Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 25/10/11

with 2 comments

Thankfully, with my articles submitted to Business & Finance and an exam safely negotiated, a choke point in terms of demands on my time has been overcome, at least for another few weeks! Outside of these especially pressing demands on my time, I’ve also been distracted by the folly that is Ireland’s Presidential election (where all 7 candidates have done a great job in advertising why the office should be abolished), the Rugby World Cup final (payback for the Rainbow Warrior!) and this week’s two referendums in Ireland, which I believe will have negative consequences for our freedoms if passed.


So what has been going on in terms of the markets? The Eurozone crisis continues to rumble on. Last weekend saw a meeting in Brussels which was touted as a “make-or-break” summit, but which degenerated, like all other EU meetings, into having a meeting about having… several more meetings. It is incredible that Europe’s political leadership continues to fiddle while the currency union burns.


Speaking of areas with weak economic governance, I was unsurprised to read Merrill Lynch predict that the United States will lose its AAA rating from a second ratings agency before the year end. You might recall a few months ago there was a political flap over raising the federal debt ceiling to above $14.25 trillion. Just six months on, the US federal government’s debt is now $14.9 trillion. On top of that, at a State level you’ll find a further $4 trillion in debt. While President Obama’s profligacy is beyond question, it is sad to see that the only GOP primary candidate willing to address the deficit, Ron Paul, is struggling to even get into double-digits in the latest polls. To me this indicates that, regardless of the result of next year’s election, the US credit rating will continue to decline.


Speaking of public finances, in terms of a top-down view of the global debt crisis, this is worth a read.


Elsewhere, David Smith is one of my favourite economics commentators. He writes an excellent Sunday Times column which I’m an avid follower of. A couple of days ago he wrote an excellent piece comparing the UK to Ireland on his blog which is worth a read. To me what it illustrates is the success of the competitive devaluation in recent years here (something I’ve mentioned before), which has helped narrow the gap between “rip-off Ireland” and its peers. While the UK has been quick to blame “imported inflation” for its spiraling CPI, this is, as I’ve previously noted, simply the inevitable consequence of the BOE turning sterling into toilet roll.


Another thing I’ve previously noted is how dubious Argentina’s official economic statistics are. These statistics are regularly touted by default advocates here as an example of the “success” we’ll experience if we stiff our creditors. This article illustrates why you shouldn’t believe everything you read about Argentina’s “economic success”. And if you’re still not convinced, have a read of this one too. Having been to Argentina earlier this year and having seen at first hand the grinding poverty many (40%, according to one estimate) of its people endure, and also watched how many passengers on the ferry from Buenos Aires to Montevideo carry their savings out of Argentina to deposit it in Uruguayan banks, such is their limited faith in their supposedly “successful” economy, I have to say that I am unmoved by the argument that Ireland should emulate our Latin American friends.


(Disclaimer: I am a shareholder in Glanbia plc) Turning to corporate newsflow, I was interested to read an interview with Glanbia CEO John Moloney in which he guided that the group could spend up to €200m next year on strengthening its nutritionals division. I think Glanbia has done a super job on this unit, which it has taken from a US focused business at the time of acquisition into an internationally diversified operation – just by way of an anecdote I saw an entire wall of a healthfood store in a shopping mall in Dubai taken up with Glanbia’s Optimum Nutrition product range on my honeymoon earlier this year. On a more quantitative measure, Glanbia’s 2010 annual report reveals that the percentage of group revenues coming from outside of its core markets of Ireland, the US and UK rose from 16% in 2009 to 18.5% in 2010. You can read a little more about Glanbia’s nutritionals business here.


(Disclaimer: I am a shareholder in BP plc) I was also pleased to see BP report a solid set of results earlier this morning. The company has upped its target for disposals by 50% to $45bn, which provides it with a substantial warchest. I was pleased to see management mention higher dividends and share buybacks, which should help bolster the share price. I like BP a lot. It’s very cheap, with the share price at the time of writing putting it trading on just 6.3x next year’s earnings, it has a strong balance sheet (net debt/equity was only 19% at the end of Q3) and for income investors it offers a 4.2% prospective yield. I also see clear potential for positive “surprises” in the shape of compensation from more of its partners for Macondo, while reports suggest that the company will receive a decent rebate from the fund it has established to make good the economic damage the Deepwater Horizon well caused.


Finally, congratulations to New Zealand on winning the Rugby World Cup, and for helping me relieve my bookmaker of a tidy sum after I backed them at 1/5 early in the second half!


2 Responses

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  1. […] a recent blog I warned that last Thursday’s referendums would “have negative consequences for our […]

  2. […] encouraging political news – Ron Paul, whose strong economic credentials I’ve noted before, looks like he could win the Iowa caucus, which would give a huge lift to his campaign. If […]

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