Just over 10 weeks till Christmas. Where did the year go? More importantly, just 3 weeks left before UK leaves the EU and Brexit at last means Brexit. For well over 3 years now, heels have been dragged, Politicians careers wrecked, Parliament disgraced and during all this the ‘people’ patiently wait. It’s tantamount to going into your bank and requesting a full withdrawal of funds and closure of account. Yes, sir/madam, we’ll action that. When.. erm give us 3 years please. As ‘Consumers’ we are protected and the above scenario cannot happen. You are free to withdraw your cash, close accounts, open new ones and whilst the Banks don’t like it… that’s just the way it is. But the mistake of holding a referendum was a simple one. There wasn’t a clear plan on how to action it. It’s a bit like signing off a new housebuild on marshland without a scooby do of how to build it or the risks and threats involved. Hindsight is a wonderful thing, but it’s clear as day that you didn’t need hindsight to see the diffculties involved in leaving the EU and these should have been made public prior to the referendum vote. Instead, we got bus-side adverts claiming millions to be freed up for public spending. One of many false statements supported (some would say pedalled) by the now Prime Minister of the United Kingdom. The man in charge is the same man that said Heathrow’s 3rd runway would not happen. 4 years later and the Conservative government gave it the green light. So what exactly awaits us in 3 weeks time? Another Boris style false pledge? Or a final deal and exit. Well, it might be a bit of both. It might be a bit of a part ‘exit’ with a Boris style pledge for a full exit in years to come. Of course, Boris won’t be around to see it done (bit like his fellow peer David Cameron) but that’s a story for another day.
What’s all this got to do with the markets then? Well, the combination of Brexit and US / China trade wars have all contributed to a weaker global growth outlook as US/China business stalls and Brexit handcuffs UK and EU business while we await the Oct 31st final deal outcome. In ‘limbo’ is the best way of describing it. So will there be a relief rally when it all concludes? Well, not exactly as at present there doesn’t seem to be a clear cut end to any of this. And that’s the problem for Mr Trump. With US Elections just over a year away, he’s keen to see the markets continue the bull run with US global growth and jobs growth. If both turn downwards, then he’s in big trouble. So the next 3 months are crucial for Trump. It’s now all about whether China wants to play ball. If they do, then a Santa rally looks most likely. If they don’t, then we could see a year ahead of turmoil for Trump with China being the biggest thorn in his side. The risks in 2020 look huge for the markets, But that said, the risks have been massive in 2019 and yet the DOW and S&P trade near all time highs. We seem to be in a period where the Black Algo boxes ignore the rhetoric, ignore the growth data, ignore the MENA region issues and ignore all other streams of common sense. That’s computers for you. Heaven help us all when they finally develop a sense of reality.
Week 40 Review:
TheShareHUB top picks is wearing the wooden spoon rather than holding it. It’s been a poor show this year. The markets in general have been hard on the commodity sector. A combination of social unrest in Ecuador and funding issues has reduced SOLG from 46p levels to 18p. A soft Diamond market has reduced Petra Diamonds from 50p+ to almost 5p not long ago. Both of these businesses are rock solid. And both are serious takeover targets at today’s levels. It might not be long before SOLG finds itself being under a cheap snatch and grab by a major mining player. Petra’s debt issues are manageable due to their ability to grow cash levels. But 8% debt interest is high against a low rate backdrop. This means that Private Equity or other funds which have access to cash can negotiate debt at much cheaper levels. To them Petra, is an opportunity to simply swap debt holders for equity holders in the longer term. In effect merge the two. They get the interest payments from the loans and they also get serious cash flow on top from the equity. The longer Petra are in single digits or even the low teens, the more likely a takeover becomes. It’s a £500m business trading at just shy of £50m with 250m carats tucked safely away underground. Amerisur Resources is a prime example of a company that is worth a great deal in a takeover situation but outside of that, priced at near 10p by the market. Today, it’s priced at 19p after putting up the For Sale sign after being approached by M&P (french listed business) with an indicative offer of 17p which was subsequently rebuffed. The final takeover price will be revealed shortly (if acceptable to the board) and is expected to come from ‘well funded’ interested parties. TheShareHUB believes that base value in a difficult market should be around 26p a share. However, due to the keen interest in Colombia of late (major companies have been swarming in for licence entry) the price should achieve fair value circa 36p or if going bang in the middle, 31p looks about right. Investors will know soon as the last company RNS hinted that the process will be concluded before Y/E. Elsewhere across the ShareHUB picks, CERP is firing up the engines ahead of a long awaited Drill on the SWP. Even a moderate success could see a significant increase in the share price. However, recent T&T budget news has failed to offer better commercial tax breaks/revenue terms for E&P’s operating in the country so investing more in boosting production is not being awarded. If T&T are not careful, they could see revenue from O&G fall as operators begin to leave the country. Finally, PetroMatad are days away from revealing results on their latest wells. Thus far they have drilled quite a few wells over the last two years and delivered nothing. It’s about time the company got some oil or gas flowing.
The newspaper picks have bounced back along with the FTSE100. Both are in the green again and if a Santa Rally kicks in, one of them should be walking away with the 2019 trophy. TheShareHUB picks are going to need some Takeover talk or monster resource discoveries to stand a chance of competing over the last weeks of the year.