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Uk Is Becoming A "fading Star"

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http://www.via-trader.com

16th January 2006

All eyes on Europe, why going against the crowd pays, more pensions woe and more ...

Dear ******

Welcome to the weekly update. There is plenty of speculation among analysts regarding the recovery that is taking place within the EU (led by Germany). With inflation edging higher, it looks like European Central Bank president, Jean-Claude Trichet will be taking a hawkish stance in the near future. However, a report just released by HSBC's euro zone economists states that we shouldn't become complacent regarding the current cyclical recovery. In fact, they state that the German and Italian economies will start to reduce every year in a catastrophic vicious circle unless action is taken. Radical reform is what's required if we are to see sustainable growth over the longer term according to the report.

The UK doesn't escape the gloomy news either. In a separate report by Citigroup's chief economist, Michael Saunders, the UK is becoming a "fading star". With UKGDP growth slowing, unemployment rising, inflation staying higher than expected, a growing fiscal deficit and the lowest business investment in 40 years, he said the UK is now performing worse, relative to expectations, than all the other major European nations.

The solution? Part of the problem for much of the 'old Europe' nations is that we have ageing populations that are putting a strain on the workforce. Due to falling birth rates, we are seeing less people of working age paying the pensions of an ever increasing number of retirees. Although many people object, possibly the best way to deal with these problems is to increase the number of immigrants over the longer term. The US has successfully done this and is now in the enviable position of having a GDP per capita 30% higher than that of its European counterparts.

If these economists' predictions are correct, the current recovery in Europe is only going to be short term in a longer overall demise. All is not lost, radical reforms to the pensions industries of these nations could help alleviate the pressures they are facing over the coming years. It's really a question of will the governments want to pursue these reforms at the potential expense of their popularity? If they do, Europe's recovery could be longer than these economists expect...

Come and spend a FREE morning with Alan Rich and Aboudy Nasser of Via Trader

On Saturday 21st January, you are invited to spend a morning with Aboudy Nasser, one of the founders of Via Trader and Alan Rich, the US Day Trader.

Alan will be presenting some of his favourite trading strategies that you can use immediately and discussing how he uses the Via Trader scanner for his trading. Aboudy will be there to answer any questions you may have on Via Trader and the new Via Broker CFD platform.

This free event will be held at the Holiday Inn Hotel in Heathrow. Register for free by following the link below:

Register Now

Why going against the crowd pays.

We have always thought of ourselves as contrarian investors which is why over the past 4 years (in the newsletter), we have identified investments that are often overlooked by the majority. However, it's easier said than done and recent research by James Montier of Dresdner, Kleinwort, Wasserstein proves the point. "Neuropsychologists have found that social pain (the pain of going against the crowd, or being excluded) is felt in the same parts of the brain as real physical pain. So contrarian investing is a little bit like having your arm broken on a regular basis." He goes on to point out that "the returns to bearing this discomfort can be sizeable. When volatility is low, real returns over the long run average 1.3% p.a. In contrast, buying equities when the market is in "you must be mad to buy equities" mode produces a real return of over 15% p.a. over ten years."

So going against the crowd certainly brings in the returns over the long run. You just need to have a good nerve to hold back from jumping in with the crowd when a trade looks 'obvious'. If it looks obvious to you, the chances are it does so for many others too. This same psychology applies to short term traders too. When a stock or index gaps up at the open, how many people out there do you think are buying into that? And then what happens? It goes and does the opposite and falls for the rest of the day. Being mindful of what the majority are doing when you are trading and investing can certainly improve results, even if you end up going grey before your time!!

We highly recommend James Montier's book 'Behavioural Finance - Insights Into Irrational Minds and Markets'.

