Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 4/10/11

with 2 comments

It’s been an another extraordinary day on the markets. The S&P 500 officially went into bear market territory earlier today, as markets remain nervous about the European debt crisis. Most of Europe’s leading indices were down 2-3% today, while my own portfolio had one of its worst days ever, shedding a whopping 4.6%, with PetroNeft (-18%) – which I’d only recently doubled my shareholding in! – doing most of the damage there.


While markets have been focused on Greece in recent days, legendary investor Marc Faber continues a theme I’ve been warning about for some time – forget the EU debt crisis, a China meltdown is the real threat.


(Disclaimer: I am a shareholder in CRH plc and ICG plc) Most investment banks have been pushing a similar line to what Deutsche Bank writes in its latest update. It says: “We see GDP declining in the euro area over the next two quarters, expanding only sluggishly in the US“. Merrion’s Ross McEvoy sums up both schools of thought in the markets at this time in his latest quarterly update, published earlier today. McEvoy says the “tug of war” over whether this is “a double-dip or just a soft patch” will continue to year end. Based on his prediction of “subdued growth” he likes European equities here and recommends CRH, ICG, Henkel, Ericsson, Bayer, Axel Springer, Weir, Anglo American, Infineon and Kingfisher as long ideas.


Speaking of CRH, I note positive US construction data and also a marked improvement in Wolseley’s performance in the US, both of which are bullish for CRH’s North American operations.


Regular readers will recall that I poured scorn on the short-selling ban several European countries introduced for their banking stocks upon its introduction. None of you will therefore be surprised to read that a study by Instinet shows that it has done little to help European banks.


(Disclaimer: I am a shareholder in Playtech plc). I was pleased to see Paddy Power sign a multi-year deal with Playtech for its casino product. This represents a nice vote of confidence in Playtech, which is a stock I’ve struggled with in the past.


Turning to the Irish housing, I was interested to read Ronan Lyons’ call that we may be nearing the bottom of the market here. Readers of this blog will know how extremely pessimistic I am about Irish house prices. So, clearly, the starting positions for Ronan and I are rather different! I would disagree with his view that domestic banks here should stop deleveraging – they simply cannot access cheap funding to support such a move at this time (not to mention that to do so would be a breach of the terms of the EU-IMF arrangement). He’s right about the desirability of new banks coming in here (I’ve previously written about how HSBC and KBC in particular seem to be stepping up their presence in this market). Overall, I think we’re looking at 2013 at the earliest before house prices level off.


In terms of what other bloggers are writing, ValuhunterUK had a detailed piece on FTSE 250 stock Devro which is well worth a look.


I’ve also been expanding my writings into other “markets” – my first entry in the UCD Smurfit MBA blog was posted earlier today, while I was also interviewed about how our economy is doing by a Portuguese newspaper – assuming that gets posted online I’ll share it with you later this week.


2 Responses

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  1. Hi Philip,
    If I may quote:
    “Clearly, the starting positions for Ronan and I are rather different… Overall, I think we’re looking at 2013 at the earliest before house prices level off.”
    Given that in the link you’ve posted to, I called the bottom for 2013 myself (with a resumption of credit) or late 2014 (without), perhaps we’re not so far away on this after all!
    Keep up the good work,

    Ronan Lyons (@ronanlyons)

    October 8, 2011 at 11:29 am

    • Hi Ronan, apologies for some rather sloppy language on my part. I should have developed my “starting position” point by saying that I see the housing market remaining depressed for many years to come after a leveling off in prices. I inferred from your analysis of where prices may fall to – from the reference to a risk of a bubble being created – that you see a possibility of a V-shaped move in house prices after 2014 if a peak-to-trough decline of 70% occurs. Am I correct in drawing that inference?

      Philip O'Sullivan

      October 8, 2011 at 12:05 pm

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