Hobson: QE is Painfully, Thankfully, Coming to an End

THE WEEK: Quantitative easing, which few people understood, and no one will miss, is  slowly coming to an end says Rodney Hobson

Rodney Hobson 9 March, 2018 | 12:48AM
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European Central Bank Mario Draghi ECB quantitative easing QE bond buying

Heads of central banks have a unique method of communicating through what they don’t say. Bank of England Governor Mark Carney tried to break this mould with “forward guidance” but soon learnt that trying to be transparent only provokes a storm of derision from the economists and financial journalists who make a living from interpreting opaque pronouncements for the benefit of the baffled public.

Please bear with me when I say that what was missing from the European Central Bank statement was a vital piece of information for all investors. It is no longer threatening to increase its purchases of bonds. Quantitative easing, which few people understood, and no one will miss, is truly, painfully slowly, coming to an end as Europe follows the US and UK.

It means firstly that growth in European economies is sufficiently assured to take them off life support. Even the worst basket case, Greece, is moving in the right direction. It was vital that this should happen before ECB Mario Draghi’s term of office ends in November next year. Miracle worker Draghi has held the Eurozone together almost single handed with precious little to work on.

There are threats to world trade, not least President Trump's disruptive tariff proposals and the possible fallout from Brexit, but on balance the signs remain positive.

The FTSE 100 slumped heavily in the first weeks of 2018 after hitting a new high. It has, however, stabilised in a range between 7,000 and 7,300 points and may continue swinging erratically at this level for some months.

Significantly, though, the FTSE 250 index, which also fell back heavily from a record level, has started to recover strongly. The mid-cap index tends to lead the blue chips in setting a direction rather than the other way around. My view is that the FTSE 100 will hit 8,000 points this year is shaken but not by any means destroyed.

Country-Wide of the Mark

There’s a long long trail a’winding at estate agent and property services group Countrywide (CWD) and we have not reached a turning point yet. If anything, it goes from bad to worse with results showing a hefty loss and the suspension of the dividend. Even taking out exceptional charges, profits halved. London lettings were 3% higher but otherwise sales and lettings fell throughout the UK.

You can’t say you weren’t warned. Countrywide spelt out a fall in key numbers in a trading statement in mid-January. That warning led to the resignation of chief executive Alison Platt.

Nor is there any sign that the situation has improved. Countrywide now says that the first half of 2018 will not even match the disappointing similar period of 2017 and even if the second half manages a pick up the full year will show a further shortfall.

The shares have dropped from 700p four years ago to around 80p now, with the results knocking 7% off the already battered share price.

Countrywide could, indeed should, come good again. Heaven knows, the bottom has not fallen out of the housing market by any means. However, buying now looks like catching a falling knife. There could be a lot more misery to come. Stay well clear.

Unnecessary Name Changes

Among my pet hates are companies that announce with such unconvincing zest that they are changing their name to something daft. Simon Fox, chief executive of Trinity Mirror (TNI), a name that at least contains the bestselling title of the media group, claims that Reach will “reflect the larger business” following the takeover of the Daily Express and its stablemates.

I couldn’t find any mention in the annual results of whether some brand guru has been paid for this brainwave, but I hope it was what the new title is worth. Meanwhile print media continues to be a dying industry, as revenue figures for 2017 confirm. I’ll keep the shares at arm’s reach.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Reach PLC101.00 GBX0.80

About Author

Rodney Hobson

Rodney Hobson  is a columnist for Morningstar.co.uk and author of several investing books, including The Dividend Investor and How to Build a Share Portfolio.

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