Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 28/11/11

with 4 comments

Blogging has been light as I have a raft of end-of-term MBA assignments and exams falling due. However, newsflow has been anything but light, with continued Euroland turmoil and a slew of corporate announcements grabbing my attention in recent days. Let’s quickly recap on what’s been happening.

 

In terms of the Eurozone, I don’t see any alternative to debt monetisation by the ECB. This will not be a panacea for the bloc’s problems, but it will buy the members of the currency union some time to get their houses in order (whether it’s used or not, of course, is another matter). All of the PIIGS countries have seen regime change in 2011 to no avail. What the market clearly wants is new policies, not new politicians. I am unmoved by calls for delinquent states to be drop-kicked out of the single currency, as the domino-effect we’ve seen playing out over the past while leaves me convinced that the market will take a “Who’s next?” approach if the likes of Greece are ejected. Such a move would, as we have seen in the US during its quantitative easing drives, lead to a rally for stocks and commodities (especially gold), while it would prove bearish for cash (as inflation will rise) and (at a minimum) longer dated government bonds as inflation expectations pick up. If Eurobonds are introduced, this will likely slap down existing short-dated Euroland government bonds as they will be perceived as riskier than short-term issues guaranteed by all of the Eurozone member states. And of course, if existing government bonds sell off, this will damage banks’ balance sheets even more.

 

Something from the archives – Prudent Investor outlines The 4 Kinds of Money.

 

Switching to corporate newsflow, Promethean disclosed that it has exited its position in IFG. It had held circa 4% of IFG’s shares in issue (which made it the sixth-largest shareholder in IFG), and while a sale at the low level IFG trades at surprised some market watchers, it is in keeping with the winding-up programme underway at Promethean.

 

Recruiter Harvey Nash is a stock I used to hold, before selling it earlier this year on UK macro concerns. It issued a solid update last week in which it revealed that it is still seeing strong growth, adding that it expects the FY out-turn to be in-line with expectations. I like HVN, but given the challenging outlook for the UK it’s not one I’ll be buying again in the near term.

 

Matterley has a great value-oriented investment approach, so those of you who follow that doctrine should download this videoFund Manager Henry Dixon says he is positive on Dragon Oil, Petropavlovsk, Cranswick and RPC.

 

As we head towards the Budget in Ireland the government is drip-feeding out information to soften up citizens for a tough series of measures. I was very disappointed to hear of plans to raise taxes on dividends, which flies in the face of drives to encourage more saving and investment. Irish household balance sheets are in urgent need of repair, as slides 24 and 25  in this excellent presentation by Cormac Lucey show.

 

(Disclaimer: I am a shareholder in AIB, Bank of Ireland and Irish Life & Permanent). Other Irish balance sheets are in need of shrinking, chiefly, the banks. I was disappointed to see the sale of Irish Life halted. This means that the State will have to inject €1.3bn into its parent, Irish Life & Permanent, or around €300 for every citizen of this country. On a happier note I was pleased to see a Core Tier 1 neutral sale of a Project Finance loan portfolio with total drawn and undrawn commitments of c. €0.59bn by Bank of Ireland today, while reports indicate that AIB is looking to offload €1.4bn of property loans.

 

Aryzta issued a solid Q1 trading update earlier this morning. Revenue trends have continued from FY11 and in terms of the outlook management is retaining its FY EPS guidance.

 

(Disclaimer: I am a shareholder in France Telecom plc and Total Produce plc) Finally, in terms of the best entries I’ve seen in the blogosphere of late, John McElligott has an interesting piece asking if European telecoms dividends are sustainable; while Wexboy has conducted even more detailed research on Total Produce.

Advertisements

4 Responses

Subscribe to comments with RSS.

  1. I rather idly emailed one of ‘de papers’ about Total and its increased Capespan stake – simply to ask didn’t they think it worth investigating/writing about? Didn’t even bother replying, of course….

    Wexboy

    November 29, 2011 at 12:14 am

  2. […] banks remain willing to do whatever they deem necessary to keep the show on the road. As I have noted before, such actions are bullish for equities and commodities (especially gold), and bearish for […]

  3. […] This update is primarily about public finances. Ireland’s Taoiseach, Enda Kenny, addressed the nation this evening about the country’s fiscal position. While Ireland’s budgetary position is truly awful, we’re not alone in this regard. Recent data points across the West highlight a problem that can only lead to two outcomes – governments printing money to keep the show on the road or radical policy changes. Given the woeful response of politicians everywhere to the crisis, my prediction is that the monetary taps will be turned on full as the political will to change a broken system just isn’t there. The inflation that will result from this requires a response from investors along the lines of what I have previously sketched out. […]


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: