 October, Brexit might not be established, or the future might be rather worrying. Quote “So we will work on the basis that Brexit is still on-going by October.

Our forecast for 15 October was 7600, quite a reduction from the 8150 we had been predicting for September. Thus, we got the direction right, and a close of 7212 is pretty accurate by our standards.

The Next Six Months

Now for the next six months. British politics are somewhat unpredictable. We think that Boris might just pull it off and squeeze Brexit through tomorrow. The country (or at least 52%) will rejoice….. so there is no way the opposition will allow an election if Brexit goes ahead. Thus our central forecast is that Brexit happens, but then the minority government struggles on for several months until the demand for an election is overwhelming. This could easily be around our forecast date of 15 April 2020. However, a Brexit Deal will create an optimism and gentle release of pent up demand to support the UK economy over the next six months.  Lack of Government interference with new laws will also help!

However, no country is an island. Okay, well some countries are islands. Malta comes to mind. But economically, the future of UK based businesses, with our new, outward looking trade policy, cannot be but affected by the world economy. We foresaw the potential of a recession by year end, and the data published since then has done nothing to change that view. The global economy, from US to China to EU (in that order) is definitely looking soft.

Where does that leave us?

The UK domestic economy should have a surge, this will be countered by weak global growth.

Re-rating

The UK stockmarket, is at rather low multiples of income, given the interest rate environment. This morning, www.dividenddata.co.uk quotes the FTSE100 yield at 4.53%. If / When Brexit is settled, we see scope for yield compression – and hence price rises – justified by the reduced uncertainty and risk.

In summary, we think UK growth will be supportive, global economics will undermine, but an extra boost will be given by removal of the Brexit factor. From a close yesterday of 7182, we see FTSE100 at 7600 on 15 April. This is an increase from the 7200 we expected for Jan – Mar next year.

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FTSE 100 Forecast Flat Until March 2020

It is that time for us to kid ourselves that we have some insight of where FTSE is heading over the next six months. “Hurrah,” I hear you cry, “we’ve been waiting for a laugh.”

FTSE over 6 months

But first let’s have some humiliation by looking at what we foresaw back in March 2019. Back on 18 March, we confidently thought that Brexit would be resolved on 29 March. Oh how naïve we were. We thought that either a deal would be done, or no deal would be all sorted by September. Either way, we thought that resolution of Brexit would be supportive for FTSE, and so, with FTSE at 7228, we forecast 8150. The article was entitled “UK Equities About to Soar.” Wow, how confident we were. Sadly, our central assumption over Brexit was wrong, and so the out-turn of 7345 on 16 September was much lower. As we noted before, forecasting is particularly difficult when it involves the future (Ed; and as I remarked at the time, what other kind of forecasting is there? Now get on with it).

Market Screen

Looking forward to Monday 16 March 2020, what do we see? As noted last month, we see some risk of a global slow-down. And we have said this before, but surely by March, Brexit will be settled? The potential outcomes are;-

a) Deal on 31 October

b) No deal on 31 October

c) Extension to January, then Deal or No Deal

d) Revoke Article 50

Thus we feel that Brexit may well be off the scene. To some extent it will be hedged anyway, as a bad Brexit might lead to a lower GBP, which tends to support FTSE through the foreign earnings route.

Though we could have a Marxist/SNP/whatever coalition government too!

However Brexit is solved, we see it too soon to have a kick-start effect on the UK economy by March, and globally, we still see the risks on the downside. Therefore, we think the on-going global slowdown is bad for equities, but some kind of resolution of Brexit should help the UK market (dear God, any kind of closure, please, we implore you).

Thus for 16 March 2020, we forecast FTSE 100 at 7200. Yes, I know that is the same level we have forecast for December 2019, January 2020, and February 2020. At least we are consistent!

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Brexit Election Double Bluff Could Avoid No-Deal

Cripes, doesn’t Boris love poking the hornets’ nest with a sharp stick?

