Posts Tagged ‘Swiss Franc’
Market Musings 8/9/11
I was pleased to see a snap-back in equity markets yesterday, with strong performances on both sides of the Atlantic. I haven’t been too surprised by the recent market gyrations – regular readers of this blog know that I’ve been cautioning about extreme volatility in share prices for some time. Hence all of my trades this year have been ‘for cash’, with none on margin.
So what has been grabbing my attention of late? The main items of note are an interesting follow up on Switzerland’s interventions in the FX market, speculation around the Obama jobs announcement, Aer Lingus’ traffic stats and share register, the UK retail sector and assorted macro indicators.
ZeroHedge had an interesting chart following the SNB intervention – “Here is how Switzerland caught up to the rest of the world in devaluing paper currencies against gold“.
President Obama will announce his jobs package later today. Reports suggest that it will cost in the region of $300bn, which works out at over $20,000 for every unemployed American. This is, of course, like many of his administration’s other economic policies, completely unsustainable. I was amused to see a number of Irish commentators praise this sort of Keynesian intervention. Ireland had some similar ‘stimulus programmes’ in the late 1970s that nearly bankrupted the country, so clearly having a poor memory is no obstacle to building a profile in this part of the world.
In terms of what the US should be doing, I can not better the always-excellent Jill Kerby, who writes:
“America’s jobs crisis will solve itself when debts are cleared, budgets balanced & competitiveness restored. A long haul…”
(Disclaimer: I am a shareholder in Ryanair plc) Elsewhere, Aer Lingus reported its latest traffic statistics yesterday. While I am a huge admirer of the carrier’s CEO Christoph Mueller, I was a little disappointed by Aer Lingus’ year-to-date performance. On this measure, passengers carried are down 1.4% relative to year-earlier levels, while load factors have declined by 2.4ppt. This is despite the absence of last year’s volcano-related disruption and a huge increase in traffic at its Aer Lingus Regional partnership, which acts as a feeder into AERL’s other services. Transport Minister Leo Varadkar indicated that the government could sell its stake in the airline yesterday. Here’s the response of its biggest shareholder, Ryanair. Here’s Davy on it.
It appears that rioters are the only ones frequenting Britain’s High Street these days – Dixons reported a 10% drop in like-for-like sales in the 12 weeks ending July 23. And for more retail woe – Both Argos and Homebase recorded big drops in like-for-like sales in the 13 weeks ending August 27.
The IMF cut its Irish growth forecasts yesterday due to a deterioration in the economies of our major trading partners. This mirrors something I wrote earlier this week.
Speaking of matters macro related, Greece’s 1-year bond yield hit 97% yesterday.
Market Musings 6/9/11
What an eventful 24 hours. We’ve seen the Swiss roll over, some outstanding research notes, M&A speculation, corporate results and a lionhearted performance by the Irish soccer team!
Obviously, the main news today is that the Swiss National Bank has taken aggressive action to pare the franc’s ascent. The Swissie had benefited from huge inflows from risk averse investors looking to park money in one of the world’s few remaining political and economic safe havens, but this was at the expense of making its exports uncompetitive. Hence, today’s statement came as no surprise (the Swiss had been sabre-rattling in recent weeks).
There is an important lesson from this for investors here. Irish investors have been buying non-eurozone bonds in Switzerland, Norway, Canada and Australia to diversify their assets and/or (let’s be honest) keep surplus funds out of the banks, but not all of these investors have been doing so without being fully appraised of all of the risks. With my usual flawless sense of market timing (!), I dealt with this theme in an article in the current issue of Business & Finance, which you can read here. Note carefully the advice given about currency risk by NCB’s Aengus Wilson, who is one of the most astute private wealth advisers in Dublin.
There have been some excellent research notes doing the rounds over the past day or so. Tullett Prebon published a very damning report on the UK economy – ‘Thinking the unthinkable – might there be no way out for Britain?’ It warns:
“Britain’s debts are unsupportable without sustained economic growth…the economy, as currently configured, is aligned against growth“
Another great note is from UBS. In a report titled ‘Euro break-up – The consequences”, they examine the financial costs for countries exiting the union. Their view is:
“Our base case with an overwhelming probability is that the Euro moves slowly (and painfully) towards some kind of fiscal integration. The risk case, of break up, is considerably more costly and close to zero probability”
UBS also mentions the following:
“It is also worth observing that almost no modern fiat currency monetary unions have broken up without some form of authoritarian or military government, or civil war”
Nice.
So what else has been going on?
(Disclaimer: I am a shareholder in Total Produce plc) We had solid results from Total Produce earlier today. Management reiterated FY earnings guidance of 6.5-7.5c per share. The company has made €14m worth of “bolt-on” acquisitions since the end of H1, and also says that further share buybacks (it bought back 22m shares last November, or about 6.25% of the shares in issue at that time) remain an option. I really like Total Produce. It’s cheap (taking the midpoint of its guidance it’s on less than 5.5x earnings), it has got a strong balance sheet (net debt/EBITDA was 0.8x at end-2010), it has a stable business model (it is the biggest distributor of fruit and vegetables in Europe, with a reach that enables it to supply multiples across different countries), it has a decent dividend yield (circa 4.5%) and it is spitting out cash (free cash flow for the twelve months ended 30 June 2011 amounted to €29.0m – that’s nearly a quarter of the group’s market cap).
Remember the short-selling ban on European financials?
Reports suggest that CRH may be about to buy a 75% stake in a cement business owned by a Russian oligarch. While we’ll have to wait and see if this comes to anything, it would dovetail with CRH’s growing presence in emerging markets. In addition, it would also help reduce (albeit modestly) its reliance on the fragile Western economies that account for the overwhelming majority of its business. As Goodbody point out, CRH has more than enough firepower for a deal of the scale mentioned in the report.
This evening Ireland’s Finance Minister, Michael Noonan, indicated that GDP forecasts will be cut. Some people on social media sites took this as a sign that he’s softening the public up for a stuffing in this year’s budget, but this is a very shallow analysis that takes no account of the clear deterioration in the economic position of most of Ireland’s biggest trading partners in recent months.
Finally, on a happier note the Irish football team somehow managed to secure a nil-all draw in Russia despite ferocious pressure from the home team. This leaves us on track for a play-off position for the Euro 2012 championships. Richard Dunne and Shay Given were absolutely magnificent in helping to save the team’s bacon (not for the first time), and I think Richard in particular will be pleased by this tweet from Paul McGrath:
“Richard Dunne congratulations The Best performance I have seen from any Irish centre half and that includes myself”