Markets live chat transcript for the chat ending at 12:02 on 1 Jun 2009. Participants in this chat were: Paul Murphy, FT (PM) Neil Hume, FT (NH)
PM:
Welcome
PM:
It’s Monday.
PM:
This is Markets Live and Kicking – FT Alphaville’s daily market commentary
PM:
Neil is back in the hot seat here.
NH:
And wow is it hot
PM:
Poor Bryce had to sit here with me as we both got our proverbials squeezed.
PM:
Neil has already got a taste of that this morning.
PM:
Fact is we need to be serious for a moment on the H&M Capital management front.
NH:
H,E&M
PM:
Hemline Capital, not a bad name.
PM:
Anyway, I digress.
PM:
Fact is, we really need to have a stop loss in place.
PM:
We should have identified a stop loss when we took out Footsie short 3 weeks back.
NH:
I thought you’d have panicked and closed the position last week when I was away.
NH:
That’s what you normally do, close the position and then blame someone else.
NH:
Either that, or you phone up when your away and say “Close the position”
NH:
Either that, or you phone up when your away and say “Close the position”
PM:
PM:
Yeah, yeah
PM:
Fact is, I was thinking over the weekend …
PM:
No matter how confident we feel that this rally is madness – we must have a stop in place.
PM:
I was going to suggest 4500, but we almost went through that this morning.
NH:
Nah, we need a bit of room for maneuover
NH:
Never try and spell manoeuvre on Markets Live. It’s actually impossible.
PM:
PM:
Anyway, what’s a good stop loss on this Footsie short?
PM:
4605.?
PM:
That gives us roughly 200 points from where we started, I think.
NH:
Roughly.
PM:
And we need to 05 at the end, because the market often tests levels like say 4600.
NH:
Actually, we could be a bit more professional about it and use the figure of 4675.
NH:
That’s the intra-day high seen on January 6.
PM:
What, when people were still drunk after new year?
NH:
From there, the Footsie dropped to an intraday low of 3460 – in the space of three months.
NH:
And since then, whoosh…
PM:
Okay, so 4675 is STOP – throw the towel in level
PM:
Retire from this mad racket
PM:
So how much space have we got left this morning??
NH:
Er, about 180 points
NH:
FTSE 100 currently up 75 points at 4,493
PM:
PM:
What is God’s name is driving it?????
NH:
Take your pick.
NH:
Chinese PMI
NH:
US confidence returning
NH:
House price recovery
NH:
or just all that cash that had been warehoused in the bond market
NH:
coming back into the market
NH:
and not just equities
NH:
oil
NH:
sterling
NH:
the euro
NH:
commodities
PM:
Sterling!
PM:
Extraordinary rise
NH:
Cable moved from 1.6150 to 1.64 this morning
PM:
What?????????
NH:
Similar story with the euro
NH:
Moved from 1.415 to 1.4240
NH:
10-year gilt, weak as well
PM:
So what is going on here.
PM:
How can people possibly be selling dollars and buying Kronas???
NH:
Former Krona
NH:
It’s the safe haven unwind.
PM:
The Safe Haven Unwind – oh, pu-lease
PM:
This is the Tim Bond thesis
PM:
I did a ntoe on it last week
PM:
The Bond stuf is up in the long room also
PM:
bascially saying the rise in Tbill yeilds and fall in the dollar is GOOD news people
NH:
interesting note that
NH:
worth a read
PM:
Simply reflects people getting their risk apetite back
PM:
allegedly
NH:
well they are certainly hungry for the miners this morning
NH:
on the back of the Chinese PMI for May
NH:
came in below the level of April, but was no worse than consensus
NH:
so that’s a big plus as far as this market is concerned
NH:
and the export orders component was back above 50 and apparently that is good news too
NH:
so a double plus
NH:
and here’s the price reaction
Vedanta Resources (VED:LSE): Last: 1,704, up 123 (+7.78%), High: 1,714, Low: 1,627, Volume: 1.07m
Rio Tinto (RIO:LSE): Last: 2,986, up 186 (+6.64%), High: 2,994, Low: 2,852, Volume: 1.84m
Xstrata (XTA:LSE): Last: 728.00, up 44 (+6.43%), High: 734.00, Low: 699.00, Volume: 7.18m
Lonmin (LMI:LSE): Last: 1,510, up 82 (+5.74%), High: 1,516, Low: 1,468, Volume: 366.58k
NH:
of course the market as a whole was helped by the close in the US on Friday
PM:
yes, an interesting email was being pinged around about that a little earlier
PM:
huge, and I mean huge, volume spike in the S&P futures contracts
PM:
prompted all sorts of wild speculation about market manipulation
NH:
got the email?
PM:
yep
NH:
would you mind pasting it
PM:
sure
PM:
There were 146,083 contracts traded in that one-minute period between
14:59 and 15:00 (Central); the next minute, when the real dislocation
hit, traded 91,774 – after the cash market bell had rung.