Boris – back on the front foot

The reality of his decision to close this Parliamentary session and arrange a Queen’s Speech to initiate a new Parliament is relatively small. Instead of Parliament having a recess for three and a half weeks over the party conference season, the break is five weeks. However, it has acted as a lightning rod for all of the pent up frustration and anger of the Remainers. Suddenly, they can see their case is lost. It was lost before, but now they can no longer pretend to themselves that they still have a chance.

Guy Verhofstadt, with name label to prove it

The greatest endorsement came from Guy Verhofstadt, Chief EU Brexit Negotiator, who branded it a ‘sinister development’. Clearly, many in Brussels have been relying on the Remainers to weaken the UK position. The strength of Boris’s move is reflected in their dislike of it.

The Nuclear Option

So now the Remainers have only one option left – win a vote of No Confidence next week and force an election before the end of October. This would be welcomed by the Boris team, as discussed yesterday, who have developed a suite of policies on which to campaign, and have clearly judged that such a poll would be winnable.

Our view is that;-

  1. The Remainers will not be able to win a vote of No Confidence

  2. It is far from clear that Mr Corbyn will even dare to call one (see 1. above)

  3. The EU will have to sit up and realise that the Remainers will not postpone Brexit

  4. The EU needs to avoid blame for No-Deal, and so see a deal as necessary.

 

Suddenly, to us, a No-Deal Brexit seems less likely than it did 24 hours ago.

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Brexit Election Bluff or Double Bluff

We enjoyed the great mutterings in the press since the weekend about whether the Tories secretly want to have an election BEFORE Brexit day on Halloween.

It appears to have been started by Tim Shipman in the Sunday Times, who suggested that the Government would quite like to have an election on 17 October. However, recognising voter-fatigue, they want Labour to take the hit from the Brenda-of-Bristols who are annoyed at “Not Another One”. The thinking goes that Boris is far ahead in the polls, and so could attend the Euro summit the next day with more power to his elbow, and really give the EU leaders what-for!

The polite word to describe these rumours is bunkum. (The less-polite word also begins with B and has two syllables.) There are two major flaws with the plan. The first is that 18 October is way too close to Brexit day, and so no matter how much power there is at Boris’s elbow (or anywhere else on his anatomy) there just isn’t time for a deal to be pulled together and approved in all the places in which it needs to be passed. Also, two weeks before B-day is just about the worst time to be holding an election – project fear will be in full swing and the media will be full of the impending doom. Boris and his team certainly need to be planning on how to win the peace after B day at that point, but the public may have more pressing matters on their minds.

The Anti-Brexit Forces Are Too Split to Perform

Another week and another proposal from the anti-Brexit brigade. Part of their problem is that they all have agendas so different that they cannot agree on a shared approach.

Mr Corbyn has dreams of No 10

Last week, it was J Corbyn’s dream of rounding up support to propel him into No 10. That wasted another 7 days of precious time. However, putting Mr Corbyn into No 10 was a suitable objective for only Mr Corbyn.

This week, the rebels seem to have dropped the idea of an early no-confidence motion. So perhaps the Sunday papers’ double bluff about the Tories wanting such a thing was successful after all? The latest plan is to take control of Parliament and pass legislation to force Mr Johnson to extend Brexit. The trouble is, all of the people involved are playing politics, working out whether such a step helps their own person ambitions. However, despite Mr Bercow’s self-belief, the Government controls order papers, and can easily string out any arguments about procedure – perhaps reminding Parliament that they are not in the business of dis-obeying instructions from the electorate.

Frau Merkel in better health

Meanwhile, Frau Merkel’s sarcastic comment to Boris suggesting he should try to solve the Irish backstop in 30 days (when it hasn’t been closed down in over 30 months) has held open the prospect of a last minute deal, taking away some fire from the stop-No-deal faction of the anti-Brexit rabble.

 

 

What Will Happen?

