Redmayne Bentley - Market Watch - Leeds Financial

Market Watch

 

Given its proximity to the general election, last week’s Budget was always going to be more political theatre than a firm commitment to the inevitable public spending cuts that lie ahead.  As expected, the lack of detail on the spending cuts was seen as a way of securing the public sector vote and the fact that the re-balancing of the UK budget is being postponed and concealed in order to hide the pain is a very risky strategy.  Whilst there were many vague intentions, there was clearly a lack of strategy and as the largest bond investor in the world said. On seeing the UK Budget - PIMCO are still seeking clarity on the spending plans.  “The last years have taught investors not to take guidance on intentions as a guarantee of future action” they said.  The main headline, as would have been expected, was a tax cut, with first time buyers of properties costing up to £250,000 being able to avoid Stamp Duty, although the economic impact of this will be very limited and it is questionable whether or not it will give any support for a housing market which is starting to head south again.  For the UK economy to thrive it needs to be buoyed by production and exports, not house price inflation and the freezing of personal allowances will mean higher tax bills for all. The number of people paying the 40 per cent tax band has plunged by 670,000 since 2008, cutting the amount of tax the Treasury receives by £8.2billion a year. Following the freezing of allowances an estimated 90,000 taxpayers will now be pulled into paying higher rate tax this year and this will increase each year if the economy grows. Those earning more than £150,000 already face a 50p tax rate from next month and this will bring in about £6billion over three years. Those who earn more than £100,000 will lose their personal allowance, which will bring in £3.8billion. The Budget deficit at £167 billion this year is an 11 per cent reduction on the previous forecast and for the next financial year 2010-11 the Government projected deficit is £163 billion, or 11 per cent of GDP.  Thereafter, the deficit is forecast to fall rapidly as spending cuts start to take effect.  These medium term forecasts, however, are questionable as Alistair Darling neglected to say where the cuts will fall, arguably because he thinks economic growth is expected to take up a significant proportion of the strain and whilst acknowledging that his earlier growth forecast for 2012 of 3.5 per cent is too high, a reduction in growth forecast to 3.25 per cent still remains some 1 per cent ahead of the general City consensus.  By using such dubious accounting forecasting, I believe it is only a matter of time before financial markets signal through higher interest rates that their patience is running out and this turning point could well come sooner than anticipated, particularly if contagion sweeps Europe as a new wave of risk aversion engulfs following further difficulties in the Euro zone’s troubled economies. The UK’s fiscal maths make very unpleasant reading, even after a reduction of £11 billion this year and £13 billion next year.  Over the period to 2014-15, when the deficit is expected to have fallen back to 4 per cent of GDP, borrowing is expected to have totalled £734 billion and will roughly double the net debt to GDP ratio from its level prior to the recession to 75 per cent of GDP in 2014-15.  With £39 billion of spending cuts and tax rises already announced, the reduction in the deficit to £89 billion in 2013-14 relies on very strong officially projected GDP growth of 3.25 per cent next year and 3.5 per cent in future years.  Debt, of course, needs to be repaid and it is the rate we have to pay to borrow new money which can be the crippling factor as Greece has most recently found out. In 2014-15 interest payments will climb to £73.8 billion a year, or 10.5 per cent of total tax revenues, taking debit interest to its highest level since the early 1980s when Nigel Lawson was still reducing the high level of Britain’s national debt accumulated under the previous Labour Government.  Next year the debit interest bill will hit £42 billion, higher than Britain’s annual defence bill and at £73.8 billion it is likely to be equivalent to both defence and transport bills combined. Deficit reduction is not the same as debt reduction. Debt is forecast by all parties to continue to grow and this will only add to our interest bill.

 

