The icy blast forecast in weather reports was, for most of the UK, less than feared this week - but the stock market has not fared as well. Each feeble rally in the FTSE 100 index has ended in tears. The polar bears are again in the ascendancy.
On the stock market, each sale helps to push shares lower, thus producing a self-justifying belief. If, collectively, we believe shares will fall, they will do so. And they have done.
The FTSE 100, having rallied brilliantly since mid-October, now looks set to return to the 6,200 points level we saw then. Such is the perversity of markets that a relatively subdued “Black Friday” in American shops has overshadowed all the good economic figures to come out of the US this year.
The serious possibility of a default in Greek government bonds has reminded investors that the Eurozone crisis has never gone away, though why anyone would buy Greek bonds considering the risks involved is beyond me. Greek debts are comparatively small. It is the domino effect on the rest of Europe that we fear.
Yet consider this. Even after the sell-off of Greek bonds they still yield only about 9%. At that rate Greece will have to avoid default for 11 years just for the buyers to break even, longer after allowing for inflation. Would you take that kind of risk when you can get half that yield buying UK stocks that will not default?
I am remaining fully invested in UK stocks. My portfolio is still showing a profit, even without counting in dividends received. Solid companies will look very attractive when the dust settles.
Tesco Pays the Price
I’ve laid off supermarkets for a while in this column but the stock market certainly hasn’t, with shares in Tesco (TSCO), Morrison (MRW) and my own holding in Sainsbury (SBRY) getting hammered over concerns that Lidl and Aldi are taking market share.
Tesco has, quite rightly in my view, suffered most but the reaction to its latest trading statement was rather overdone. Tesco shares actually fell 17% in less than one hour’s trading before astute bottom fishers nipped in and halved the deficit later that morning.
The supermarket chain itself must bear most of the blame for the debacle. To stick a profit warning into the last sentence of any announcement, even a fairly short one, is asking for trouble. Investors feel automatically that management is reluctant to be upfront about the scale of the problems.
In running four paragraphs lauding themselves for the positive steps they say they have taken, the directors were fooling no-one. Even in paragraph five, the revelation that profits will be £1.4 billion in the current year to February compared with £3.3 billion last year was concealed as far as it could be.
It would have been far better to start with the profit figure, the one new fact in the statement, and explain how much was due to ending the practice of counting income clawed back from suppliers before it had been received so we had a proper take on the situation. Shareholders also deserved a costing of the price cuts needed to fight off Aldi and Lidl.
I fear that supermarkets probably have further to fall before they settle. I am not inclined to take a gamble on a recovery in the sector happening soon.
Delivery Firm Falls Victim to Supermarket Squeeze
One bystander sure to suffer among the supermarket wars is delivery firm Ocado (OCDO), a company that keeps threatening to make a profit but has never quite achieved it.
Sales are growing consistently at about 15% and are approaching £1 billion a year. Unfortunately supermarkets are squeezing prices wherever they can and Ocado’s margins are an obvious target. The elusive first profit will probably arrive soon but it could be much lower than expected. Stay clear of this constant disappointment.
