Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 4/12/11

with 2 comments

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.


The Irish government released Exchequer Returns for the first 11 months of 2011 on Friday evening. The Exchequer deficit, at €21.4bn, works out at roughly €5,000 for every man, woman and child in Ireland. Total Irish government voted expenditure for the 1st 11 months of 2011 was €40.7bn. This is only €0.1bn lower than in the same period of last year. “Austerity” is a myth. And for those who think cuts aren’t the answer, read this piece – Rich Nations That Went Broke By Spending Too Much


The fiscal record of the Obama administration, like that of his predecessor, is extraordinarily poor. The US national debt, as a share of GDP, now stands at a post WW2 high of 99.5%. And for another grim data point, the US economy needs to generate 263,700 jobs a month to return to pre-depression employment levels by the end of a hypothetical second term for President Obama. This chart, which shows the percentage of the US population in employment, says it all.


For an overview of the UK national debt, which stands at more than £34k for every person in employment, click here.


(Disclaimer: I am a shareholder in AIB plc and Bank of Ireland plc) Turning to corporate newsflow, Bank of Ireland announced that it has achieved its goal of raising €4.2bn in core tier 1 capital. This is the latest installment of (for a change) good news from the Irish financial sector after recent positive updates from AIB and Bank of Ireland. The sector certainly is getting more interesting!


(Disclaimer: I am a shareholder in Glanbia plc) I was interested to read in today’s Sunday Times that Glanbia is planning a €50m investment in a new Irish dairy plant to capitalise on the phasing-out of milk quotas. This suggests that the company is unlikely to revisit its previous efforts to offload its Irish dairy business anytime soon, and may pave the way for further significant consolidation in the dairy sector – the ‘holy grail’ for many agri executives here is to establish an Irish version of New Zealand giant Fonterra. Ireland enjoys a comparative advantage in this area due to its low-cost grass-based milk production, but the consolidation of the agri sector needs to speed up to realise the full benefits of this advantage.


In terms of the best of the blogosphere, John McElligott has a great piece on Grafton Group, Heijmans NV and Morgan Sindall which you can read here.


Finally, this presentation on value investing by Schroders is well worth a look.


Written by Philip O'Sullivan

December 4, 2011 at 10:43 pm

2 Responses

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  1. […] in government) or innumerate (people who should know better claiming that Ireland should carry on borrowing over €5,000 a year for every citizen – a policy whose logical conclusion is that more and more tax revenue will be diverted to […]

  2. […] a solid base to underpin future growth (I also note speculation before Christmas that the group may be planning a further €50m investment in its Dairy Ireland production capacity to exploit the lifting of milk […]

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