The highly regarded and independent Institute for Fiscal Studies believes that UK Central Government department spending will need to be cut by a total of 11.9 per cent or £46 million a year by the financial year ending March 2015 to meet the fiscal projections laid out in Wednesday’s Budget.  The IFS said that it will require spending by Central Government departments to fall by 3.1 per cent a year in each of the four financial years from 2011-12 through to 2014-15 and that including departments like education and policing, whose budgets the Government has said they will protect. This means non protected department spending will need to fall by between 5.3 per cent and 7.1 per cent a year between 2011 and 2015.  They also believe that efficiency savings cannot be relied upon to cut Britain’s record deficit and believe that the Chancellor, who counted £11 billion of annual efficiency gains into his plan to cut the deficit by £78 billion by 2013-14 to be wrong.  The IFS calculates that as a share of total spending Central Government will place the greatest burden on the savings at Town Halls across the UK rather than Whitehall and calculates using reasonable assumptions on debit interest, social security and other unavoidable parts of Government spending were made, Government departments would face annual real cuts of 3.1 per cent after April 2011.  By 2014-15, if a Labour Government protected schools, health, police and overseas aid from cuts, the unprotected parts of Government would face cuts of 19 per cent to 25 per cent over four years.  These are deeper and more sustained than any spending cuts in the past 30 years.  This particular element was acknowledged by Mr Darling speaking on Thursday, when he did not deny that spending plans implied cuts that would be “tougher and deeper” than those imposed by Margaret Thatcher in the 1980s.  The implication is that infrastructure projects and other capital sensitive schemes are likely to be shelved as thousands of public sector workers are made redundant, as public spending dives from around 27 per cent of national income, back to its 1997 level of 20 per cent. Commenting on the budget finances, Brian Coulton head of Sovereign Risk at Fitch said “Public debt does not fall materially until after 2014-15.  This projected path leaves the public finances vulnerable to shocks”.  I believe it is inconceivable to think if these material cuts will not made before 2014-15.  If they are not our ability to control the situation will be severely diminished and whatever Government is in power will be severely humbled for the UK electorate who have been mislead and for whom normality is viewed as being the boom conditions of the last ten years, this will come as a painful shock.

 

There was better than expected news on the inflationary front when inflation fell sharply in April, adding weight to the view that price pressure this year will away as the effects of recession hit demand.  The annual inflation rate of CPI was 3 per cent in February, down from 3.5 per cent in January and slightly below the forecast level of 3.1 per cent.  Core inflation, which strips out volatile items such as energy and food prices, eased to 2.9 per cent in February from 3.1 per cent in January.  The figure, however, also remains above the Bank of England’s official target of 2 per cent.  Inflation, as measured by the old Retail Price Index, which includes housing costs and is used as a basis for many pay deals and pensions in the public sector, remain unchanged at 3.7 per cent last month. A rebound in retail sales during February was overshadowed by a sharp downward revision to high street trading at the beginning of the year, raising questions over the strength of Britain’s economic recovery.  The overall volume of goods sold last month rose by 2.1 per cent compared with January, the biggest monthly increase since May 2008 according to official numbers.  Compared with a year ago, sales volumes for February were up by 3.5 per cent.  At the same time, however, the Office of National Statistics revised volumes for January down, from a fall of 1.8 per cent to a 3 per cent decline after shoppers deserted the high street due to a combination of poorer whether and the return of VAT to 17.5 per cent.  The largely unexpected fall in January sales volumes has raised fears that the country’s economic recovery in the first three months of the year will fall short of the 0.3 per cent rise in GDP recorded between October and December 2009.  With consumer spending accounting for around 65 per cent of UK GDP, contraction in the first quarter of 2010 looks highly likely. The UK economy will not pick up speed until the middle of next year the CBI warned in the week and that economic growth would remain fragile in the near term due to the end of stimulus measures.  It is predicting economic growth of 0.3 per cent to 0.4 per cent in the first two quarters of 2010, followed by growth of 0.5 per cent in the second quarter.  Overall, it believes annual economic growth will be 1 per cent in 2010, whilst rising to 2.5 per cent in 2011. The CBI sees the Bank of England raising interest rates in the third quarter of this year, with the base rate ending the year 2011 at 2 per cent.  The CBI’s March Distributive Trade Survey showed that high street sales growth slowed in the first half of March, with a 13 per cent balance of retailers reporting stronger sales than a year ago, lower than expected and well below February’s 23 per cent reading.  Commenting on the figures, the CBI said that with a weakening economy and pay freezes for many, consumers are likely to remain cautious for some time.  The CBI survey covers 138 firms and 20,000 outlets, accounting for around 40 per cent of jobs in the retail sector. The number of mortgage approvals for house purchases in February stayed virtually flat on the low levels recorded in the previous month, according to the British Bankers Association in the week.  The number of home loans approved in February hit 35,276, just 122 more than in January and well below the trend of the last six months of £41,563.  Net mortgage lending rose in February by £2.8 billion to £760 billion above the £2.6 billion rise in January.  Over the past six months the average mortgage lending number has been £3 billion. There was also a slight rise in February in the number of mortgages approved for people re-mortgaging, thus releasing equity from their home, or taking out a buy-to-let mortgage.  Bank lending to companies dropped by £4.9 billion in February, taking total loans outstanding to £738 billion.  Net lending to customers remained unchanged, with a total £94.4 billion of loans outstanding.  A rise in credit card lending was offset by a slight drop in personal overdrafts and loans and the level of deposits rose by £4.3 billion to £601 billion.  Total borrowing through credit cards increased by £214 million, whilst lending through loans and overdrafts contracted for the 15th month in a row, with consumers repaying £257 million more than they borrowed.  At the same time savings rose by £4.3 billion, the highest level for more than a year and well up on January’s figure of £2.6 billion.  The BBA said subdued consumer spending had led to unsecured debt contracting by 1.7 per cent during the year, while personal deposit levels increased by5.6 per cent. According to HM Revenues and Customs, the number of homes sold in the UK rose in February, with completed sales up by 14 per cent on January’s numbers at 58.000.  This was substantially lower than the 103,000 sold in December as buyers rushed to meet the new introduction of lower Stamp Duty thresholds.  However, this was higher than the 43,000 sold in February last year, just before sales and prices started to revive from the slump. U.K. business investment fell for the sixth consecutive quarter in the final three months of 2009, indicating that firms had little confidence in the economy even though it had begun to emerge from recession, revised official data showed Friday. Business investment was 4.3% lower than in the third quarter and 23.5% weaker than in the fourth quarter of 2008, the Office for National Statistics said and the figures showed there was deterioration in the three months to the end of September when investment fell 0.6% on the quarter and 19.9% on the year. However, the revised data was an improvement on the preliminary reading for the fourth quarter that had showed investment fell 5.8% on the quarter and 24.1% on the year. It was reported over the weekend that advisors to the government are working on a secret plan that could allow the state to start cutting its shareholdings in British banks just weeks after the general election. The plan would see the Treasury create “convertible gilts” — government bonds that could be exchanged for shares in the banks once certain price targets are met and it is understood that a sale of the new instruments could be launched as early as June, if officials decide to press ahead with the plan. Speculation of a government sale of bank shares has been mounting recently after strong rises in the share prices of Royal Bank of Scotland and Lloyds Banking Group.

