Weekly Roundup 5/11/10

Economic Snapshot
Another cautiously optimistic week on the whole. October's CIPS Purchasing Managers' Index (PMI) for manufacturing rose from 53.5 to 54.9 (> 50 indicates expansion). Together with the three month SME survey which recorded a balance figure of +19% for expansion, this seems to show that industrial growth is still moderately good. The October CIPS PMI for services likewise rose from 52.8 to 53.2. However, the figure for construction slipped back to 51.6 from 53.8 and, although still indicating expansion, is the weakest for eight months. Also on a contrary note, a CIPD analysis reckoned that January's VAT increase will have a far greater depressive effect on the economy than most other commentators have so far estimated, causing a loss of 250,000 jobs in addition to those lost through public spending cuts.

In the US, the ISM October survey showed an increase in the index figure from 54.4 to 56.9, indicating a healthy increase in output, but consumer spending remained weak. It was a similar story in China where the monthly PMI rose from 53.7 to 54.9. Back in the US, unemployment remained flat at 9.6% but the Labor Deparmtent announced that 151,000 jobs had been created in October. This, and the fact that the US Federal Reserve Bank has announced that it will restart QE to the tune of $600 billion (to be completed by June 2011), caused a surge in most asset values worldwide.

On the week, Sterling rose to €1.1528 and $1.6205. UK Treasury 2020 rose strongly to give a gross redemption yield of 2.95%. The FTSE100 rose by 3.5% to 5875.35 and the FTSE250 rose by 2.2% to 11079.95. Gold rose to $1395.50 per ounce. Brent Crude rose to $87.92 per barrel and copper rose to $8725 per tonne. It seems that the only way is up but one way of looking at these rises is to say that they are discounting the future inflation to be caused by the American QE2 programme. The assets remain fixed while money depreciates.

Equity Portfolio (+3.3% on week, +22.62% ytd)
BTG is now a biotech company with a number of products in development. When I first bought them in 2001 for around 1000p per share they were a general technology transfer company, having been privatised from the original state-run British Technology Group. Back then they were a classic dot-com bubble constituent and I bought them just as they were falling off a cliff. They reached a low of 120p in March 2009 and I decided to buy some more, averaging down my original investment to 495p. So far, that seems to have been a good call as they are now 263p, so I am just 47% down.

Over the past few years they have shuffled off all their interests except those in the medical field and now they have positioned themselves as a niche pharmaceutical company, deriving revenues from licensing and milestone payments on a broad spectrum of drugs in development as well as sales of two drugs in the US. They have yet to pay a dividend, but with more than one horse in the race, net cash and profitable, they are less risky than the average biotech. At least, I hope so.