Small Cap Value Report (3 Oct 2016) - SDY, VCP, SGI, SEE, RNWH

In reply to EDWARD FORT, post #40

The facts are:

1) If they impose tariffs against us, then we will impose tariffs against them.
2) The EU currently sells more to us than we sell to them.
3) If this happens they will lose more than us.
4) They would have to be mad to do this.
5) They may well be mad!
6) They are worried about other EU members wanting to leave the EU, so will not want to give us good terms.

My opinion is that we should go for hard Brexit. We get control over our own borders. We get WTO rules on trade with Europe. Hopefully this will include services as well as goods. The alternative is that we go for soft Brexit., In return for membership of the market, they require free movement of people. They also keep control over our trade with them. This is very disadvantageous to us, not least because they grant us reasonable terms on trade of goods, but very disagreeable terms on the trade of sevices, which is far more important to us!

There are no WTO rules for services to hope for which give equivalance to the passporting rights enjoyed in the EU. That is the problem for the UK - without a negotiated settlement for its huge service sector exports, those exports cease along with a large chunk of the tax base.

In reply to Warranstar, post #49

There are no WTO rules for services to hope for which give equivalance to the passporting rights enjoyed in the EU. That is the problem for the UK - without a negotiated settlement for its huge service sector exports, those exports cease along with a large chunk of the tax base.

In reply to RedRon, post #42

I highly value Paul Scott's preambles, although I don't always agree with him. At least he points out the difficult questions that we need to think about in terms of where the economy is heading.
It is ridiculous to even suggest that he is on commission for recommendations. He was trying to give us some insight into how the Internet of things is going to changes our lives, and our investments.
However, if I wanted advice on which car to buy, I wouldn't be looking for it on here!

In reply to dmjram, post #51

Well maybe the deal should be that, if the EU wants to keep selling us its goods without tariffs, then they have to accept more access to their market by our services.

In reply to Warranstar, post #53

Also we should be urgently pressing WTO that SERVICES should be included in their standard rules ASAP!

In reply to Warranstar, post #49

Suggest you read the Gideon Rachman article in today' FT 'Theresa May steps into Brexit trap'

Explains it all pretty well.

In reply to Warranstar, post #53

And what exactly is the EU's incentive to do that?

No passportting means zero exports and provider relocation into Frankfurt, Paris etc.with all the jobs and tax revenue that entails. WTO tariffs on tangible goods means reduced exports not zero, plus of course the UK consumer carries the bill with an effective tax increase on goods they buy.

It's what is known as an asymmetric pay off, and its in the other 27 member states favour.

The primary goal of the EU is to maintain itself. A special low-tariff trade deal with the UK would likely hasten its rapid disintegration. I'd be surprised if the political argument didn't take precedence over the economic one.

The only hope for Britain is that Italy will vote to leave the EU. Otherwise we're sunk. Those that post favouring an exit and claiming that it will all be ok in the long run are so clearly detached from the thinking in big business and what is happening now. Okay this may only be big business but it counts for a lot of jobs.

Multinationals will not stand by to see what crumbs the UK might salvage from the table of scraps that have been left behind by Johnson and Farage. They will vote with their feet - or wallets. The amount of cost cutting, downsizing and offshoring going on in large businesses is just the tip of the iceberg. These companies, more than anything, value predictability and stability. Currently they have neither.

Don't get me wrong, it is to be encouraged to have the debate that we often have here on stockopedia. But please don't let people delude themselves that multinationals will stand by and do nothing in the face of this uncertainty. I'm not saying their actions are right or wrong, just that it's happening and will increasingly be thus.

IMHO I think we will see a number of (legal) challenges to the UK leaving the EU before it can happen. This will delay matters even more. Living and working in London, all I can say is 1) people (in London) are still alarmed at the result, and b) they are voting with their feet and leaving the country. The exodus has started.

As a young man, I came to live close to a mid sized town full of impressive manufacturing industries in many different fields. They have now almost all gone, and the town’s university has grown like a mushroom over particularly the last 25 years, becoming, I would think, the major employer in the town. For some time this has struck me as a dangerous vulnerability for the town’s economic health, with a heavy reliance on foreign students. The “anti foreigner” sentiment which was apparent within elements of the leave campaign, and which has, according to the press, resulted in increased aggression towards foreigners and locally born moslems since leave won, struck me as potentially detrimental to a town heavily reliant on fees from foreign, often moslem, students.

A couple of days ago while out for a walk with my wife, she engaged an elderly lady in conversation about the flowers the lady was tending in her garden. The conversation went on for probably half an hour ranging over many subjects, one of which was where her children and ours had ended up. She volunteered the information that one of her sons worked in the local university and was quite worried by a serious shortfall from expectations (she mentioned 800) in registration of overseas students this year.

Again, I see this as people “voting with their feet”, and it is the many minor consequences of this nature going on already and unseen by the general public, that worry me for the future of my children and grandchildren.