 

The UK Government is running a Ponzi scheme that makes disgraced New York financier Bernie Madoff look like an amateur.  Ponzi schemes are where contributions of new investors pay the proceeds of those leaving the scheme and which ultimately is unsustainable.  Britain, of course, has been operating such a system over many years, although this has increased substantially in the last decade due to the expansion of the State payroll.  New public employees have provided some of the cash needed to pay inflation-proofed pensions for their colleagues retiring.  They in turn have been given a promise which, if kept, would more than double the national debt at current levels to 130 per cent of GDP and this is, of course, before the spending binge of the next few years.  The annual gap between the current worker’s contributions and the pension’s payment is now £20 billion and by 2060 the gap will be around £70 billion, according to the National Audit Office.  Earlier this month the National Audit Office reported that the annual cost of gold plated public sector schemes was £19.4billion, with the public footing £14.9billion of this - £516 for every UK taxpayer. Two years ago the Government suggested that the net present value of this liability would be £770 billion, but new figures released in the week by actuaries, Towers Watson, have put it at £993 billion or £1.2 trillion at a low discount rate in line with Government bond yields.  Whilst the Government has made some very weak attempts to stop this situation, it is arguably one of the largest problems facing an incoming Government, particularly after we have accumulated so much debt following the credit crisis.  The result of this Ponzi scheme is to create a huge gulf between the 6.5 million protected pension State workers and those pensioners dependent on how much and how successfully they manage to save for their retirement.  Ultimately, the way forward is to stop this liability accruing and this will mean public sector workers having to save for their pensions in a very similar way to private sector employees.  Such a move will be bitterly opposed and indicates significant industrial unrest in the public sector for many years to come as the Government and its employees realise that the Ponzi scheme will, at some point in the not too distant future, blow up spectacularly.

