Stock markets in New York and London may have risen since our last report on March 14 but sentiment remains jittery as an unprecedented global credit crisis still has more horrors to unleash. The DJ Industrials advanced 265 points to 12,216 and the FTSE 100 was up 61 to 5,692 helped, perhaps, by moderating US inflation and expectancy of further cuts in UK interest rates. Interest rate cuts alone, however, will do little to calm markets and, if anything, risks re-sowing the seeds of another financial mess a few years down the line. As variously mentioned in this column, the commercial and investment banking sector, including its symbians, need overhauling through new legislation, a view belatedly supported by Henry Paulson, US Treasury Secretary. “This latest episode,” he says, “has highlighted that the world has changed as has the role of non bank financial institutions and the interconnectedness of them all.” But all that is long term.
Short term, however, consumers will suffer the brunt of pain to come. As Paulson commented: “House prices must be allowed to drop before the economy stabilises,” a remark that sent the DJ plunging 130 points. US house prices in 20 cities have, in fact, already fallen 11% over the last year, the worst decline in almost 20 years. One distinguished US economist, however, expects the end of the year will see 20 million people with negative housing equity, with likely capital losses of $6-7 trillion, following a 25% overall decline in house prices. Little wonder that US consumer confidence has hit a 5-year low, while in Britain one survey suggest such confidence is the lowest in 15 years.
Buddy, can you spare a botox?
So what does all this portend for near-term equity prices? When J P Morgan was advised by his shoe shine boy which stocks to buy he guessed the time was right to dump shares. That was just before the 1929 Wall Street crash. Readers will hope that the modern-day equivalent is not the stream of laid-off, New York, male financial workers now visiting their hair salons and cosmetic surgeons looking for botox, laser and skin fillers because they must appear fresh and valuable and 10 years younger looking to improve their job hunting prospects. Even so, prescient investors should remain on the sidelines for now, as the botox blues refrain has a long way to run.
Our own list of stocks moved in narrow confines but falls outnumbered rises by 18 to 13. Most of the significant fallers were in the 3PL sector, the biggest being TNT. Despite bid issues, TDG fell 5.2% to 233.5p, a point well below the mooted bid offer of 270p. French logistics giant, Geodis, fell 7.2% but the biggest player, Deutsche Post, fell 3.3% to within a whisker of its year’s low of 19.09 Euro, affected, perhaps, by its DHL American losses. Bucking the 3PL trend, however, was DSV, up 12.7%.
The forklift sector was mainly positive, with Nacco Industries (Hyster & Yale) standing out with a 5.6% rise, though still over 50% below its year’s high.
On the IT pitch, EMS Technologies rose 8.8% following solid earnings growth in 2007. Compared with 2006, operating income rose 34% to a record $19.3m on the back of a sales rise to $287.9m. Earnings per share reached a record $1.24, up by 68% after adjusting for certain tax benefits of $0.34 per share in 2006. Higher international sales in the mobile logistics business helped overcome domestic market conditions, resulting in overall growth for this segment. Expected earnings from continuing operations in 2008 are in the range of $1.30 to $1.40 a share. Britain’s leading supplier of mobile data capture devices, Psion, fell 4.5%.
Bill Redmond
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