Recession Watch Pt 2

I'm moving the RecCon meter to level 2. Although I'm not completely sure we're not already at level 3. Let's be cautious though.

From the weekend's papers, we find that investment in the UK motor industry will halve this year.  Last week Sainsbury's announced job cuts of 2000 and IWG (formerly Regus), the purveyor of rented offices to the self-employed and small business sector announced a massive profit warning and shares dived 35%.

Today, profit warnings from more UK companies including Pendragon, the car retailer. 

With inflation at 3% and chugging north, Carney sitting on his misbegotten hands, and Brexit talks circling the drain there's no good news on the horizon. Where's the extra money going to be found for people to spend? Pay packets on the decline (not even remotely keeping pace with inflation) according to the latest stats from the ONS.

We are at the beginning of a maelstrom of disaster by the looks of things. Brexit caused or not, it increasingly looks more difficult to make as much money as last year. Which means less to spend in the real world.

Is it the End of Times or the Start of the Greatest Boom Ever?

2016 rolls to a close with the FTSE100 closing on all time high of 7142. So have we hit peak times in the UK or is this the start of something truly great?

When I started investing (or at least started keeping proper records of my investing) in 2007, the FTSE was at 6607. So in the 9 years since, it has crept up just 8%. Hardly an indicator of a booming economy. Of course, we've had the Great Financial Crisis in that time and several other mind-blowing black swans like Brexit, Euro Crises, wars, and terrorism.

Every bit of finance reading I do tells me that it is foolish to try and time markets or even worse do your own stock picking, yet if you had bought a FTSE tracker you'd be just 8% better off over those 9 years. That is truly awful performance for your money. No wonder cash still holds its appeal even with its derisory interest rates.

This year the Team Dave Fund of Fun-ness finished up 24.7% - the best year for quite some time.

This result was all due to timing the market - going big with two chunks of money - once in January when markets were nervous about Fed tightening and immediately following Brexit. The rebounds after each drop have been huge and represented excellent opportunities. In January buying anything in the US market was the thing to do while in July buying anything in the UK was the correct option.

I got 'lucky' both times I guess. And so for this year, I can't help but feel we have hit the top and will probably bob around this level for a while. America seems massively over-valued and Trumptimism could be sadly mis-placed - how quickly can he genuinely make changes? And does anyone actually believe he knows what he's doing?

In the UK, there is no catalyst for a boom to come - everyone here is stretched massively by housing costs while business is equally poorly treated by appalling business rates and high rents. Meanwhile savers continue to be pillaged by Mark Carney's ridiculous behaviour at the Bank of England. How does he sleep at night while the pound is ravaged, companies and intellectual property are sold off to the world. Someone really does need to point out to him that currency / exchange rates are only useful to business when someone actually wants to buy your product / service. If you make something no-one wants, it doesn't matter how cheap it is in exchange terms.

This year's massive devaluation was the third one I've experienced here and every time, it provides only VERY short term boosts. Meanwhile it destroys savings, imports inflation, and reduces internal investment. Who knows how Brexit will turn out this year. Maybe that will be the catalyst for a boom? It's a fingers crossed time though and hugely reliant on people in the civil service and government actually caring and doing their best rather than feathering their nest. Maybe we'll see an actual real redistribution of income because of it but I doubt it.

My guesses for 2017:
Cocoa - it was destroyed in 2016 - bound to make a comeback eventually.
Gold - again decimated - got to be an option if inflation makes a re-appearance.
Any decent internet based world focussed company. eg. Boohoo, Superdry, Microsoft.
ITV to be taken over.
Samsung to fire a bunch of people and return from the ashes.

Poor share performance this year? It's all about bad management

It's been a year to forget for many big FTSE companies (Tesco, BP, Morrisons, Co-op, Barclays, etc.) Diving share prices for previous darlings of the sharemarket have made everyone a bit twitchy. Most of it can be blamed on bad management. The bastion of journalism that is the Daily Mail (hahahahahaha, ROFL) has gathered together a list of the retards and scum that control some of the UK's biggest companies.