 

I have suggested before that OPEC’s forecasts for its oil reserves are questionable and during the week Sir David King, the Government’s former Chief Scientist warned the OPEC over-reported reserves in the 1980s when competing for global market share and that they could have a third less oil than is currently thought.  The researchers claim that it is an open secret that OPEC is likely to have inflated its reserves but that the International Energy Agency, BP, the Energy Information Administration and other commentators do not take this into account in their statistics.  If this is correct then the concept of peak oil, which has gained increased credibility in recent year, adding credence to recent warnings from Sir Richard Branson, who firmly places himself in the ‘peak oil’ camp and is a member of the Peak Oil Industry Task Force. Crude for May delivery, the most active contract, lost 53 cents to close the week at $80 a barrel on the New York Mercantile Exchange. Oil headed below $80 in electronic trading after the market close. For the week, oil lost 1.2%.

 

Politics and economics are invariably a bad mix and politicians throughout Europe with weak working majorities are very mindful of upsetting the balance.  During the week President Sarkozy, on Tuesday, scrapped the country’s proposed carbon tax and reshuffled his Cabinet in a move that was seen as a direct consequence of his Party’s crushing electoral defeat over the previous weekend.  The vote saw a resurgence of both the Socialist Party and the far right National Front, which both benefited from rising unemployment and voter backlash.  The Organisation for Economic Co-operation and Development issued a strong warning in the week about the parlous state of Germany’s banking system, saying it was “worrisome” that so few banks had used a government scheme to spin off problematic assets, with the OECD suggested mandatory stress tests of the banking system. German banking supervision had been weak, the OECD said, saying the build-up of large stocks of liquidity at the Landesbanken after 2005 “should have rung alarm bells”. Much of the surplus liquidity was invested in now toxic securities. It also said that Germany should move away from relying on exports to power growth and that greater efforts were needed to increase flexibility in the country’s domestic economy and increase its attractiveness as an investment destination.

 

France and Germany have, of course, been central to the bodged Greek deal announced in the week. A deal that has been acknowledged as a German solution.  Whilst the agreement establishes a framework for monetary help, should Greece get into difficulties, it does not fully explain where any underlying monies will come from and, more importantly, it is questionable whether or not there is sufficient funding, even with IMF help, should the other European States in difficulties default, as many believe that Greece will.  Whilst all 16 euro zone countries backed the plan to help Greece, Angela Merkel, the German Chancellor, and Jan Peter Balkenende, the Dutch premier, leaders of two of the key creditor states, imposed their demand that the IMF must be central to any rescue. The safety net will total up to 22bn Euros (£20bn), but will only be used as a "last resort". Euro zone nations would grant co-ordinated bilateral loans, totalling some two-thirds of the funding, with the IMF the remainder. The accord was vague on figures and aid can be invoked only as a "last resort" if Greece is shut out of the capital markets. Since Greece is already paying a high debt premium, the wording once again leaves it unclear what exactly has been settled and leaves Germany still calling any shots in future developments. Greece is planning to sell Eurobonds this week, in a move that will test the rescue plan devised by euro-zone leaders, the Financial Times said over the weekend, citing an interview with Petros Christodoulou, head of the public debt- management agency. The country is like to borrow about 5 billion Euros ($6.7 billion) before the end of the month, Christodoulou said, according to the FT. Greece may sell either a three-year or seven-year bond, to be followed in April by bonds of a similar size, the newspaper said. Greece “is going to default at some point,” and Europe’s failure to answer that challenge will hurt the common currency, UBS Investment Bank’s London-based deputy head of global economics, Paul Donovan, said in an interview on Bloomberg Radio. “If Europe can’t solve a small problem like this, how on earth is it going to solve the larger problem, which is the euro doesn’t work,” he said. Greece's economy is in a "vicious circle" and will contract more severely than the government says the country's central bank. The Bank of Greece said economic output in 2010 will fall by 2%, worse than the government's prediction of between 1.2% and 1.7%. It says the recession will be worse due to planned public spending cuts. The report came ahead of a European Union summit on Thursday. "The Greek economy has fallen into a vicious circle with only one way out: the drastic reduction of the deficit and debt," the Bank's annual monetary policy report stated and it warned that the euro zone’s economic recovery remains fragile, having relied to a large extent on fiscal stimulus, which must gradually be reversed as it is leading to large budget deficits. The Germans have clearly driven a hard bargain and this is largely a reflection that German Chancellor, Angela Merkel has one eye on elections in the state of North Rhine-Westphalia on 9th May.  This could result in her losing her majority in the Germany Upper House, making it much more difficult to govern.  Whilst the IMF has been brought in as Partner in creating the mechanism to help, it is difficult to know what it can contribute.  One of its traditional instruments, de-valuation, would not be allowed in Greece and the other, fiscal contraction, and is already underway now that Greece has embarked on a credible deficit reduction plan.  Euro zone countries that run into trouble now know that they do not have the solidarity that its members have so often talked of.  Recent events clearly shown the basic flaws of the European currency and that is the absence of both a credibly way to force fiscal discipline on unruly members before things go very badly wrong and a credible resolution mechanism when they do.  Ultimately, Greece was asking for help to borrow at less than the punitive 6.2 per cent that its bonds currently yield and a level future lenders will ultimately demand for more credit.  Dependent on the final details of the compromise, which have yet to be released, Greece may be able to borrow from the IMF at 2.7 per cent for the €16 billion worth of debt that it needs to roll over in the next two months.  The irony of this is that this level will be less than the 3.1 per cent current yield on German bonds and so whilst all the German tough talking and IMF intervention may have grabbed the headlines, Greece will actually, even after having blatantly lied and flouted earlier EU rules which were designed to stop such a situation arising will have got off quite lightly.