PS The shortfall is even more stark if you consider that the cost of attending the university has recently dropped by 10%+ for foreign students because of the pound's weakness

In reply to Warranstar, post #52

Sorry about the bad joke on commission. Not intended to be serious hence the three exclamation marks. I apologise, and if Paul took it seriously then I apologise to him too.

yes, although superficially it would seem in Europes interest to do a trade deal with us, I doubt the calculation will be entirely economic. There is the consideration of keeping the EU together. I wonder if they had a referendum in each country regarding staying in/ leaving, how many would vote each way ? I suspect many would leave. So unfortunately even if it causes the EU some pain there will be those pushing to punish the uk, "to dissuade the others" as I think it was Junker said. So this might impose short-term pain on both, but how long do you think the japanese car plants will stay in the UK, if they can no longer be the production point for europe ? wouldn't the eu incentives these plants to move into the eu ? (much like they helped ford move production to turkey, which isn't even in the eu). It wouldn't happen overnight but you would be brave to bet against these plants gradually over time migrating to eastern europe. An easy exit for the UK would surely mean more countries demanding votes and some of those eventually leaving the eu. So while it may appear in their interests to have a friendly deal with the UK, I think unless we conceed free movement, they will be very difficult with us. I find this very odd, why is free movement such a critical freedom ? it makes the eu the only trading block that in order to trade , you must accept free movement of people.

Many Chinese students don't view Theresa May as being particularly Chinese friendly. I think this largely harks back to her period as Home Secretary, when strictures regarding foreign students became tighter.

This is sort of compare and contrast with Germany, where if you are a foreign student and have studied in Germany there is a much more generous post education job visa incentive. In the UK it is well established that if you have finished your studies, out you go.

Unfortunately, this policy stemmed from much abuse in the Indian/Pakistan community of the student visa process where whole English Language schools were set up as scams to allow people into the UK to work under the guise of having a foreign visa. Ironically, Brexit advocates (or some of them) say that the intention is to allow more non-EU peoples to come through - though whether you believe this is rather moot.

The whole thing is a bit of a nightmare of contradictions, and uncertainty. We should watch Switzerland's negotiations, as the Swiss/EU current agreements are up for renewal in 2017, and there will be active conversations taking place ahead of that. The Swiss have imposed a work visa system following a referendum in 2014, but this is contested as invalid by the EU. No doubt that is partly why the EU don't want informal talks before UK formal exit is activated.

A couple of quotes on the predictability of macroeconomics from a couple of the great masters:

"Warren and I have not made our way in life by making successful macroeconomic predictions and betting on our conclusions.
Our system is to swim as competently as we can and sometimes the tide will be with us and sometimes it will be against us. But by and large we don't much bother with trying to predict the tides because we plan to play the game for a long time.
I recommend to all of you exactly the same attitude."
-Charlie Munger

"If you spend more than 13 minutes analyzing market & economic forecasts, you've wasted 10 minutes"
-Peter Lynch.

Politicians & economic experts have been bitterly divided over the macroeconomic fallout from Brexit. Why does anybody think they know better than these people? I'm happy to recognise my own ignorance and will continue to try & focus on picking good stocks at undervalued or reasonable prices, irrespective of what the future macroeconomic climate holds, and rebalancing my stock/cash portfolio whichever way the market happens to turn. Nothing better else to do!

Interesting to hear Terresa May re affirming her intention to get net migration down to 10's thousand per year.
The EU has taken the blame for not hitting this figure, but the truth is that more people are coming from outside the EU than inside, so they weren't even hitting it with the part they could control, difficult to see how they'll hit it even if the EU side is controllable. Although to be fair, perhaps the previous government just had no intention of hitting that target. I understand that despite campaigning for remain, May spoke at the last party conference and said that the 300k net migration were unsustainable. I doubt this was the view of Cameron/Osbourne.

@all - please keep the politics chat investment focused and not dilute the SCVR. You can always discuss more general Brexit related topics elsewhere.

In reply to RedRon, post #60

Hi RedRon,

You said;

Sorry about the bad joke on commission. Not intended to be serious hence the three exclamation marks. I apologise, and if Paul took it seriously then I apologise to him too.

Don't worry, I just assumed you were either joking, or were some mad troll that could be safely ignored LOL! So no harm done :-)

Regards, Paul.

In reply to Trident, post #62

Agree with Trident's point.
There was rife abuse (of the visa process by hosts of English language schools that were little more than visa shops, which I know the inside track as a friend used to administer one...

However the knock-on effect has been devastating on skilled study migrants - and we are clearly loosing good talent to other more [educated] immigrant friendly countries (Aust, NZ, US, etc) as a result, which cant be good for our long-term economy..(I've seen some very skilled people leave, and others who are far smarter and richer than me not even consider the UK for this reason..!)

I'd agree with the macro view however...the EU often runs counter to its member's interests - and in this case its very survival is potentially at stake..so it will push for a hard-Britexit, whatever the consequences.

So I'm likewise concerned about the long-term impact on British investments, as well as British based companies. I took a pessimistic view and moved most of my portfolio to US stocks upon Britexit (prior to the pound slump) and have done well to poor in various US stocks (mostly Stockopedia based or at least checked!)

I re-entered into Persimmons (which I still think is a solid company) when it was still in free-fall, which I lacked the nerve for..! - "Never catch a falling knife" and all..

My best recent Investments : BBY (+29%), BAC (+28%), SHV (+10%)
However I also invested in WMT (-4%), FGT (-5%), GOV (-6% after doing spectacularly well!), PSN (-8%) and rather embarrassingly SIVR (-12%) after falling for the hype...!

Extensive update released late this morning by perennial basket case Stanley Gibbons (LON:SGI) . Intra day RNS are usually a red flag, especially this close to a holiday long weekend but for the optimist there are a few signs that either the ship is being turned around or at least away from some of the immediate rocks on the shoreline.

http://www.investegate.co.uk/stanley-gibbons-grp--sgi-/rns/interim-results-and-notice-of-egm/201612301115060857T/

Either way, the shares have picked up a little more today and are now up about 20% from the recent lows. Possibly a speculative punt for the brave (or foolhardy).

Gus.