14:59 and 15:00 (Central); the next minute, when the real dislocation
hit, traded 91,774 – after the cash market bell had rung.
The closing bell is usually busy. But this sort of volume is absolutely
unheard of. To put it in perspective yesterday the same time recorded
26,540 contracts, and 36,642 the minute after.
Volume was light all day, as is somewhat common in the summer on a
Friday. The close started its usual increase, and was up to 23,000
contracts at 14:57 with two minutes remaining.
Then all hell broke loose.
PM:
The reaction was instantaneous. The offer side of the market collapsed
and the /ES rocketed higher. In the pit, trades went off as high as 925,
but on the E-Mini trades were recorded as high as 927.75. As quickly as
it got there, it collapsed back to 922 – a nearly six-handle (3/4 of one
percent) straight-up and down spike.
and the /ES rocketed higher. In the pit, trades went off as high as 925,
but on the E-Mini trades were recorded as high as 927.75. As quickly as
it got there, it collapsed back to 922 – a nearly six-handle (3/4 of one
percent) straight-up and down spike.
To venture to suggest that this spike was “organic”, that is, this was
an un-forced order, intimates that someone wanted to go home net long
the equivalent of 5,000 /ES contracts into the weekend at a severely
disadvantaged price. The market had been calm all day; if punters wanted
to buy 1,000 spoos (equivalent to 5,000 E-Minis) there was plenty of
opportunity to do so all day long. This sort of market order was
guaranteed to dislocate the market – so the buyer had to simply not give
a damn what sort of price they got filled.
Was the market being ramped? It surely cannot be ruled out!
NH:
wow
NH:
that was BIG
NH:
manipulation or incompetence
NH:
or just a short squeeze
PM:
panic closing, maybe
PM:
anyway, the conspiracy theorists are having a field day
PM:
Picked this snippet up from Zero Hedge
PM:
As for today’s market close, with a literally parabolic jump in the last minute of trading, if anyone still thinks this market trades based on anything resembling normal behavior (unless someone had a very Jerome Kerviel-esque fat delta hedging finger or one/two moderate/large quants who had a huge index hedge imploded), I have some BBB+ rated CMBS to sell to you at par. One culprit could be hiding in the huge drop of agency trading, which this week dropped to a several month low of 1.875 billion shares.
PM:
Going back to today’s ridiculous close, the chart below shows it all: the complete tape painting volume spike at the very end of the day speaks for itself. And as computers now simply issue forced stock recall orders to each other, painting the tape wet with manipulative intent and volume spikes into the last 20 minutes of trading every day, their human creators are left on the sidelines, trying to outshout each other as to the reason for why the market keeps rising while the economy keeps tumbling.
PM:
Is there ever going to be any transparency in this market again
NH:
ha
PM:
People call us bearish!
NH:
Zero Hedge
NH:
those guys are on the edge
NH:
spent all weekend crunching the numbers on the GM bailout
PM:
yep, dedicated
PM:
I was stuck doing dI bloody Y
NH:
i was in the garden
NH:
soaking up some rays
11:19AM
NH:
can we just go back to the miners for a moment
NH:
the gains seems slightly odd
NH:
given what’s going on in the background
PM:
such as?
NH:
the iron ore pricing negotiations
NH:
the Chinese came out of the weekend and said pretty forcibly that we are not going to accept the deals on the same terms at Japan and South Korea
NH:
of course it could all be postering but still given the run the miners had last week
NH:
it might have given a bit of food for thought
PM:
but Neil, you forgot, this is a bull market
NH:
I know
NH:
anyway here’s a bit of comment on the iron ore stuff from Liberum Capital
NH:
On Sunday the China Iron and Steel Association (CISA) issued a statement saying it refused to accept the iron ore price cut reached between Rio Tinto and Japanese and Korean steelmakers (Rio settled last Tuesday with Pilbara iron ore fines down -33% at $59.9/t and lump down -45% at US$69.1/t). Chinese steelmakers have been pushing for a -40% cut in iron ore and CISA cited that a settlement at Rio’s Japanese benchmark would lead to significant losses for Chinese steelmakers.
NH:
On Sunday the China Iron and Steel Association (CISA) issued a statement saying it refused to accept the iron ore price cut reached between Rio Tinto and Japanese and Korean steelmakers (Rio settled last Tuesday with Pilbara iron ore fines down -33% at $59.9/t and lump down -45% at US$69.1/t). Chinese steelmakers have been pushing for a -40% cut in iron ore and CISA cited that a settlement at Rio’s Japanese benchmark would lead to significant losses for Chinese steelmakers.