 

On the same day as the budget the euro slumped to a ten month low against the dollar after Portugal’s credit rating was cut by one of the big rating agencies.  Fitch downgraded Portugal, cutting its rating by one notch and warning that further reductions were possible.  The downgrade came ahead of a vote in the Portuguese Parliament when the country’s minority socialist Government sought to push through an austerity plan aimed at slashing the public deficit from 9.3 per cent of GDP last year to 2.8 per cent in 2013. Portugal's credit rating has been downgraded from AA to AA- . Earlier this month, Portugal passed an austerity budget aimed at cutting its budget deficit. Although the agency said Portugal's austerity budget was "credible", it said the government would need "to implement sizeable consolidation measures from next year", as well as reverse stimulus measures this year, in order to get its debt levels under control.

 

In another sign that adds to my concern that china is overheating and heading for trouble the banking regulator over the weekend ordered lenders to take more care when  making real-estate loans, adding to efforts to prevent property  speculators from causing asset bubbles and bad debt. Banks should not lend to developers found by state agencies to have held land without building houses, the government said in a statement posted online over the weekend. They should also stop approving new lines of credit to 78 government-controlled companies whose core business isn’t property development if they use collateral other than construction projects already in progress, the statement said. China’s property prices rose 10.7 percent last month, the fastest pace in almost two years, fuelling concern that record lending and inflows of capital from abroad are creating asset bubbles in the world’s third-biggest economy. The government this month raised deposit requirements for buyers at land auctions to 20 percent of the minimum price to raise costs for developers. It also lifted banks’ reserve requirements twice this year and re-imposed a tax on home sales. Japan has now been in deflation 12 straight, figures released last week confirmed. Prices fell by 1.2% in February from a year earlier, threatening the country's recovery from recession, although the figures were an improvement for an economy that has been badly mauled by deflation since the "lost decade" of the 1990s, which led to years of stagnation. The believe that goods and services will become cheaper in the future makes consumers reluctant to buy immediately and leads to delays in purchases and this leads to a vicious circle of falling company profits and wages. Aware of a summer Election, the government has been increasing pressure on the Bank of Japan to further increase the money supply to tackle the problem as the government has little room to spend more to counter deflation, due to the countries debt being the largest in the industrialised world and increasing, although in the week, parliament passed a record $1 trillion budget, much of it financed by borrowing. The Japanese economy grew by 0.9% in the final three months of last year.

 

In the last few weeks I have constantly mentioned growing tension between China and the US and the worry that the US may be about to label China a ‘currency manipulator’.  It would appear that the Chinese are already flexing their monetary muscles and during the week weaker than expected demand for US Treasury Bonds raised the very real prospect that the Chinese may be easing back on lending to the US Government, forcing them to pay a higher level of interest than otherwise would have been expected.  Three times last week, the U.S. government was forced to pay sharply higher rates on tens of billions worth of Treasuries to entice buyers in a warning sign that global investors may be losing faith in the United States' ability to manage its swelling debt load. US Treasury prices recorded small gains on Friday, but fell for the week by the most this year. On Thursday, yields on 10-year notes peaked at 3.94%; this was the highest since October 2008, when the credit crisis was at its height. Nouriel Roubini, the New York University economist who predicted the financial crisis, said U.S. lawmakers may spark a trade war by labelling China as a “currency manipulator.” “With unemployment at 10 percent and more than 130 Congress people saying we should brand China as a manipulator, the probability the U.S. is going to do that in its mid-April report is significant, I would say at least 50 percent,” Roubini told Bloomberg Television today in Cernobbio, Italy. “That could lead to a trade war, absolutely.” My main worry remains that this could be a foretaste of what is to come and if China is indeed labelled a ‘currency manipulator’ the withdrawal of funding for the US Government, through the purchase of weekly US Treasury bonds, will cause very serious problems, not only pushing up US interest rates at a time when they need to be kept low to help the economy revive, but also this could force the dollar significantly lower on international markets and force the US Government to reign back on spending, which in itself would push the US economy back into recession. 