In our view – remember, we are almost as clueless as the next person, depending on who that next person happens to be – Boris has got B-day in the bag for 31 October. It feels like there will be too much egg-on-face for the EU to renegotiate, and so a No-deal Brexit seems the most likely outcome. However, this time there has been ample warning, and so trade will keep flowing, people will continue to travel, and most of the strain will happen behind the scenes. This is kind of the inverse of the fig-leaf Brexit we forecast in the spring, when we thought a net-curtain of a deal would happen to save face. Now it looks like both sides will rush towards No-Deal, for the message that will send to their own electorates, but behind the scenes everything will function!

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FTSE Weak Until Christmas – Then Rebounds in the New Year

It’s that time of the month when we take out our crystal ball and forecast where FTSE 100 will be in 6 months time, February 2020.

Stock Prices green for up, but we think down

Before giving away too many of our thoughts, gut-feels and sheer guesses, let’s look at where we are now. Six months ago, in February this year, we thought FTSE would continue the upward trajectory sine the start of 2019, Brexit would have been and gone, and FTSE would be just over 8000. What’s actually happened is that Brexit was postponed and so the UK economy has been left dithering over the summer. Last night it closed at 7148. So we got the direction right. At the end of last month, when it was at 7700, we could have forgiven ourselves a little smugness.

FTSE 100 with date of forecast shown

For the last three months, as the implications of the Brexit delay became apparent, we have been forecasting FTSE up to 7500 in July, and then a retreat to 7200 by November. Well, we got to 7500 in July, but back down to 7200 a little early. Our suggestion last month that the market was riding high but vulnerable to bad news was brought to life by President Trump’s step up of the tariff war with China.

So where to now?

As we noted last month, the global economy looks weak, and the UK could be in a technical recession by Christmas. (See our article last week, A Bleak Midwinter Brexit Recession By Christmas) Our central forecast for Brexit is that it will be a soft No-Deal, in that another Withdrawal Agreement will not be reached, but enough accommodations will be made to keep things ticking over. This outcome will scare the market further.  However, FTSE tends to look 6 months ahead, and by February, it should become clear that the UK economy will be okay, and the world economy could be over its wobble.

So we think the worries of a No Deal will send FTSE down to 6800 by November, but that in the 6 month time horizon of our forecast, we think it will be back to 7200 by Friday 14 Feb 2020

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FTSE Forecast for January is…….. LOWER!

We’ve been forecasting FTSE100 with a six month timeframe for six months. Which means, oo-er, that we have just reached the outcome of our first prognostication.

Stock Prices green for up, but we think down

The best traditions of economic forecasting is to make the call, try to write some eye-catching blurb – and then MOVE ON, and never re-visit. After all, what is to be gained by checking on whether the forecasts were correct? Sooner or later, the call will be just ridiculously incorrect, which will make the author look stupid. And at other times, it will be spot on, so the writer then starts making hubristic comments about their skill (even though everyone knows it was only luck), and so still looks stupid.

However, one of our many maxims is “You can’t tell stupid”.

FTSE over the last year, with date of forecast shown

And so here goes with our review of January 2019’s forecast. At the time, FTSE was in the doldrums, having fallen for six months. When we made our forecast, it was 6855. We foresaw a reversal, and a strong climb to 8050. Well, we got the change of direction correct. Last night it closed at 7532. So it didn’t climb quite as far as we expected. Blame Brexit for that. The whole world seems to be using Brexit as the catch-all excuse for any under performance, so there is no reason LondonMarketComment can’t do the same! We thought that one way or another, it would be resolved by now and we could all get on with the more interesting parts of our lives. Anyway, we award ourselves 7 out of ten for that call.

The New Forecast.

We’ve been saying for a couple of months that we saw FTSE100 up to 7500 in July, and then a fall to 7200 by November. We got the 7500 right. We now say that the 7200 of November continues into January.

Why do we say this? Right now, the stockmarket has it’s positive head on. Bad Non-Farm Payrolls for May were taken positively. We understand the logic of a weak economy making interest rate rises less likely….. but, er, doesn’t that same weak economy make it harder for companies to make money? Subsequently, the June NFP came in much stronger – but that didn’t dent market sentiment either. So the market is a bit blinkered.

