Our view is that much of what’s written about war and markets in the mainstream media is nonsense. We looked at seven major conflicts since the Spanish-American war of 1898 and their impact on the Dow Jones Industrials Average. In each case, there was a V-shaped pattern: markets fell sharply at the outset, but recovered strongly once victory was in sight. This led to the adage ‘buy on the cannons, sell on the trumpets.’ There is little to indicate this bust-up will be any different. Far more important for global economic prospects are the continued stagnation of Japan, the economic gloom enveloping Germany, and the irresponsible ballooning of the US trade and budget deficits.
UK bank shares have been hit hard by fears of a slower housing market and higher bad debts. But Northern Rock, the Newcastle-based mortgage bank that traditionally kicks off the reporting season, has reported record profits. Its mortgage arrears are half the sector average and its cost control is worthy of Mr Scrooge. Its shares used to be highly rated, but the sector malaise has reduced them to very tempting levels.
More machinations in the Safeway saga. The company revealed last week that it had revalued its property portfolio, and that its real estate is now worth £4.2bn, or 391p a share. This begs the question: why did the group’s management agreed to a takeover bid from Morrisons that values the group at less than 300p a share. Most of the six bids for the company are likely to require some kind of regulatory scrutiny, which will take months. Trading is likely to worsen during that time, so our advice, if you own the shares, is to sell them in the open market now, a bird in the hand being worth two in the bush.
WH Smith this week became the last major retailer to report on trading conditions over Christmas. The tidings were far from glad; although margins improved, like-for-like sales were down two per cent over the festive period. The shares slumped to a ten year low, but come with an attractive dividend and are worth picking up. The same can’t be said for Laura Ashley, the flowery fashion and homewares group. Financially, it’s been a basket case for years, and the latest piece of news is farcical. It’s raising £9m in a rights issue, not to finance expansion, but to pay for the closure of 18 stores in Europe. Steer clear.