 

The growth in the U.S. economy at the end of 2009 was slightly less robust than earlier estimates, according to the Commerce Department, thanks to downward revisions to consumer and business spending. Gross domestic product rose at a 5.6% annual rate October through December, the Commerce Department reported Friday in its third GDP estimate for the final quarter of 2009. A month ago, Commerce said fourth-quarter GDP grew 5.9%. The original estimate was 5.7%. On Tuesday the National Association of Realtors reported that home sales fell 0.6% last month to an annual rate of 5.02 million, the lowest level in eight months, but ahead of estimates. Later in the week however sales of new homes fell to a record low in February, according to a US government report released Wednesday, as the glut of foreclosed homes and a weak economy dampened the housing market. New-home sales fell 2.2% to a seasonally adjusted rate of 308,000 last month, compared to an upwardly revised annual rate of 315,000 in January. This was the lowest rate since the government began keeping records in 1963 and marked the fourth straight month of declines. New-home sales were down 13% from February 2009 and at the current sales rate, it would take 9.2 months to sell through that inventory. This is up from 9.1 months of inventory in January. Prior to January, inventory had been steadily declining. Durable-goods orders rose a third straight month in February, while a sign of capital spending climbed, indicating U.S. businesses have confidence in the economic recovery. Overall January durables surged ahead 3.9%, revised from a previously reported 2.6% increase. Economists surveyed by Dow Jones Newswires had forecast durables would climb 0.7% in February. Manufacturers' orders for goods designed to last at least three years increased 0.5%, to a seasonally adjusted $178.12 billion, the Commerce Department said Wednesday.

 

This week we are likely to see further evidence of a weakening UK housing market with Monday’s Official Mortgage Approvals in February likely to have dropped by some 10,000 or 17 per cent after the end of the Stamp Duty holiday.  The Nationwide Index of House Prices for March, which fell 1 per cent last month, is likely also to report a decline after the 1.2 per cent last March falls out of the annual comparison figure. Thursday’s Survey of Credit Conditions by the Bank of England is likely to show that the recent trend of general improvement is continuing. In the US on Monday, data on personal income for February is due, with analysts looking for a very modest rise, while consumer confidence data for March is announced on Tuesday. On Wednesday the ADP jobs report for March is published, with the report on the private sector likely to show its first growth since January 2008. The week ahead also includes a report on factory orders for February, due on Wednesday, and a measure of manufacturing activity for March on Thursday.

 

The UK market hit a 21 month high during the week, which I continue to believe is unsustainable in light of the difficulties ahead.  A re-testing of the 5000 level of the FTSE before the year end is highly likely and the catalyst from this could be any one of a number of events that the UK and global economy are likely to face in the coming months.  When Labour came to power in 1997, the national debt was around £350bn, national debt now stands at £776bn and over the next five years it is set to double again – hitting £1,406bn by 2014/15. That's £57,000 for every British household, so whilst all the talk is about deficit reduction one must remember that our debts will still be on the increase. In the Budget the chancellor has recognised that Labour's old election strategy, promising only investment for public services, is no longer plausible. This means the lines are however clearly drawn on the four year deficit reduction plan - Labour envisage a balance of around two thirds cuts, one third tax rises and the Tories suggest one fifth taxes, four fifths cuts and whilst the private sector hopes it has emerged from the worst of the downturn, the pain in the public sector is yet to come - whoever emerges the winner in the forthcoming election. Last week I was reminded that generally speaking, the US stock market ends the second year of a new Presidential term lower than it starts and this has often been blamed on the simplistic view that this is a time when the new Administration is implementing its most ‘voter unfriendly’ policies, knowing that it will have time to become more populist before the electorate re-votes. If this plays out again this year then stock market investors may well have seen the best of the year’s equity performance in the first quarter, which finishes this week.