It's not good reading and the biggest reason why the UK continues to flounder along. Bad management is endemic in the country. I can only guess why complete scumbags end up at the top of public companies. Here's a few reasons though:

- Clearly, almost none of management have 'skin in the game', you know real money invested in their companies so they all operate with a short term, scam-as-much-in-bonuses-as-I-can attitude. Fred the Shred Goodwin was the ultimate example of this.
- The Old Boys Network, nepotism, cronyism, etc. You name it the old pat on the back, you scratch me, I'll scratch you approach is rife in the UK. There's no meritocracy here and so the people who are least suited to leading are rewarded for their guile, cunning and poor behaviour.
- Bribery and Corruption - even companies which should be miles removed from bribery are well involved in it (GSK). You'd think the health and wellbeing of people would make you think twice about bribing people to use your products. Oh no, you thought wrong.
- The Class System - it still exists. It results in in-bred, backward idiots leaping ahead of the pack and gaining senior management positions.
- An inability of middle management to tell CEOs and corrupt boards to change their ways. Not sure why this exists but things are invariably too late when a 'whistle-blower' tells all.

I haven't even touched on the King of All Management Bastards, Bob Diamond, head of Barclays Bank who once paid himself £63M a year, decided that banks didn't need to apologise for their poor behaviours, and his bank while he was in charge was accused of rate rigging, money laundering, and tax avoidance.

These aren't just a few bad apples. They're everywhere. These are just the famous ones the media can be bothered to have a pot shot at. Every day you can check investegate and see the RNS of the public companies in the UK. I can't be bothered calculating it, but you can guarantee that about 10% of them each day are management awarding themselves additional share options, warrants, bonuses and other schemes to feather their nests.

I'm not sure why the UK tolerates it all and why workers don't demand better leadership.


Instead of whistle-blowing, rioting on the streets or burning down their offices they appear to be giving up and starting new decent companies. It's heartening to hear someone who actually might be a decent leader commenting on the growth of new companies. (it's in the last couple of paragraphs).

He adds: 'Last year there was a record number of new companies created. This year that record will be beaten. A recent survey by a quite serious authority rated Britain fourth best country in the world to start a business.'

'We've created more jobs in the private sector in this country over the last four years than the whole of the rest of the EU put together, which is an utterly remarkable statistic. It just shows that having a flexible economy with a culture that embraces entrepreneurship is a good thing.'

When Branson called 2014, the year of the Entrepreneur back in Dec 2013, it appears he may have been right.

Maybe we're heading in the right direction and these last seven years have been about getting rid of the blight that has infected the UK.

In the US, one company (Abbott Laboratories) seems to have the right idea and is training management not just on the job but in simulations too. You have to applaud the balls to try new things in management, you never know you just might find someone good. Besides they can't be as bad as the current batch.

A quick synopsis of stupid bloody Tesco

Unless your head has been buried in the sand (as mine was last week on a sunny island in the Ionian Sea) then you'll have noticed that Tesco has continued to add manure to the rather large fan it has constructed. The latest revelations? They can't add and just decided to guess how much money they had made in their latest interims.

While I'd like to think things can't get any worse, nothing at Tesco surprises me any more. They're the Barclays of retail now and consequently have the magnifying glass fully turned on them by the media and public. If something is afoot, it will definitely be found out, released and more damage will be done to their reputation, footfall, profits and share price.

I'd say it was time for drastic action. With a new CEO and CFO, take the time to clear the decks and release all the bad news as possible in one day. Sack the chairman who is clearly an idiot for allowing Clarke to eff everything up so badly.

The Previous Idiot

Take the hit, announce the new super plan (detailed below) the following week once everyone on the board of directors has announced they're buying £1m shares each themselves.

My SUPER PLAN of action would be this:

-Turn the Tesco mega boxes into Tesco property developments. Build houses around a typical small suburban shop area - have a Tesco Express, Tesco coffee shop, Tesco hairdresser and a couple of other shops. Make money by renting those and become Tesco Property. Easy.
-It's clear that the UK is now a mostly poor place to live in (outside London). Wages are low and being reduced on an inflation adjusted basis every few months. So it's time to compete with the cheaper end of the market (where Tesco began) and take on Aldi and Lidl, with a budget branded supermarket with limited range. Turn the stores that are in those areas and losing share into the cheaper brand. The rest of them can continue at the middle end in more affluent areas.
-Hire some people at the supermarket management level who actually care about them.
-Address customer service as quickly as possible.
-Tidy the stores up!!!!! Clean the aisles, stack at night, pick up the crap, put the rubbish away and not outside the door....

