Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 21/9/11

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Since my last update we’ve seen alleged Ponzi schemes, gold bullion vaults that are running out of space, a deterioration in Ireland’s competitive position and quite a bit of Irish corporate newsflow.


Given the perilous state of public finances across the Western World, wholesale reform of welfare systems is something that is an inevitability, regardless of the ideological persuasion of governments. This chart by the always brilliant “Tyler Durden” (!) at Zerohedge gives a clue about the inverted welfare pyramid that is forming in developed economies as demographics turn nasty. RTE’s Emma McNamara tweeted the following this morning:


Irish Life’s Gerry Hassett: Workers to retirees 6:1 now; will be 2:1 in 20 years. 



…which goes to show that Ireland is no different. Speaking of Ireland, Ronan Lyons had an interesting piece on welfare spending yesterday. He identifies one way of saving €700m, but as is inferred by the opening paragraphs of his blogpost, Ireland needs an 11 digit fiscal adjustment, not a 9 digit one.


The Open Republic Institute collates Irish data for the Economic Freedom of the World report. It reveals that Ireland has plummeted 14 places in just a year to become only the 25th most free economy. This is a very worrying development, especially given the way FDI migrates to freer countries, and the way Ireland urgently needs more investment to kick-start the economy.


(Disclaimer: I’m a shareholder in PetroNeft plc). We got a good bit of newsflow from PetroNeft in the past 48 hours. Firstly, the company reported a mixed set of interim results yesterday, but it has followed this up with the announcement this morning that it has discovered a new oil field. For me, PetroNeft has been a Jekyll and Hyde story this year, with production undershooting but new discoveries seeing upward revisions to reserves. This isn’t as bad as it could be – I much prefer the way things are to, say, if PetroNeft was exceeding production targets but cutting estimates of its reserves! However, if management can iron out the production shortcomings we could see a big upward move in the share price (PetroNeft is ridiculously cheap on an EV/BOE basis). It’s a stock I’d definitely consider buying more of.


We saw some more share buyback activity on the ISEQ yesterday, with Fyffes the latest plc to buy its own shares this year. It joins Ryanair, Abbey and United Drug in doing so. The trade-off to more share buybacks by Irish plcs, however, is that it suggests reluctance towards stepping up M&A activity in these uncertain times.


The IMF cut its global growth forecasts yesterday, which prompted frenzied commentary on financial sites and much of the media. However, this downgrade should not have come as a surprise to anyone given the blatantly obvious deterioration in the economic situation in most large countries in recent months.


(Disclaimer: I am a shareholder in France Telecom plc). I was pleased to see France Telecom engaging in more repositioning of its portfolio, with the planned sale of its Swiss unit and acquisition of a  firm in the (hilariously named) “Democratic Republic” of the Congo. I bought France Telecom years ago for around €17/share and have enjoyed fat dividends (current payout is €1.40/share) since then, so I’m not overly cross with its current share price (it’s just under €12 this morning). While I am pretty certain that the dividend will be cut in the medium term, I note that a dividend of, say, €1/share would mean a yield of 8.3%, which is pretty good by any measure.


Here’s Peter Schiff, who I had the pleasure of meeting last year, giving an economics masterclass to Congress last week. Schiff makes a good deal of money from trading gold, so he will no doubt be reading today of how gold bullion vaults are running out of space.


Things are getting worse for Full Tilt Poker. A US attorney has alleged that the firm was operating a Ponzi scheme.


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  1. […] on from my last blog, one of my readers sent me this link to some interesting pointers on “Full Tilt […]

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