More pension woes

We seem to writing more and more about pensions recently, a subject they may be close to many of our readers' hearts. As mentioned in last week's update, there are more and more large companies switching from final salary schemes to other arrangements. In a recent survey carried out by Scotland on Sunday, only 33% of Britain's biggest employers can currently give assurances that they will be able to pay their final salary pensions. Of the 80 companies that responded to the survey there were a number that would either not comment (including M&S) or acknowledged that they could not give any guarantees. Ten of the firms no longer offer final salary arrangements and two more (Scottish & Newcastle and British Airways) have already started the review process with others likely to join this group soon. A report that was prepared for the accounting industry's Pension Board, suggested that the shortfall by the top 100 FTSE companies could be as big as £150 billion which is far higher than initial reports suggested.

This problem is certainly not restricted to UK companies either, we have already identified a number of US companies which have pension schemes and health schemes that are putting the companies at extreme risk. The most obvious of these includes General Motors, who we believe are on course for chapter 11 (bankruptcy protection) due to a large part to the cost of their schemes which are already severely under funded.

The reason we have not let this subject lie, is quite simply if you are investing in companies that have pension deficits you should be aware, as it can affect the bottom line if they have to make provisions to top-up the scheme. In addition to this, many of the schemes themselves are looking for other financial instruments to earn an income. This has already had a severe effect on the yields in the commercial property market, as well as meaning that less money may be directed towards the equities markets.

The markets

After the nice rally we had witnessed early last week, it was finally time for the US indices to take a breather on Thursday. Our longer term view is still bullish but in the short term, we could see some more selling first. When the US markets open on Tuesday (today is a national holiday in the US), look for a break below 10,900 on the Dow as a trigger for more selling. The equivalent level for the S&P is 1282. We would then be looking at the 50 day moving average as potential support on the Dow and the 1270 area for the S&P. However, if we see an early break through 10,975 (hourly 50 moving average), we would return to being short term bullish for strength ahead. The equivalent level for the S&P is 1290.

After noting in the main newsletter that we had closed our position on the FTSE at 5700 (area of the upper trend channel), it's interesting to see it struggling to make much headway above this area up until today. This index too looks like it could do with a breather and we will look for pullbacks to the 50 day moving average as healthy for future market strength (currently around 5550). A break below 5680 would bring more selling pressure although a break above 5740 could bring in more buying so watch those levels. We always let the charts tell us what to do, but our opinion at this stage is that we could see some more selling for this index in the near term.

Economic diary

There were not too many surprises hitting the markets last week either side of the pond as key data was announced. In the UK the British Retail Consortium (BRC) reported that the UK sales were up 2.6% on the same period last year as against the previous year's drop of 0.4%. As we have already said, one or two months in isolation means little particularly when comparing with 2004 which was a stinker. One report that the BRC released and has yet to make headlines, was that the cost of goods year-on-year fell, which means that somewhere along the chain someone took smaller margins or we are just buying more cheap goods from China.

This leads us to the November goods trade figures, which hit a record deficit coming in at £5.97 billion. What is not helping these figures is that we have become a net importer of oil (this has been the case for the last 5 months) and we would imagine November would have been the month that many of our retailers brought in extra stock for December.

As analysts predicted, UK interest rates were left unchanged remaining at 4.5%. The Governor Mervyn King noted that he believes overall growth will pick up in 2006, as consumer spending recovers. We are perplexed as to where the extra spending funds are going to come from, unless this is a signal that the rates will be dropped soon to allow more people to increase their usage of their credit cards!

One key report announced this morning (PPI) has led us to saying 'we have told you so!' and just proves a bit of common sense is more effective then a room full of economists. The Office for National Statistics said 'a surge in fuel prices pushed factories' raw material costs higher at their fastest pace in the last 14 years last month.' Input prices rose by 0.9% in December taking the annual rate up to 17.2%, the highest since records began in 1991. Now if that does not mean that we will see higher inflation pushed through to consumers or companies' taking big hits on their bottom line, we are not sure what will!

