Geoff Cutmore - Morning Thoughts

Is Marks & Spencer a Sell?

Geoff Cutmore

We had a useful conversation with Ian Dyson the CFO of Marks & Spencer this morning. No change in the headline message that the consumer outlook is weakening, but Marks & Spencer thinks it can weather the storm. 

However, the market believes the billion pounds of pre-tax profit will not be seen again for at least 4 or 5 years. Lehman Brothers is anticipating a decline in clothing like-for-like sales over 2008-2009 of 5 percent. When I asked the CFO if a decline of 3-4 percent this year was likely, he was cagey about the number, but appeared to suggest a 4 percent decline would be unlikely.

In fact, poring over the detail raises some concerns about the ability of the group to lift UK clothing sales - while international, food and online will only partially compensate. Analysts were encouraged by the decision to add non-M&S branded foodstuffs and the resilience of gross margins. The question: is it a buy, sell or hold?

The shares have come from 700p to about 400p now. There has to be a lot of risk about the outlook now booked into the price. The dividend was also punchy, up over 20 percent, which offers a nice yield on a stock with barely a double-digit forward P/E. The analysts think bargain hunters will likely offer support if the share price falls much further without any further deterioration in the news flow.

What’s Happening to Gold?

Below is a response I wrote to a viewer after this morning's gold guest. The viewer suggested I was wrong to argue about whether gold is uncorrelated with shares. Thought you might be interested in the response:

Good to see you are still watching. The point I wanted to make was broader - that sometimes asset classes do correlate that apparently shouldn't for specific reasons over specific timeframes. Look at simple equity / debt. Even risk seeking money found its way into government debt over the last two decades as a result of easy Fed money and deflationary growth provided by our friends in China.

Gold is supposed to be an inflation hedge that rises with inflation. And yet, low inflationary liquidity drove it, equity and government debt up from 2003. Coincidence or correlation?

Apparently gold fell from $1,000 because the dollar rallied. We are back from $800 to $900 even as the dollar holds recent gains (although momentum seems to be waning)... coincidence or correlation?

I don't know the answers. Just trying to challenge the lazy consensus. Maybe correlation is weak over a 100-year study, but monetary conditions and management have shifted a lot over that period.

Let’s face it, before the recent rise this decade most professional advisors told their clients to ignore gold. Now it has again become a 5-percent holding in many portfolios. Back in fashion perhaps; its gains have attracted new buyers in a virtuous feedback loop of higher prices leading to more buying. Was $1,000 the '08 peak or a stopping point on the way higher? I'm happy to hear your thoughts.

Your feedback always welcome - here.