Weren’t the US and the UK economies supposed to be heading for the scrapheap and weren’t we supposed to be stuck with ZIRP in perpetuity? Well, we were last week, but this week – and it’s still only Tuesday – thanks to the Markit Manufacturing PMIs for October, released yesterday and for both countries, we’re not.
The US figure only marginally beat expectations by reporting in at 54.1 as opposed to the forecast of 54.0 even but the UK figure, forecast at 51.3 blew the pundits away with a reading of 55.5.
I remind that the PMI is a diffusion index and that any report above 50.00 indicates expansion, one way or the other, and neither of them had been expected to anything other than illustrate an ongoing growth scenario. But figures in the mid-50s for both economies fly in the face of the many naysayers who have predicted the end of the cycle – myself included – and those who felt that we might be on the cusp of a retracement.
That said, a quarter of an hour after the Markit PMI, the ISM (Institute of Supply Management) Manufacturing PMI, formerly the guru’s choice, was released and that looked a lot less rosy at 50.1, down from 50.2 in September and only a rounding error above the forecast 50.0. What have I been saying recently about the simply being too much information out there and it now being as good as impossible to trade on data? Markets will of course do what they have always done which is to pick on the figures which suit the direction in which they are going and discretely ignore the bits that don’t.
Thus, the rally in US equities continues with the Dow putting on 0.94% and the S&P adding 1.19% which takes the Dow back into positive territory, year to date and pushes the S&P above 2,100 points for the first time since the mid-August swoon. So on Monday US markets chose to trade the economy rather than the fear that the Fed might decide to begin to tighten in December, but we should know by now that one has to trade one day at a time. As far as rational investment decisions are concerned, follow the earnings, not the Fed and most certainly not the tattooed gamers on the trading floors of New York.
Flight of Pfizer
Meanwhile, Pfizer is beginning to look like one of those Syrian migrants as it runs hither and thither in search of a way out of the US corporate tax regime. Having failed to acquire a British passport by way of marriage to GlaxoSmithKline, it is now, so I hear, courting the Irish registered Allergan in its continuing search for a tax inversion deal. According to the FT, Allergan pays an effective tax rate of 4.2% as opposed to Pfizer which is handing over 25.5% of its profits.
Say what you like about anti-American behaviour, I’d suggest that there is little which is more American than to think of and to act in accordance with what is beneficial to shareholders and if optimising taxation is part of that, so be it. Washington – both the White House and the Hill – are well aware of how their arcane corporate taxation structure is driving some of the largest companies in the country to domicile themselves overseas, how it encourages them to issue bonds to pay dividends rather than to repatriate profits for the purpose and how, in the true vein of competitive capitalism, other countries with more benign tax regimes are running rings around them. The problem is that the process and outcome of resolving matters concerning federal corporate taxation fits into on pork barrel and wins no votes. Being photographed standing next to a man in uniform or in work clothes and a hard hat looks a lot better than being snapped next to a bevy of smiling tax lawyers.
Tax inversion is no longer the headline news it was twelve months ago but if Allergan and Pfizer were to merge, Ireland would be sporting the world’s largest pharmaceutical company with a market cap of over US$300 billion. On the same note, incidentally, Visa has just acquired Visa Europe for €21.2 billion. Read all you like about synergies and stream-lining and believe it if you wish, but it’s all about tax. Is Washington listening? Of course it’s not because the question as to whether the country can continue to call itself a democracy if citizens can’t continue to shoot each other dead at the rate of 11,000 a year takes absolute precedence.
Candy crushed
Does anybody remember the IPO of King Digital? The British maker of Candy Crush Saga floated in New York in March 2014 at US$22.50 which valued the one-trick-pony games designer at over US$6 billion. We all laughed and well we could have done. Since then the share price has never come anywhere close to the valuation at issue. Now, two and a half years on, King is about to be acquired by Activision Blizzard, maker of Call of Duty, for US$18.00 per share. What all those battle hardened, gun-toting he-men are going to make of King’s little sweeties is beyond me. I must, to be honest, declare a sort of interest. Having been perplexed by King’s IPO and having expressed that in this column, I decided for research purposes - I am not and never have been one for computer games – to have a look at Candy Crush; I am now a frustrated player at around Level 350.
P’d off
Finally, the EPA has apparently found another set of dodgy figures with which to beat up VW. Bonds and stocks are down. For the first time the “P” word has been uttered. Matthias Mueller, the replacement CEO, was brought in from Porsche which is not good. Why the hell the Piechs and the Porsches couldn’t see that they had to be seen to be bringing in an outsider without the risk of him (or her) being tainted escapes me. How about someone like Bob Dover, former head of Jaguar Land Rover, then part of Ford, who understands both how to make cars and what makes the Americans tick, and whose track record is as clean as it comes? Of course it won’t happen; it makes far too much sense.
