Pressure for UK tax hike eases 

January's public finances have revealed a marked improvement in the UK's underlying fiscal position on the back of a strong rise in tax receipts. The PSNB surplus of GBP12.6bn was way bigger than last year's equivalent figure of GBP8.8bn and the consensus forecast of GBP7.8bn. Tax receipts rose by almost 15% yy, driven by a huge 52% rise in corporation tax revenues.  

Borrowing is still likely to overshoot Mr Brown's latest forecast of PBR 2005/06 forecast of GBP37bn by around GBP3bn. The good news, though, is that the current budget (which excludes investment and is what matters for the Golden Rule) is pretty much bang on track to hit Brown's forecast of GBP11bn odd. Bottom line: Tax increases of the order of GBP10bn per annum will be required to bring borrowing down to more sustainable levels, but today's figures suggest that the forthcoming March Budget (22nd) will see rather smaller increases. 

Bernanke Plays it Safe

Bernanke’s prepared Congressional testimony provided no new information about the likely path of monetary policy.

Bernanke’s testimony was generally upbeat, and also very balanced, emphasising both the upside and downside risks to the FOMC’s central forecast of continued growth and modest inflation. The Fed remains concerned that high energy costs could feed through to higher inflation in the near-term, but it also recognises that the economy could be undermined by a sharper-than-expected cooling in housing and/or renewed jump in oil prices. Bernanke repeated that “monetary policy actions will be increasingly dependent on incoming data”. Bottom line: The US economy should cool enough in the months ahead to prevent the funds rate from rising above 5%.

However …… a recent BCA review gives US Corporate health a glowing report 

The main points of BCA’s report (published 20/2/06) are: 

• The U.S. corporate sector is in its best shape for decades in terms of both profitability and balance sheet strength. Part of the improvement is cyclical, but structural forces are at work.

• Surging productivity has been the key driver of the corporate revival. This is consistent with the view that the U.S. is in a long-wave upturn that began in the first half of the 1990s. Productivity gains have allowed real compensation to rise alongside the improvement in margins.

• Profit growth will decelerate this year as the economy slows. However, decent valuations and an end to Federal Reserve tightening will provide offsetting support, allowing the equity market to move higher.

• The corporate sector’s strong financial position means that slower growth in consumer spending should not lead to major cutbacks in hiring and capital spending. Corporate bond spreads will remain tight.

• Pressures to return money to shareholders will continue to build, pointing to strong dividend growth and increased share buybacks.

Technically speaking…….. 

FTSE-100 (5860) shook off the uncertainty of the pervious fortnight and surged by 82 points last week. The positive tone of the market has undoubtedly been assisted by the bid speculation that has become prevalent in so many sectors, and the news that an approach was made for Lonmin at the end of the week means that the takeover-centric activity is going to continue for a bit longer. 

It is several years since the leading index last traded at these levels, but that doesn’t mean that it cannot trade higher in the medium term. Indeed, for the first time in a while the prospect of a move up through 6000 does not seem so far fetched, particularly since it has become evident during this reporting season that today’s share prices have been made to look rational by the earnings that are being reported.  

Technically, there a couple of points worth mentioning. The first is that the uptrend is looking strong, both from a short-term and longer-term perspective - the momentum oscillators are demonstrating good strength and are moving higher, without yet looking particularly stretched. At the same time, a large gap (460 points) has opened up between the index and its 40-week moving average, and it hasn’t been this wide since the rally began three years ago. That doesn’t make a pullback inevitable but it does mean that the otherwise positive outlook needs to be tempered somewhat, particularly since such extensions are usually not sustainable for long. 

Lies, damned lies and (market) statistics..

During all bull runs, corrections occur (well yes Prometheus, but tell us something we don’t know…Ed). What may be rather less well known is that, since 1970, there have been several sustained bull market runs (as per the FT All Share), but as outlined below, in every case these periods have been followed by corrections of 10% or more:

  Years                                            length of bull run                   subsequent correction

                 May 1970 to May 1972                   24 months                                            14%

                 Nov 1979 to Aug 1981                    21 months                                            22%

Sept 1981 to April 1984                   31 months                                            13%

July 1984 to July 1987                      36 months                                            14%

Dec 1987 to Sept 1989                    22 months                                            14%

Dec 1994 to Oct 1997                      39 months                                            10%

March 2003 to Feb 2006                 35 months                                            ?

(There were incidentally 2 minor reversals in 2005 but both were of the order of only 6%).

Are we perhaps in the twilight of the current bull market run…?

And finally…………..

Brokeback Mountain Weekly Grocery Lists
 
 WEEK ONE
   Beans
   Bacon
   Coffee
   Whisky
 
 WEEK TWO
   Beans
   Ham
   Coffee
   Whisky
 
 WEEK THREE
   Beans al fresca
   Thin-sliced Bacon
   Hazelnut Coffee
   Absolut vodka & Tanqueray gin
   K-Y gel
 
 WEEK FOUR
   Beans en salade
   Pancetta
   Coffee (espresso grind)
   5-6 bottles best Sauvignon
   2 tubes K-Y gel
 
 WEEK FIVE
   Fresh haricot beans
   Jasmine rice
   Prosciutto, approx. 8 ounces, thinly sliced
   Medallions of veal
   Porcini mushrooms
   1/2 pint of thick whipping cream
   1 Cub Scout uniform, size 42 long
   5-6 bottles Bordeaux (Estate Reserve)
   1 extra large bottle Astro-glide
 
 WEEK SIX
   Pink Fir Apple potatoes
   Thick whipping cream
   Asparagus (very thin)
   Organic Eggs
   Spanish Lemons
   Gruyere cheese (well aged)
   Crushed Walnuts
   Rocket
   Clarified Butter
   Extra Virgin Olive oil
   Pure Balsamic vinegar
   6 yards white silk organdy
   6 yards pale ivory taffeta
   3 Cases of Dom Perignon Masters Reserve
   Large tin Crisco

Prometheus from sources: ADM, Barclays Capital, Cazenove, Charles Stanley, HSBC, ING, SocGen, UBS.