Over in the US we saw the November trade balance fall from the record high of $68.1 billion to $64.2 billion due to record exports. Key factors in helping the exports were the increase in civilian aircraft (which rose 27.4% to $3.2 billion reflecting strong orders by Boeing) and other capital goods, autos and consumer goods. No one expects the narrowing in the trade gap to be long lasting. Another key factor was the price of crude which fell to $52.16 in November, down from $56.29 in October.

US retail sales disappointed, coming in at 0.7% against 1.0% expected. Auto sales were responsible for a high percentage of the sales as consumers take advantage of further low prices offered by the likes of GM. Retail sales excluding autos were just 0.2% higher.

The US PPI came in 0.7% up against the previous months 0.7% fall. Once again this shows the potential for higher inflation if these increases are passed on to the consumer.

Monday 16th January

UK Rightmove House Price survey

UK UK December Producer Price Index

UK BoE's Governor Mervyn King Speech

US Market closed - Martin Luther King day

Tuesday 17th January

UK RICS House Price Balance 00.01

UK December CPI & Retail Price Index 09:30

US Capacity Utilisation 14:15 (09:15 ET)

US Industrial Production 14:15 (09:15 ET)

Wednesday 18th January

UK Employment report 09:30

US December CPI 13:30 (08:30 ET)

US Feds beige book 19:00 (14:00 ET)

US Crude inventories 15:30 (10:30 ET)

Thursday 19th January

UK BCC Quarterly Economic Survey 11:00

US Initial Claims 13:30 (08:30 ET)

US Housing Starts 13:30 (08:30 ET)

US Building Permits 13:30 (08:30 ET)

US Philadelphia Fed 17:00 (12:00 ET)

Friday 20th January

UK UK December Retail Sales 09:30

US No results due

Have a great week

Kevin Burton and Kym Watson

Note Kevin Burton and Kym Watson are editors of the Via Research monthly report. To subscribe to this service go to http://www.via-trader.com/via/signup.htm

Edited by Catch22

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http://www.via-trader.com

16th January 2006

All eyes on Europe, why going against the crowd pays, more pensions woe and more ...

Dear ******

Welcome to the weekly update. There is plenty of speculation among analysts regarding the recovery that is taking place within the EU (led by Germany). With inflation edging higher, it looks like European Central Bank president, Jean-Claude Trichet will be taking a hawkish stance in the near future. However, a report just released by HSBC's euro zone economists states that we shouldn't become complacent regarding the current cyclical recovery. In fact, they state that the German and Italian economies will start to reduce every year in a catastrophic vicious circle unless action is taken. Radical reform is what's required if we are to see sustainable growth over the longer term according to the report.

The UK doesn't escape the gloomy news either. In a separate report by Citigroup's chief economist, Michael Saunders, the UK is becoming a "fading star". With UKGDP growth slowing, unemployment rising, inflation staying higher than expected, a growing fiscal deficit and the lowest business investment in 40 years, he said the UK is now performing worse, relative to expectations, than all the other major European nations.

The solution? Part of the problem for much of the 'old Europe' nations is that we have ageing populations that are putting a strain on the workforce. Due to falling birth rates, we are seeing less people of working age paying the pensions of an ever increasing number of retirees. Although many people object, possibly the best way to deal with these problems is to increase the number of immigrants over the longer term. The US has successfully done this and is now in the enviable position of having a GDP per capita 30% higher than that of its European counterparts.

If these economists' predictions are correct, the current recovery in Europe is only going to be short term in a longer overall demise. All is not lost, radical reforms to the pensions industries of these nations could help alleviate the pressures they are facing over the coming years. It's really a question of will the governments want to pursue these reforms at the potential expense of their popularity? If they do, Europe's recovery could be longer than these economists expect...

Come and spend a FREE morning with Alan Rich and Aboudy Nasser of Via Trader

On Saturday 21st January, you are invited to spend a morning with Aboudy Nasser, one of the founders of Via Trader and Alan Rich, the US Day Trader.