Meanwhile, we can all see risks to the global economy. Nobody knows where the US/China tariffs-that-are-really-strategic-politics will end. Trump and Xi Jinping both need to win this battle of wills. Meanwhile, Europe is catching a cold from Chinese hesitancy. The middle east could blow up (though we don’t foresee that). Oh, and last – and probably least – there is Brexit.

In conclusion, the market is in happy mode, but there are plenty of potential threats over the next six months. A downside surprise feels likely. So we see FTSE struggling to go higher, with a dip due by year end and no climb in January. Doom doom doom!

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FTSE to Rise and Fall over Summer and Autumn 2019

Yes yes, we know about the old forecast that FTSE will go up and down, but not necessarily in that order!

Prices going up!

Only this time, we think it will be like that.

Here’s why. A) Fundamentals

Long-term stockmarket moves are driven by fundamentals. Thus in the long-run, share prices are a function of corporate earnings and interest rates. Corporate earnings are what inspires share purchases, and so over time, the higher the earnings, the higher share prices will be. Interest rates have three effects. As an alternative to share purchases, bonds provide a benchmark against which dividends can be measured. There is a second, more subtle outcome from interest rate changes. Bond yields are used as the discount rate applied to future company earnings to give them a value today. Hence higher rates mean that future earnings appear less tempting today. It is also thought that companies are generally borrowers, and so higher rates will reduce profits. So by all three measures, higher interest rates lead to lower share prices.

Here’s why. B) Market Noise

Our Hero, Benjamin Graham

We are all familiar with what the fabulous Benjamin Graham called Mr Market. (If you are not familiar, minimise this article and google it straightaway, right now, without delay). Mr Market reacts to chitter-chatter, market data and political developments, becoming overly optimistic, or excessively pessimistic. Many of these inputs are essentially unpredictable – but not all of them!

Here’s why. C) Momentum

There is also the matter of market momentum. Once it starts moving in a positive or negative direction, the market gets the wind in its sails and tends to keep going. Hence the famed capacity for the market to overshoot.

Our chosen time frame for market prediction is 6 months. This was designed to be like a bridesmaid’s dress – long enough to cover the essentials but short enough to keep you interested. We feel that 6 months is long enough for Fundamentals to have an effect, for predictable Market Noise to be included and for Momentum to have not reversed.

On to the Predictions for 6 months time, Friday 13 December 2019!

We do actually see the markets going up, then down, as per our intro! The going up is down (see what I did there) to slightly softer fundamentals (world economic slowdown), initially being outdone by the excitement of a new PM with new policies over Brexit and other minor matters. However, we then see moves down, down to Brexit reality (and maybe No Deal).

Last time, in May, we advised Go away at the end of July, come back in mid-November”, forecasting a rise into July and then a fall back to 7200 by 15 November. The events of the last 4 weeks have done nothing to change that view. Today, FTSE is at 7351. By mid December, we see it stuck at 7200, having been up to 7500 in July, but brought down by soft fundamentals and Brexit uncertainty.

Good Luck!

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No U-Turn on Aston Martin (AML) – Yet!

At the time of the Geneva show, we recommended ASTON MARTIN – BUY THE CARS, AVOID THE SHARES. We didn’t buy the shares. Sadly, we weren’t able to buy the cars either. One day, it will be time to brake (break) our recommendation, reverse our view, steer in a new direction and accelerate purchases. Okay, now with the car-puns done, as before, let’s have some pictures before getting to the boring numbers.

Aston Martin Vantage – is it bonus time for me yet? (Ed; NO!)
AM-RB 003 – sold out already!

So to the financials.

AML Financials still look scary

The numbers still don’t look great, (Data from Sharecast.com) with strong growth in revenue required before a decent profit can be made. Turning the numbers around relies on the forthcoming SUV, the DBX, being introduced successfully and selling well. All the industry pointers confirm that this vehicle will sell at great speed and with good margins. However, it is being built in a new factory in Wales (not that the location is desperately relevant, I’m sure that the Welsh have produced outstanding engineering in the past, like, er…. didn’t the Sinclair C5 get built there?) Anyway, the fact is that a new factory producing a new type of car does hold some risks – just ask Elon Musk at Tesla.

