Taxes, Rumour and Finance Directors
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Trading Features / Strategies from Simon Denham of Capital Spreads.
Tax take for the month of January hit a record high - in a growing economy this is taken as a given. However the scale of the receipts surprised the markets which had been expecting a surplus of £9.5bn number, not the actual result of £14.1bn. Not only this, but the deficit for the previous month was downgraded as well, from £7.8bn, to £6.9bn. This means that the government is likely to hit its borrowing levels of around £38bn for 2007/08 which will give Cpt’n Darling a bit of welcome relief after his very own ‘Annus Horribilis’. As the new tax year gets under way very soon he can at least look forward to a few months of ‘is it, isn’t it’ on the borrowing requirement for ’08 before any deterioration becomes evident.
Ploughing large sums into bottomless pits appears to be one of the sole roles of government these days (aside from passing ever more petty laws on personal freedoms). With 45% of GDP now controlled in one way or another by the Treasury the wisdom of this from a political view point becomes ever more evident. The small Tory surplus in the polls may begin to dwindle as the next election approaches as the increasing number of the electorate employed by this state largesse is hardly going to vote itself out of a job or into a pay freeze. Bad economics but - if your definition of success is that you have remained in power rather than whether you have done a good job - good politics.
SAB Miller Time
There was a bit of excitement on Wednesday. In the midst of all the gloom, a rumour circulated that SAB Miller was about to gate crash the S&N Spread Betting / Carlsberg party. This was a beautiful piece of city rumour mongering, believable and great timing. The stock immediately shot up 20p or so and this morning. It is just a shame that it was all a hoax and the stock will have to give it all back again. No doubt well after the guilty party has offloaded his position and booked a nice little earner.
Both BAE and Tomkins showed weaker numbers but better than might have been feared. Much of market movement can be attributed not to what the actual figure is but what as been ‘indicated’ to the markets in advance. City fund managers hate surprises so half the job of Finance Directors is to subtly inform their investors about market conditions without actually giving out raw data.
This is why the Alliance and Leicester figures yesterday were so bad. Analysts had been expecting around £330m but were presented with £256m. A huge difference by any standards. The house broker must be furious as this kind of underperformance can reflect badly on their ability to communicate with their major clients.
The stock is likely to remain under pressure for some time and the board will find few friends in the investment fraternity.
The above comments do not constitute investment advice and neither Capital Spreads nor Clean Financial accept any responsibility for any use that may be made of them.
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'Taxes, Rumour and Finance Directors' edited by SD, updated 25-Feb-08
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