Market Musings 28/6/11
It’s been an interesting couple of days with the backdrop of continued unrest in Greece ahead of a (yet another) crucial parliamentary vote and the (I 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 Ireland.
There was an interesting article in the Irish Times about the longer-term prospects for the agri sector here. One data point of note was the revelation that one in six infants in the world now feed on infant milk formula produced and processed in Ireland. While a number of foreign owned companies are prominent among the list of producers here, I know that this is an area that Kerry Group has made big strides in, especially in China where locals remain wary of Chinese producers after this scandal. My highlighting of Ireland’s large presence in this space led to a rather heated discussion on Twitter about the rights and wrongs of these products, so in order to avoid my blog becoming a similar battleground, I simply present the facts as reported by the Irish Times here!
(Disclaimer: I am a shareholder in BP plc) Dolmen Stockbrokers released a bullish note on BP yesterday. It believes that recent legal developments around Macondo (e.g. Weatherford) have positive implications for outstanding litigation. I agree with their view, and it is a big factor behind my long position in the stock. As I noted yesterday on Twitter: “BP’s market cap is $131bn. Further settlements should cut into the $20bn set aside for Macondo claims and act as catalyst for the share price“.
Elsewhere on the FTSE, we received further signs of weakness in the UK consumer sector today. Carpetright announced that it has suspended its dividend. Its Chairman and CEO, Lord Harris of Peckham, said: “Looking forward, I see no respite from the challenging environment over the next year“. Chocolate retailer Thorntons also provided a glum strategy update today, announcing that it will close up to half of its stores. I wonder how many Irish companies with an exposure to the UK consumer will provide similar updates in the upcoming results season?
Citigroup today provided investors with its list of preferred UK mid-cap picks, while LCH raised its margin requirement on Irish government bonds for the second time in a matter of weeks. It’s now 80%, from 75% previously.
Turning to the elimination of government waste, I was pleased to see the cabinet agree to proposals to combine the two local authorities in Limerick (whose population is a mere 186,000). This is a good first step, but there is plenty more low-hanging fruit to cut as well. For instance the government should implement the recommendation in the McCarthy Report to abolish all town councils and borough councils as well – I really struggle to see the value of expensive (in aggregate) talking shops where some elected representatives have polled fewer than 3 dozen first preference votes. As an aside, I was amused to see Fianna Fáil Senator Averil Power, with a straight face, warn Irish people about the potential downsides to selling State assets last night, given that her party signed up to privatising same just a few short months ago in the EU/IMF “bailout” agreement. I’m open to correction on this, but I believe that the all of the governments that privatised State assets since Ireland achieved its independence were led by Fianna Fáil!