AML Share Price since IPO

Here is the share price chart….. not looking like the trend has reversed yet is it? We’ve helpfully added the point where we advised not to buy last time! How modest of us!

Where Next For the Share Price?

Reasons for Up!

  1. Once sales of the DBX SUV fire up, revenues and profits should race away

  2. Autocar has reported that sales of the AM-RB 003 £1 mio hypercar are over-subscribed

 

Reasons for Down!

  1. The trend is firmly downwards – expect it be be oversold before it rebounds

  2. First quarter results confirmed our expectations that new-model investments will eat margins for the foreseeable future

  3. There remains huge delivery risk on the “saviour” SUV project

  4. Market cap remains twice revenue, whereas we would expect it to be closer to a 1:1 ratio

At some point in the future, these shares will be good value. That will be when revenues have grown, new products are selling well or at least have had good launches. Right now, we expect the selling to continue until perhaps 600p.

When we consider investing in AML shares, we find ourselves shaken, not stirred! Steer clear.

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Who Next For the Tory Leadership?

Last week, we speculated how Brexit could be extended by 12 months to 31 October 2020 in our “The End of May BY The End of May” article. Prolonging the agony? More like extending the fun for us.

Whilst always hesitant to make forecasts – particularly about the future (Ed. What other kinds of forecasts are there?) – it still feels like change is in the air-conditioning.

Mrs May is due to meet the 1922 Committee Executive (aka The Men In Grey Suits) later this morning. According to the Daily Telegraph, they will tell her that the game is up and she must leave before the summer recess.

You know what this means???? Instead of a quiet summer forgetting about politics, we will have a Tory Leadership / PM election contest.

Andrea Leadsom – who didn’t lead any

As you know, the system is that the MPs elect a shortlist of two, with the grassroots Conservative members making the final choice. Last time, Andrea Leadsom made it on to the ticket, but them withdrew, resulting in no contest. The activists will not stand for that this time.

In normal times, the MPs would choose two characters broadly acceptable to a majority of themselves: truly a case of who has the fewest enemies. This is how we had such bland leaders as John Major and David Cameron. Nobody would call either of them dynamic inspiring leaders, but they were widely tolerated.

However, this is not a normal time. This is a national emergency akin to when Margaret Thatcher was elected as Tory Leader in 1975. Ted Heath had thoroughly blown it for the blues, and a radical change was required. It’s not quite the same as Winston Churchill riding to the rescue in 1940 – though the analogy may have occurred to Mr Churchill’s biographer, one Boris Johnson.

Thus this time, it won’t be a healing, centre-ist, least-objectionable leader. The last thing the grass-roots Tories want is “Continuation May”. The May approach hasn’t worked out well so far has it?

Priority number one for the MP’s and activists is winning the next election. Right now, they have no chance. An election tomorrow would result in a hung parliament – with Labour ahead but Brexit Party not far behind, and the Tories third. So the Tories can see that they need to return more to their free-trading, right-wing, libertarian roots. Oh, and they need to resolve Brexit in a manner that makes it seem like a) it has really happened, and b) it doesn’t look like the EU got one over on us!

Boris in rallying cry – now deliver it! (Pic from FT)

There will be a cast of candidates – and it really is a Grand National where anyone could win. However, of the runners and riders, we believe Boris will make the conquest. He is not tainted by the current Government incompetence, he is generally thought to have done a half-decent job winning the London Mayoral election and then actually running it. What the Conservatives need more than anything is a break from Mrs May, and a proven election-winner. As an alternative, Liz Truss has caught our eye because she believes in traditional Conservative small-government and free markets – values which make the conservatives seem more than “Labour-lite”.

The MPs are aware that their Constituency Chairs and members have had enough. Pressure will be applied to select a winner.

Boris, your time has come!

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