Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 3/10/11

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There have been so many points of interest on the markets today. Chief among them being the latest episode of a Greek tragedy that has dragged on so long and featured so many twists and (u-)turns that it raises fundamental questions about the ability of Europe’s political leadership. We’ve seen deteriorating economic indicators across many leading markets that I discuss below, while I’ve also seen some interesting posts on other blogs which I’m delighted to share with you.

 

Starting off with the eurozone, I had a bewildering conversation yesterday with someone who sees Eurobonds as the solution to the single currency bloc’s woes. I’ve repeatedly cautioned about their introduction, with the moral hazard angle and States’ need to cut debt, and not find creative ways to borrow more, underpinning my opposition. On the latter point, I endorse the FT’s James Mackintosh’s observation that: “There is no right level of debt, but consumers and investors clearly think [the] current level is too much. So [the government] lending push will fail“. This is a good analysis of the Eurobond issue which makes much the same argument I’ve been making for some months now.

 

Staying with the euro-area, today’s PMI numbers really highlight the deterioration in the European economy during the year to date. I also note continued ECB intervention in terms of buying peripheral countries’ debt, which touches on something I mentioned yesterday about the recent sharp move in Irish bond yields – namely, that you shouldn’t read too much into the improvement in Irish government bond yields, contrary to what some spin-merchants in the media here would have you believe.

 

Elsewhere, in a further sign of economic weakness in China, I note that Sotheby’s failed to sell all of the wine at a Hong Kong auction for the first time in 17 sales yesterday.

 

Speaking of economic weakness, UK house prices fell for a fifth straight month in September. Looking across the Atlantic, here’s a devastating summary of the Obama administration’s economic performance.

 

Turning to Ireland, I note Transport Minister Leo Varadkar’s remarks that “1 or 2” of Ireland’s 3 main airports would go bust if split into separate companies. Regular readers of this blog will know that I see consolidation of Ireland’s airports as inevitable – communities need to start preparing for this to happen now.

 

(Disclaimer: I am a shareholder in CRH plc and Glanbia plc) From an Irish corporate perspective, I note continued weakness in dairy price indices, which is a short-term negative for Glanbia. Goodbody’s Robert Eason spotted that CRH has sold another business, taking disposals announced and/or completed this year above €1bn, thus providing more firepower to a company that already has the strongest balance sheet in its industry.

 

In terms of the best of the blogosphere, Mark Carter had an interesting entry on Goal Soccer Centres. Despite its small (c. £50m) market cap, Goal is well followed by fund managers, as you can see from its list of significant shareholders. However, Mark’s analysis, and the fragile UK consumer backdrop, is enough to put me off the stock for now. Among Goal’s shareholders is blogger Sharecropper, who revealed a resilient ytd performance despite tough market conditions. John McElligott, who is always a pleasure to read, had a very good piece on the utility sector that’s worth a look. Those of you who love modelling shares need to read Expecting Value’s blog on the most effective use of DCFs – “The Matrix.

 

Today is German Unity Day, and among the pieces I’ve seen around that I was interested to read that West Germany considered bidding to “acquire” East Germany back in the 1960s. One of my favourite Twitter “feeds” is @schaefdogschaef, who is always good for providing caustic analysis of market developments. Today he laments:

 

Being at home 2day celebrating Germany’s unification. H. Kohl said those days it will cost the GER population not a Cent! Sounds familiar?!

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  1. […] of the previously guided 18-20% range. Within the statement management note weaker dairy prices, a theme I flagged last month, but this is being offset by stronger whey and US cheese prices. Overall, a very encouraging update […]


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