Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Posts Tagged ‘Ponzi Scheme

Market Musings 23/9/11

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College deadlines and Arthur’s Day both conspired to prevent me from updating this blog yesterday, which is a pity given the volume of interesting snippets that I’ve come across since Wednesday.

 

I was amused to see this philosophical take on the recent UK riots by the CEO of JD Sports:

 

As the riots showed, there is a strong demand for our products on the High Street

Long-term trends in alcohol consumption is something that has interested me in the past. We’ve seen traditional beers lose market share to spirits, cider and wine for many years now, which has clear implications for the likes of Guinness owner Diageo and Bulmers/Magners owner C&C. This chart from Mike McDonough shows that growth in wine spend in the US has outstripped beer over the past decade.

 

This is an interesting article – BT’s copper wiring is worth more than the group’s enterprise value.

 

Staying with the US, this is a very effective table explaining the US fiscal position in household budget terms. Elsewhere in the States, I note that unemployment among the over-55s stands at levels not seen for six decades.

 

Following on from my last blog, one of my readers sent me this link to some interesting pointers on “Full Tilt Ponzi“.

 

Turning to corporate newsflow, we saw some very strong results from Origin Enterprises yesterday. Earnings growth of 16% was well ahead of consensus of circa 10%. Origin’s outlook statement was more qualitative than quantitative, as you’d expect given its FY12 has only just started. However, it is clear that things are looking up for this company, which is perfectly placed to benefit from the positive conditions in the agri sector.

 

I note that Easyjet increased its full-year PBT guidance from £200-230m to £240-250m yesterday. The company also declared a £150m special dividend. From an Irish perspective there is obvious positive read-through for Ryanair’s quarterly results in November.

 

Speaking of upgrades, Goodbody Stockbrokers raised its forecast for Irish 2011 GDP growth from 0.5% to 1.3%, with the GNP forecast moving from -1.0% to 0%. This revision is solely down to net exports, with domestic demand remaining weak.

 

DCC announced a great deal in the energy space this morning, which will go a long way towards meeting its ambitions of securing 20% of the UK fuel market. Assuming that today’s acquisition and the previously announced Pace deal both secure regulatory approval, these will take the volume of fuel that DCC distributes each year to over 9bn litres. DCC has a consistent track record of delivering high returns from its energy business, and it is one of my preferred stocks at the moment.

Market Musings 12/04/11

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Since my last installment we’ve seen further concerning news about the health of the UK economy, coupled with wobbles in the commodity market and further evidence that M&A activity is on the way back – in the more defensive sectors at least.

 

A series of updates from UK consumer oriented firms continued to support my caution around that market. Recruiter Michael Page said that market conditions “remain tough”, with public sector hiring demand “difficult”, while plant hire group Speedy Hire said that it remains cautious about the prospects for a short-term recovery. The BRC said that UK retail sales plunged by the most on record in March,

 

As I recently discussed in an article in Business & Finance magazine, one area that continues to benefit from positive commodity trends is agriculture. On this front, Carr’s Milling, a peer of Ireland’s Origin Enterprises, released an update which has a bullish read-across for Origin. Elsewhere, cocoa prices plunged after French special forces seized Laurent Gbagbo in the Ivory Coast, which should hopefully lead to a new chapter in that State’s troubled history. Hard commodities such as oil wobbled today after Goldmans cooled its view on them.

 

(Disclaimer: I am a shareholder in AIB plc). AIB released 2010 results earlier this morning, that showed the bank lost €10.2bn last year. The group says that: “business and market conditions remain challenging and the environment for operating income generation remains difficult”. While deposit outflows had been flagged last year, I still raised an eyebrow at the confirmation that customer deposits decreased by €22 billion in 2010 to €52 billion. The deposit outflow was most acute in capital markets (corporate deposits), where deposits were -65% vs -10% in AIB ROI & -24% in AIB UK. AIB’s LDR widened to 165% at end-2010 vs 123% at end-2009. In terms of the quality of the loan book, AIB’s “criticised loans” are now at 30.2% of total loans, while impaired loans are at 13.4% of total loans. On funding, at end-2010, AIB had ECB drawings of €25.2bn & another €11.4bn from Ireland’s central bank, a combined €36.6bn or 25% of the balance sheet. However, the Polish disposal and Anglo deposit acquisition will have cut that somewhat since the start of the year. All in all things look very grave for the bank, which is effectively on life support from the State for now.

 

On the M&A front, we had denials from both BHP Billiton and Woodside that they were in discussions over a $49bn deal, while Schneider Electric was rumoured to be planning a deal for Tyco (market cap $23bn) . There has been a lot of speculation about BP’s intentions for its troublesome TNK-BP operation, and I was interested in this article about it. In terms of deals that are going ahead, post AT&T/T-Mobile USA & Vivendi/SFR I had wondered if more telco M&A would come. Then Level 3 paid $3bn for Global Crossing. Elsewhere, Flowers Foods paid $165m for Tasty Baking, which continues the narrative of consolidation in the North American bakery market, a process which Ireland’s Aryzta has been very active in.

 

There was a bit of military newsflow that caught my eye this week. Firstly, data was released that show global military spending continues to rise, with the world’s biggest spender, the US, having raised its expenditure by 81% since 2001. The US Navy conducted its first test of a laser weapon at sea. Speaking of weapons, watch this video.

 

I do hope that I’m ultimately proven wrong, but the government here looks to be dithering every bit as much as its predecessor when it comes to pushing through reforms and fiscal consolidation. And reform is urgently needed. One example of this came in the shape of a recent Irish Times article which revealed that despite the failings in governance in many areas of the public sector in recent years, a mere 1 of the 300 external candidates for senior civil service positions in the past 3-and-a-half years was successful. Opening recruitment in the public sector to further outside competition can only be a positive in terms of incentivising better delivery of services. On the spending front, the government announced yet another “review” which simply wastes more time and thus will result in even more debt being loaded onto our battered economy. Speaking of our battered economy, Bank of Ireland became the latest forecaster to cut its estimates for GDP growth.

 

I’m rather sceptical on the BRIC economies at the moment, for reasons that deserve a blog all of its own. A couple of pieces of news caught my eye in this space which reinforced my suspicions. Firstly, George Soros said that inflation in China is “somewhat out of control“. This chart by Bloomberg economist Michael McDonough also tells a lot about the inflationary issues affecting these emerging markets. Finally, one of the biggest holders of US Treasurys is of course the People’s Bank of China, and I was interested in reading that a former PBOC official has described the US Treasury market as “a giant Ponzi scheme. Elsewhere, Australian housing data looks to be turning negative – this is a trend worth keeping an eye on.

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