Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 22/10/11

with 3 comments

Blogging has been abnormally light this past week due to a confluence of factors, chiefly the fact that on Monday I’ve both 3,000 words due for Business & Finance magazine and an exam worth 70% of the marks in that module in Smurfit!


David Einhorn at Greenlight Capital announced that he was going short Green Mountain Coffee. His investment rationale can be viewed here.  While I don’t know anything about Green Mountain or whether Einhorn is justified in taking this position, there’s no denying that private investors can learn a lot about the type of “due diligence” hedgies do by reading Einhorn’s presentation.


We got a reminder of Irish headquartered bookmaker Paddy Power’s gift for generating lots of free publicity earlier this week. This is a marketing tactic that Paddy Power rolls out all the time – management takes a view that if the person, team or event they pay out early on wins, they would have had to pay out anyway. If they call it wrong, they take the cost of it out of the marketing budget. In any event, stunts like this result in the company’s name getting a lot of mentions in the media (perversely, they get even more publicity when they call things wrong, such as when they paid out early on Arsenal to win the 2002/03 Premier League title!), which can only be a good thing, especially given that the press coverage is for “punter friendly” actions such as this. This should also be a particularly helpful move given that Paddy Power’s operations now extend across rugby loving nations such as Ireland, the UK and Australia (where, and I’m always surprised by how many Irish people don’t know this, Paddy Power is the largest “corporate” – i.e. private – bookmaker). Of course, it isn’t the first stunt Paddy Power that has pulled at a Rugby World Cup.


Dublin was visited by the Troika earlier this week, who had this to say. Overall it would appear that we’re ticking all the boxes, but reading between the lines I see a hint of larger-than-currently-guided fiscal consolidation in the upcoming budget, specifically the part that reads: “The forthcoming 2012 budget will make progress along that path by targeting a deficit of no more than 8.6% of GDP” (emphasis mine). Bear in mind that the economic outlook has clearly deteriorated since Minister Noonan first guided €3.6bn in measures in the next budget – so don’t be surprised when he ups this target.


Speaking of the Irish economy, we got two reminders of how it is not out of the woods by any means in this morning’s press. Builder Manor Park has gone into receivership, less than 4 years after DCC sold its 49% stake for €181m – the old adage of “timing is everything” comes to mind! Elsewhere, a provisional liquidator has been appointed to Zapa Technology.


In terms of Irish corporate newsflow, Dragon Oil issued a very solid interim management statement in which it guided output growth in excess of 25% in the current year. Merrion Pharmaceuticals said it will not meet 2011 revenue targets, while it has also hired advisors and may sell all or part of the company. Following on from the announcement made earlier this week, United Drug disclosed that it will receive £8.2m for its stake in the Medco jv in the UK.


The US Air Force has started testing its new F-35B joint strike fighter.


In terms of what some of the people I follow are writing, my old pal Joe Gill had some interesting things to say about social networking. Speaking of pals, Makro Trader had some interesting observations on the Swedish housing market – have the authorities there learned enough lessons from the early 1990s crash? Elsewhere John McElligott provided an update on his thoughts on the UK retailers. Regular readers of this blog know my attitude towards that sector – as I’ve said before, “rioters are the only ones frequenting the High Street“. Ian Parsley, who is one of the best commentators on politics and economics in Northern Ireland, echoed my recent sentiments about the UK’s soaring inflation by saying:


If you print money, the value of money in your pocket decreases and the amount of it you need to buy stuff increases. Why the surprise re: inflation?


3 Responses

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  1. Philip, why do the likes of Moodys Ratings carry weight when they were so off the ball about Irish banks?

    Morgan Finucane

    October 22, 2011 at 10:14 am

    • Hiya Morgan. I ask myself the same question all the time – along with S&P (sub-standard and p***-poor!) and Fitch they are specialists in closing the stable door after the horse has bolted. The main influence that they have with regard to the banks and sovereign ratings is that most large investment funds can only hold debt that is rated AAA, AA etc. while a lot of large corporations will only put funds on deposit in banks that have a certain rating. So if the ratings move lower this triggers forced selling by debtholders/depositors.

      Of course, there is a certain “self-fulfilling prophecy” to all of this, because if a bank starts to lose deposits and has to replace them with more expensive forms of funding, this reduces profits and puts more pressure on the rating, which intensifies as ratings go lower and lower. Similarly with sovereign debt, with some funds excluded from buying a country’s bonds due to their rating this raises borrowing costs, which puts more strain on the Exchequer and leads to another downgrade, which leads to… You get the picture!

      Philip O'Sullivan

      October 22, 2011 at 10:27 am

  2. […] Paddy Power, which has a well-deserved reputation as a marketing genius, has presumably garnered a lot of goodwill in England with a €1,000,000 refund to punters after […]

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