Weekend Rebel Budget and Market Review

Time to pray - the liars are in charge.

This is just some thoughts, it isn't investment advice or incitement to buy in any way, just my views - please do your own thorough research. I’m not an analyst, I’m just a private investor looking after my own money. Nothing I do or say is meant as advice or should be taken as such. Here I publish my ideas and research that I have done and discuss the way I invest.  Anything written here needs to be verified for its accuracy. Assume any stock I write about I likely own, so my views are biased. Inevitably I will get things wrong, everyone is responsible for their own decision making and what they buy and sell. Subscribing and reading this article means you accept the above and you take full responsibility for your own actions and decisions. Small Cap stocks can be illiquid and very hard to sell at times when demand is weak so caution is required.

Well there has been nothing in the way of company news this week to justify a weekend review  that I follow closely, aside from an AGM trading update at FTC saying all was inline, so instead I have put together some thoughts on the Budget in a sort of Rebel View of what this does for me as far as investing goes and a few things to think about.  There’s also and election going on in the US which needs to be thought about.

I had listened to the pre-briefing from Starmer and Reeves to the press all over the world before releasing the Budget in Parliament, these the very people that kicked up about the Tories not giving news to the house first.  Reeves seems to have been dashing from pillar to post, trying to find stuff to tax that cannot be claimed to affect ‘working people’.  Well I can tell everyone you will all be affected by Labour’s tax rises and Reeves breaking her word on not changing the borrowing rules.  Borrowing is a deferred tax on everyone. We are borrowing the money as a government and that will be paid back by the tax payer down the line, with interest on top, so the government will be coming to us later for more money to settle the bill at some point. 

Reeves is raising the minimum wage by 6.7% for those over 21 to £12.21 from £11.44.  It already rose last year from £10.42 to that £11.44. That is £1600 p.a. per person employed under 22 years old. Last year the rise cost business £2121 p.a. per person employed,

A 2% rise in NI for employers adds £600 a year p.a per employed person.

18-20 year olds get an even bigger rise of £1.11.

Have a think what that does to the smaller retailers with high staff head count like CARD, SHOE, WRKS.

CARD have 10,000 employees, all at or near minimum wage. The NI rise adds about £600 per staff member to costs. That’s £6m.  The minimum wage rise adds over £1600 per member of staff. That’s £16m and £22m in total.  That seems a lot to deal with after last years huge minimum wage rise.  Now think about all the small retail business chains with a decent store estate on the high street. Staff numbers are going to reduce imo.

Reeves has raised the cap on bus fares from £2 to £3, a 50% rise. I thought they wanted to get people onto busses to stop the use of cars?  A £1 rise in the cost of a bus journey to work and a return, hits the low paid worker who cannot afford a car to the tune of £10 a week or £520 a year. So for many a low paid worker, all of that minimum wage rise has gone nearly in higher bus fares.  How does that increase productivity and higher consumer spending?

Out of all the stuff I had heard prior to the budget there was nothing I heard about how Reeves was going to do stuff to help private businesses, the small businesses that are the growth engine for the country, and the only way you can keep taking cash out of the country’s enterprise is if they grow. She never disappointed, there was next to nothing to boost the sales and profits of businesses today to kick start things, nothing to help the burden on businesses employing.  Infrastructure spend will help but that takes a year or two to kick in, but she is also cancelling the £2bn Stone Henge tunnel and other projects so a lot of the infrastructure spend gets taken back by the other hand.

Prior to the budget at the start of the month I saw this from the CBI

Clearly the market here isn’t hot and it needs some stimulus.

In the  manifesto Reeves said she wasn’t going to be a high borrowing chancellor – she then went on to announce the biggest borrowing by a chancellor ever.

Personally I am looking at co’s that might benefit from Labour squander, like HS2 extending perhaps, infrastructure projects etc.

CGT was raised a more modest amount than expected but she is clearly going after Inheritance tax by lumping it onto pensions and farms – the changes coming in 2026-27.  They clearly want to encourage pensioners to die before then and save the kids a packet – they really don’t like pensioners it seems.  

