Market Musings 31/10/11
I’ve had no end of distractions over the long weekend, which means that activity on the blog has been rather quiet. So what’s been going on?
Markets have given up some of the significant gains recorded after the EU summit last week. This comes as no surprise to me, given what I said about the movements having suggested that a lot of the move was due to short-covering.
With the Presidential election out of the way, the media’s focus will now turn to December’s budget. Hopefully the increased coverage will be matched by improved coverage – I was perplexed to read a headline stating that the “IMF says deeper cuts not needed in budget”. If you read through the article, what the IMF actually said was that the government does not need to go beyond cuts that would get to an 8.6% deficit for 2012. However, with growth projections for next year having been pared back of late, it is clear that a fiscal adjustment of more than what the government is currently targeting (€3.6bn) will be needed to get to an 8.6% deficit for next year. So, you can take the word “not” out of that headline! To briefly return to the Presidential election, I was amused to hear our new President suggest that his election represented a victory for socialism over Austrian economics. That “logic” is so woolly that it makes me wonder if most Irish politicians think “Austrian economics” means the Minister for Finance in Vienna!
Last Monday brought near-biblical flooding to parts of the east coast of Ireland. While such events are hardly unprecedented for insurers, I do note that the share price of the only listed Irish general insurer, FBD Holdings, is, at the time of writing, higher than it was before the floods. Given the extent of the damage wrought on Dublin and the surrounding areas, I wonder if there is some near-term downside risk to FBD’s share price. Management has yet to comment on what the likely financial impact of the floods will be.
(Disclaimer: I am a shareholder in Glanbia plc) Turning to the food sector, two things in this space have grabbed my attention. Firstly, data released by the CSO show that net subsidies accounted for 84.6% of agricultural income in Ireland in 2010. This is hardly sustainable. Elsewhere, in a very welcome move I see there has been more consolidation in the Irish dairy sector, with Connacht Gold buying Donegal Creameries’ milk business. With milk quotas being phased out, Ireland has a tremendous opportunity to significantly boost output over the coming years. Concentrating the industry in the hands of a small number of well-resourced players (as New Zealand has done with Fonterra) will allow Irish firms such as Glanbia and Kerry Group (assuming they retain their dairy operations) play a key role in this structural growth story.
The Occupy Wall Street movement shows no signs of giving up their protest just yet. I was pleased to see Peter Schiff (who I’d the pleasure of meeting last year) engage with the protesters. If you’ve a spare 20 minutes, make yourself a cup of coffee and watch this video.
Bill Gross at PIMCO released an excellent update earlier today – Pennies from Heaven. Have a read.
In a recent blog I warned that last Thursday’s referendums would “have negative consequences for our freedoms if passed”. I’m pleased to see that the 30th amendment was defeated, despite threatening and arrogant rhetoric from our Minister for Justice, who hopefully will not stay in his job much longer.