Alan will be presenting some of his favourite trading strategies that you can use immediately and discussing how he uses the Via Trader scanner for his trading. Aboudy will be there to answer any questions you may have on Via Trader and the new Via Broker CFD platform.

This free event will be held at the Holiday Inn Hotel in Heathrow. Register for free by following the link below:

Register Now

Why going against the crowd pays.

We have always thought of ourselves as contrarian investors which is why over the past 4 years (in the newsletter), we have identified investments that are often overlooked by the majority. However, it's easier said than done and recent research by James Montier of Dresdner, Kleinwort, Wasserstein proves the point. "Neuropsychologists have found that social pain (the pain of going against the crowd, or being excluded) is felt in the same parts of the brain as real physical pain. So contrarian investing is a little bit like having your arm broken on a regular basis." He goes on to point out that "the returns to bearing this discomfort can be sizeable. When volatility is low, real returns over the long run average 1.3% p.a. In contrast, buying equities when the market is in "you must be mad to buy equities" mode produces a real return of over 15% p.a. over ten years."

So going against the crowd certainly brings in the returns over the long run. You just need to have a good nerve to hold back from jumping in with the crowd when a trade looks 'obvious'. If it looks obvious to you, the chances are it does so for many others too. This same psychology applies to short term traders too. When a stock or index gaps up at the open, how many people out there do you think are buying into that? And then what happens? It goes and does the opposite and falls for the rest of the day. Being mindful of what the majority are doing when you are trading and investing can certainly improve results, even if you end up going grey before your time!!

We highly recommend James Montier's book 'Behavioural Finance - Insights Into Irrational Minds and Markets'.

More pension woes

We seem to writing more and more about pensions recently, a subject they may be close to many of our readers' hearts. As mentioned in last week's update, there are more and more large companies switching from final salary schemes to other arrangements. In a recent survey carried out by Scotland on Sunday, only 33% of Britain's biggest employers can currently give assurances that they will be able to pay their final salary pensions. Of the 80 companies that responded to the survey there were a number that would either not comment (including M&S) or acknowledged that they could not give any guarantees. Ten of the firms no longer offer final salary arrangements and two more (Scottish & Newcastle and British Airways) have already started the review process with others likely to join this group soon. A report that was prepared for the accounting industry's Pension Board, suggested that the shortfall by the top 100 FTSE companies could be as big as £150 billion which is far higher than initial reports suggested.

This problem is certainly not restricted to UK companies either, we have already identified a number of US companies which have pension schemes and health schemes that are putting the companies at extreme risk. The most obvious of these includes General Motors, who we believe are on course for chapter 11 (bankruptcy protection) due to a large part to the cost of their schemes which are already severely under funded.

The reason we have not let this subject lie, is quite simply if you are investing in companies that have pension deficits you should be aware, as it can affect the bottom line if they have to make provisions to top-up the scheme. In addition to this, many of the schemes themselves are looking for other financial instruments to earn an income. This has already had a severe effect on the yields in the commercial property market, as well as meaning that less money may be directed towards the equities markets.

The markets

After the nice rally we had witnessed early last week, it was finally time for the US indices to take a breather on Thursday. Our longer term view is still bullish but in the short term, we could see some more selling first. When the US markets open on Tuesday (today is a national holiday in the US), look for a break below 10,900 on the Dow as a trigger for more selling. The equivalent level for the S&P is 1282. We would then be looking at the 50 day moving average as potential support on the Dow and the 1270 area for the S&P. However, if we see an early break through 10,975 (hourly 50 moving average), we would return to being short term bullish for strength ahead. The equivalent level for the S&P is 1290.