After the budget I prefer co’s that have a lot of overseas work and staff.  They won’t be hit by the minimum wage rise or the rise in NI as I see it, and if the £ falls they will likely benefit from overseas earnings. If interest rates remain higher for longer or rise, that will likely help co’s with pension deficits. The stand out co for me in my holdings is Carclo, CAR which looks to be weakly affected by the domestic stuff with so much overseas business.

The FTSE Small Cap Index flopped at the break out that looked on for this week.

There was no mention of hitting the tax-free lump sum on pensions but I’m not sure that won’t happen.  I think she may announce it in the March budget if they are short of cash coming in – it looks an easy target and I assume there will be a mini budget in March to tidy things up if that’s the right phrase.

This is a completely economically illiterate budget – raising tax and borrowing doesn’t create growth – watch a few Maggie Thatcher and Nigel Lawson videos imo

I won’t run through everything else as the papers will cover everything over the weekend.  It’s a huge budget though, raising £40bn this year and £140bn over the parliament.  The bond market isn’t thrilled and the 10 year yields have risen to withing a smidge of the highs seen in the Truss budget and pushing a 16 year high, last seen in the financial crisis:

I said last week I had never been so uncertain about the market.  The 250 had a bowl which I said could be argued as a rolling top too.  Well the rolling top has started to get more dominant after the farcical budget and the bowl fallen away and given in to a rolling top.  That says be cautious and the budget hasn’t helped.   This isn’t a chart to be heavily long on. The RSI isn’t oversold either so that isn’t any sort of support yet. I’m over 80% cash again:

The 250 chart above from last week shows the two trends, below you can see the roll over seems to have won out this week.

I’ve reduced a number of bits including selling the last remnants of RR., MKS and CMCX – just hanging on to CAR as a big holding and a few small bits in low single digit percentage sizes. I’m over 80% cash.

Aim has a new downtrend in place- it caught a rally on the budget day relief but this trend needs to change to become a decent buyer of aim stocks imo.

I’ll sit a lot of stuff out here.  After giving about 7% back since July I’m up 80% from Oct 1^st last year. I’m currently up 32% year to date. I thought at one point I might have doubled the portfolio from October but no point taking silly risks to hit ‘ego numbers’ in my opinion, and give back a lot more when markets look toppy.  And there are other things which look potentially toppy. Have a look at the long term US charts.

S&P

Nasdaq Composite

Dow Jones Industrial

I’m not saying the US is at a top but all 3 indexes are near a long term trend high.  Election years are great for shares but what about ‘after the Lord Mayor’s show’? I dare say whoever gets in in the US will upset 50% of the population.  Like Labour, they will get the bad stuff done in the first year or so. If Trump gets in, Musk is going to set up a system to purge waste. That may end a lot of spending  in the US if he is successful.

Interest rates are back to what I suspect will be the norm, I’m not convince rates in the UK will go back down a lot.  We had a party @ 0 percent interest rates for so long that it’s going to take time till economies get used to living with interest rates that are not going much lower, I think markets are way to optimistic on interest rates.

Fear is much higher – that’s a good thing, but might need to get to extreme fear still short term, possibly a pull back before a Santa rally?

It really is a difficult market to call on both sides of the Atlantic so I suspect I’m going to trade a bit more here rather than buy and hold unless something compelling shows up. Uncertainty isn’t great for markets.

There’s a trends on the VIX since August which I’m not a fan of, several bowls on a rising trend. That is suggesting more volatility.

And that is everything I have my eye on at the moment. I said last week I had never been so uncertain and nothing has changed for me. I hate not being able to be positive and bullish but I could easily feel different in a months time if I see positive changes. But for now it’s a time to play cool, trade a bit rather than conviction buy perhaps. You don’t have to make money every day or every month for that matter. Sometimes it’s better to sit and watch, let others take the risk. Theres a number of chart signals I expect to see when the market becomes a solid buy so I’ll post about them if I see them.

The US being overbought may be what sets the direction of the market imo.  S&P 500 PE Ratio is 29.  It’s median average is 17.9. I think the US is nearer a top than a low and that is starting to worry me so caution is the watch word here.

Have a good weekend

Rebel