-Go back to being better than the rest as that's what made the difference to begin with. Competitive pricing, good stock levels, clean stores, helpful staff. This is so bleeding obvious.
-Are the little spinoffs of Tesco making money? ie. Blinkbox, Bank, Online, Delivery, etc.? If not, ditch them.
-Clean up the balance sheet. Start paying off some debt so you don't look like such a basket case.
-Is it possible to have some sort of employee ownership scheme like John Lewis - staff love working for them. Even just making a stand on short hours contracts - ditching them, getting the staff to love you, making yourself look good to the public again will help.

Morrisons and Co-op will eventually die. Sales and profits in the UK will pick up then with less competition. Globally Tesco should continue to do ok, so it's just a matter of time to see this out.

Will Tesco die like Woolworths? I don't think so, but it needs to kill off its weaker competitors as soon as possible.

I'm sorely tempted to buy more now...although to do so would be even more contrarian than buying Russia or investing in Syrian / Iraq housing.

Here's a roundup of everyone else's posts. They are all excellent pieces:

DIY Investor - Tesco Top Up Decision - he's all in again....
Under the Money Tree - Tesco Palaver - staying well clear for now...
Mark Carter - Tesco - keeps revising his valuation down (ahhh the benefit of hindsight)
Mark Ritson (marketing chap) - Tesco risks being famous for being broken - likens Tesco to Nokia, Blackberry, Woolworths and Northern Rock. Very pessimistic.
Expecting Value - Tesco, Yes Again - compares them to Man Utd's recent woes. Excellent.
Share Centre - Tesco's Comedy of Errors -  thinks Dave will need to be bold and do something creative. Big fans of creativity here at Investimouse.

Oh well, it's only one company and nothing's permanent in this world. We'll move on to the next big thing I'm sure...

The TSB IPO - Fancy buying a pukka bank?

The 17th June is the final day to decide whether or not you're participating in the TSB IPO. Once you've downloaded and spent the rest of the day reading the 300pg load of nonsense document you'll be none the wiser about what to do.

TSB is being sold off by Lloyds as punishment for being shafted by Brown and being forced to save HBOS during the Great Financial Crisis, they subsequently went broke and had to ask the state for survival funds. TSB was previously a mutual, then a bank and then succumbed to the excitement of the big bank mergers of the 80s-90s. What we are seeing now is a reversal of those big mergers and a general expansion of the number of banking entities as the new regulators attempt to encourage more competition and fewer companies that are too 'big to fail'.

So TSB - any good?

Here's the GOOD stuff about it:

- It's supposed to be a purely retail bank so no mucking about in the filth of investment banking. 

- It is supposedly being sold on the cheap, at least the PR tells us it is 'priced to go' at about .7-.9 of book value.

- It makes money - about £170M last year and on course for £200M this year.

- It won't be tainted with any mis-selling dramas from the last few years.

- Long term holders will get 1 share for every 20 held each year for the next three years. 

The BAD stuff:

- It revealed last week 45% of its mortgage loans are interest-only. This is INSANE. That's about 45% of its mortgage loans that it will never get its money back on.

- Competition is heating up. Tesco, M&S, Metro, etc. are all chasing new business too.

- Interest rates are on the move up. Mr Carney says so. Expect default rates on loans to rise as they do.

- There is some confusion as to how much they are paying for IT which is a huge cost for banks. Lloyds are currently subsidising / paying for it - when that arrangement ends, TSB will have to pay full whack.

- No dividends until a long time away - 2018.

- They tried to sell it a couple of years ago to Co-op for a boat load less. It wasn't worth £900M then, it's not worth more than that now.

- The market is fairly high at the moment. IPOs are dime a dozen as private equity groups look to cash in at the top of the cycle.

- Only 25% of the shares are being sold. Lloyds will retain the rest and look to sell them all over the next 12 months (I think that's the timeline, they have to sell soon I know). This enormous overhang of shares means there will almost certainly be a better time to buy (if you're keen).

- It's a bank. They can't be trusted. They're almost certainly lying about everything.

More stuff to read from others here:

- Stockopedia says BUY

- Compound Income says NO

- Stockotonia says NO-ish

- The FT says You'll have to hold forever to make some money

- Jeremy Grime, Panmure Gordon says BUY

- Share Centre says BUY

- Yahoo Finance says BUY

Investimouse is staying out of this. There's almost never any way a private investor can make money out of IPOs unless the seller wants you to. Remember, it's a bank. They want your money and they don't care how they get it.