8th December 2010

7IM - ‘Incoming!’

I am not sure what the Korean for 'Incoming' is, but similar sounds could have been heard elsewhere around the globe as explosions in the sovereign bond markets seemed to be reverberating around the markets. So what else do you want in any one week - a funding crisis in the Eurozone, rising inflation and interest rates in China, anaemic growth in the US and an artillery exchange across the 38th Parallel. All that and finished off with the inappropriately named 'Black Friday' highlighting the shopping fest in the US after Thanksgiving. At the time of writing, I have not seen any of the results from the retailers but it seems as though Manhattan may have been recording a busy time and certainly the comments seemed to be positive about a significant growth over last year.

However, comments from those in smaller towns and suburbs seem to be less encouraging. After all, with that level of unemployment there is bound to be pain especially at the poorer end of society.

I always find it interesting to do some retail watching if only just to get an idea of themes. Thus a quick wander down Oxford Street showed one clear brand standing out. I managed to avoid looking at the truly hideous Selfridges' door decoration and noted few of their bags but there were hundreds with Primark splashed all over them.

So maybe we will be shopping at Christmas, but just at the 'value' end of the street? What certainly will be the case though is that shoppers will be buying bigger ticket items before the VAT rise.

What was interesting last week was that despite all the potentially worrying news, the equity markets didn't thrash around in panic and only showed quite modest movements as the newswires revelled in the creation of worrisome headlines. Confidence or complacency? Or rather just ignored in favour of the bond and currency shenanigans?

Meanwhile in another state far far away, other debt issues are coming back to haunt investors. If one was being suitably cynical you could imply that the US has been very keen to highlight the problems around the Euro if only to distract attention away from their own bond problems. The $2.8 trillion municipal bond market has been the secure source of funding for America's 50 different states and economies.

Although shaken by the 2008 crisis they (Munis) have always been seen as a quiet and rather safe and often tax exempt investment area. However, now the fears are returning and with states like California finding that their cost of funding is rising, there is growing concern amongst investors as funds are being withdrawn. There have already been some defaults but as yet no higher than had been expected, but with lower tax revenues and pension and health care costs still rising, the position is not encouraging.

There is talk of some cities going bust and such rumours have further encouraged selling - this may be the next focus of market nerves.

As part of the fashion of bank bashing, can I push back some of the vitriol that is being generally sprayed around and highlight two bankers who should command our respect.

One is Gary Hoffman who has recently stood down as CEO of Northern Rock having carried out some extremely effective surgery in a very short time and has returned the ailing mortgage bank back to health. Although on a smaller scale to the likes of RBS and Lloyds, he has shown to be an excellent model which they could learn from, not so much in terms of the bank structure but much more in terms of management action, effectiveness and communication. Not only that, although he was entitled to a £500,000 bonus for his successful turnaround, he thought it was inappropriate for him to take it and left without it. Some respect for Mr Hoffman please.

The other is Antony Jenkins who moved from running Barclaycard to take charge of Barclays' global retail banking late last year. Unlike other retail banking moves you may recall, Antony has not worked for a supermarket or retailer, but has built up an excellent track record of building effective businesses, even within large corporations, which are far more 'customer centric' and as a result far more successful. This is not the self satisfied city banker that has so often caricatured, but a highly intelligent and softly spoken leader who is likely to get things done. Watch these two. I suspect we will be hearing more in due course.

And finally...from New York - a wonderful Homer Simpson moment. Police in New York City say thieves held up the owners of a pizzeria and then fled with a bag of full dough - but sadly for them it was the wrong kind - the kind that crusts are made of.
Police say Salvatore LaRosa was charged with robbery after surrendering to police.

According to court papers, LaRosa and an accomplice followed the owners of Brothers Pizzeria on Staten Island. After donning masks, the papers say, they pointed guns and demanded the men turn over a bag they believed held the day's proceeds. But instead, the bag was full of pizza dough.

Have a good week.
Justin A. Urquhart Stewart
Director
Seven Investment Management Limited

P.S. some more political correctness at loony schools - the Christmas story as performed by the children at Brighton school is being performed with a slight adjustment to take account of certain religious sensitivities. The four angels have been replaced by four aliens, as yet there is no news on the whereabouts of the baby Jesus. But presumably he will have been taken into care after a birth in unhygienic surroundings.

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