After noting in the main newsletter that we had closed our position on the FTSE at 5700 (area of the upper trend channel), it's interesting to see it struggling to make much headway above this area up until today. This index too looks like it could do with a breather and we will look for pullbacks to the 50 day moving average as healthy for future market strength (currently around 5550). A break below 5680 would bring more selling pressure although a break above 5740 could bring in more buying so watch those levels. We always let the charts tell us what to do, but our opinion at this stage is that we could see some more selling for this index in the near term.

Economic diary

There were not too many surprises hitting the markets last week either side of the pond as key data was announced. In the UK the British Retail Consortium (BRC) reported that the UK sales were up 2.6% on the same period last year as against the previous year's drop of 0.4%. As we have already said, one or two months in isolation means little particularly when comparing with 2004 which was a stinker. One report that the BRC released and has yet to make headlines, was that the cost of goods year-on-year fell, which means that somewhere along the chain someone took smaller margins or we are just buying more cheap goods from China.

This leads us to the November goods trade figures, which hit a record deficit coming in at £5.97 billion. What is not helping these figures is that we have become a net importer of oil (this has been the case for the last 5 months) and we would imagine November would have been the month that many of our retailers brought in extra stock for December.

As analysts predicted, UK interest rates were left unchanged remaining at 4.5%. The Governor Mervyn King noted that he believes overall growth will pick up in 2006, as consumer spending recovers. We are perplexed as to where the extra spending funds are going to come from, unless this is a signal that the rates will be dropped soon to allow more people to increase their usage of their credit cards!

One key report announced this morning (PPI) has led us to saying 'we have told you so!' and just proves a bit of common sense is more effective then a room full of economists. The Office for National Statistics said 'a surge in fuel prices pushed factories' raw material costs higher at their fastest pace in the last 14 years last month.' Input prices rose by 0.9% in December taking the annual rate up to 17.2%, the highest since records began in 1991. Now if that does not mean that we will see higher inflation pushed through to consumers or companies' taking big hits on their bottom line, we are not sure what will!

Over in the US we saw the November trade balance fall from the record high of $68.1 billion to $64.2 billion due to record exports. Key factors in helping the exports were the increase in civilian aircraft (which rose 27.4% to $3.2 billion reflecting strong orders by Boeing) and other capital goods, autos and consumer goods. No one expects the narrowing in the trade gap to be long lasting. Another key factor was the price of crude which fell to $52.16 in November, down from $56.29 in October.

US retail sales disappointed, coming in at 0.7% against 1.0% expected. Auto sales were responsible for a high percentage of the sales as consumers take advantage of further low prices offered by the likes of GM. Retail sales excluding autos were just 0.2% higher.

The US PPI came in 0.7% up against the previous months 0.7% fall. Once again this shows the potential for higher inflation if these increases are passed on to the consumer.

Monday 16th January

UK Rightmove House Price survey

UK UK December Producer Price Index

UK BoE's Governor Mervyn King Speech

US Market closed - Martin Luther King day

Tuesday 17th January

UK RICS House Price Balance 00.01

UK December CPI & Retail Price Index 09:30

US Capacity Utilisation 14:15 (09:15 ET)

US Industrial Production 14:15 (09:15 ET)

Wednesday 18th January

UK Employment report 09:30

US December CPI 13:30 (08:30 ET)

US Feds beige book 19:00 (14:00 ET)

US Crude inventories 15:30 (10:30 ET)

Thursday 19th January

UK BCC Quarterly Economic Survey 11:00

US Initial Claims 13:30 (08:30 ET)

US Housing Starts 13:30 (08:30 ET)

US Building Permits 13:30 (08:30 ET)

US Philadelphia Fed 17:00 (12:00 ET)

Friday 20th January

UK UK December Retail Sales 09:30

US No results due

Have a great week

Kevin Burton and Kym Watson

Note Kevin Burton and Kym Watson are editors of the Via Research monthly report. To subscribe to this service go to http://www.via-trader.com/via/signup.htm

fading star indeed...something like a red dwarf perhaps(equally funny to watch too!)

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  • 335 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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