Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 8/6/11

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There has been a lot of commentary about the different “bailout” (citation needed) rates being applied to the loans going to battered economies around the world. I see that Egypt has secured 1.5% funding from the IMF, and poor Ireland is being stiffed by the European Union (translation: France), despite the fact that of the three bailout countries we’ve been the star pupil. An issue which again prompts me to wonder why the Irish government is supporting the IMF candidacy of Christine Lagarde, who supports tax-raising policies that would drive the final nail into our economy’s coffin.

From an Irish corporate newsflow perspective, yesterday brought updates from Aryzta and its 71% owned associate Origin Enterprises, both of which are listed on the ISEQ. Aryzta says that “underlying EPS guidance given at the half year stage still appears reasonable”, but notes both that “raw material inflation has continued & shows no signs of abating”, while it sees a “fragile recovery in consumer activity in most markets”. Origin, which is riding the crest of the agri-commodity boom, says it’s “comfortable with consensus market estimates of 10% FY growth in adjusted fully diluted EPS”. The contrasting tone in their statements is no surprise and reflects the inflationary trends I wrote about in the March edition of Business & Finance here.

The saga around HMV rumbles on, with UK lenders (and, by extension, the UK taxpayer) taking shares in the music retailer. I’ve blogged about HMV’s issues before, but with the company continuing to face serious structural (declining offline music sales, intense internet competition with effectively no barriers to entry thus limiting pricing power) and cyclical (a weak UK consumer environment) issues I have no desire at this point to add my name to the group’s shareholder register. Staying with the UK, Severfield-Rowen, a stock I’ve traded in the past, issued a trading statement ahead of its AGM today. Severfield is a good stock to watch as it’s a structural steel player hence it’s a leading indicator for the UK construction industry (as its products are one of the first things to go into any major building project). It’s saying that  “a broad recovery of the UK market remains distant“. Elsewhere, Moody’s says the UK’s Aaa rating will be at risk if the govt misses debt reduction targets.

On the M&A front, I saw that US packaging firm International Paper offered $30.60/share for its domestic peer Temple-Inland. This comes on the back of the recent $3.5bn Rock-Tenn/Smurfit-Stone deal in the same sector, and hopefully this will give a decent lift to valuations of European firms in the industry such as Ireland’s Smurfit Kappa (Disclaimer: which I am a shareholder of).

Remember the Russian spy ring that used fake Irish passports? One of them is now launching a career in venture capital.

Some grim news from the US housing market: 66% of Las Vegas mortgages are underwater, 27.7% of total US housing debt has negative and near-negative equity.

Regular readers of my blog will know that I’m extremely bearish on China. The reasons for this stance have been well-discussed before – a construction bubble, widespread instances of accounting irregularities, environmentally ruinous development, government interference in the economy, corruption etc. But today I’ve a new one to add to the mix – flooding of Biblical proportions.

Finally, two snippets for the gold bugs: (1) George Soros sold $800m worth of gold in the first quarter of 2011; and (2) Several Irish people have asked me if we should re-launch the old Irish punt, backed up by our gold holdings. Sadly, I must inform you that our Central Bank holds a mere €200m of gold, the vast majority of which is curiously stored in the Bank of England!


Written by Philip O'Sullivan

June 8, 2011 at 2:06 pm

One Response

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  1. […] assume) imminent announcement of Christine Lagarde as the new head of the IMF, an appointment that, as I’ve said before, is likely to have adverse consequences for […]

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