PM:
cheers for that
11:20AM
PM:
Couple of things
PM:
People mentioning Air France
PM:
For those who have missed, an Air France jet has gone “off the radar” enroute from Brazil to Paris
NH:
RTRS-AIR FRANCE-KLM SHARES FALL INTO NEGATIVE TERRITORY, ERASING GAINS, AFTER PLANE GOES MISSING
PM:
Sounds very worrying
PM:
disappeared at 6am — was due to land just after 11GMT
PM:
On other comments to the right…
PM:
Itzman — we are not great on public transport
NH:
but I have been looking a bit at National Express
NH:
and the mess they find themselves in
NH:
from what I have seen they need to raise £300m-£400m
NH:
but
NH:
will shareholders back it?
NH:
if they do
NH:
this stock will rally
PM:
(SilverFox — put “tim bond” into the search box — an extract was on AV on Friday)
NH:
But look at the share registers
NH:
a Spanish guy owns nearly 18% of the company
NH:
Jorge Cosmen
NH:
does he have the cash to cough up
NH:
if not
NH:
others will have to come in
NH:
so that will mean a placing and open offer
NH:
(Mr J, it will rally further)
11:25AM
PM:
Now, Neil and I liked to think that we knew every serious bandit in town.
PM:
But one thing has puzzled us.
PM:
During the recent crackdown by the fsa –when so many collars have been felt
NH:
We don’t know any of them.
PM:
PM:
Latest is this – Blue Index
PM:
The company at the centre of the latest probe by the financial watchdog into insider dealing is a City broker specialising in high-risk bets on share price movements, the FT has learnt.
The Financial Services Authority stripped Blue Index of its right to do regulated business after an operation this week involving six arrests and raids on eight properties in London and Essex, people familiar with the case said.
The investigation is part of a flurry of FSA activity on insider trading in recent months, although many lawyers say it is still too focused on small companies rather than household names.
The raids and arrests related to Blue Index’s trading in so-called contracts for difference, or bets on short-term changes in the values of shares, people with knowledge of the case said. The FSA declined to comment, although its website shows that Blue Index is now closed to regulated business.
IG Index, the spread-betting company, said it had this week terminated a contract to process trades on behalf of Blue Index after hearing that the FSA had closed the company to regulated business. Phil Gillett, sales trader at IG, said: “We have no further dealings with them.”
The Financial Services Authority stripped Blue Index of its right to do regulated business after an operation this week involving six arrests and raids on eight properties in London and Essex, people familiar with the case said.
The investigation is part of a flurry of FSA activity on insider trading in recent months, although many lawyers say it is still too focused on small companies rather than household names.
The raids and arrests related to Blue Index’s trading in so-called contracts for difference, or bets on short-term changes in the values of shares, people with knowledge of the case said. The FSA declined to comment, although its website shows that Blue Index is now closed to regulated business.
IG Index, the spread-betting company, said it had this week terminated a contract to process trades on behalf of Blue Index after hearing that the FSA had closed the company to regulated business. Phil Gillett, sales trader at IG, said: “We have no further dealings with them.”
NH:
Does, anyone know anything about these people?
NH:
or the company
NH:
If so – get in touch
NH:
Paul.murphy@ft.com
NH:
Neil.Hume@ft.com
PM:
What does it say if we don’t know people who are getting arrested?
NH:
Well either we’re crap or…
NH:
as I understand it
PM:
NH:
the case related to a takeover of a software company
NH:
by Microsoft
PM:
We’re just looking for it
PM:
Little software takeover
PM:
But got taken out at a HUGE premium
PM:
(Nately — very good!)
PM:
Neil’s just phoning someone to get the name of it
NH:
got it
NH:
it was this
NH:
apparently
NH:
xpanding upon its vision to provide the advertising industry with a world-class, Internet-wide advertising platform, Microsoft today announced that it will acquire aQuantive, Inc.
The aQuantive acquisition helps Microsoft to enhance relationships with advertisers, agencies, and media owners/publishers by strengthening its world-class advertising platforms and services. It also gives Microsoft increased abilities in building and supporting next-generation advertising solutions, environments, and platforms such as cross-media planning, video-on-demand, and IPTV.
PM:
So what’s happened here?
NH:
here’s the FT story
NH:
Microsoft makes $6bn ‘bet’ on Aquantive
By Chris Nuttall in San Francisco
Published: May 18 2007 13:54 | Last updated: May 18 2007 23:15
Microsoft on Friday announced the biggest acquisition in the software company’s history, buying online advertising company Aquantive for $6bn and making what it described as a “big bet” on its own long-term growth.
NH:
The move – the largest deal in the advertising industry – continued the frenzy of interest in online advertising, coming a day after WPP bought 24/7 Real Media in a deal that valued the group at $649m. It also follows Google’s deal to buy DoubleClick for $3.1bn and Yahoo buying the RightMedia advertising exchange outright for $680m.The move – the largest deal in the advertising industry – continued the frenzy of interest in online advertising, coming a day after WPP bought 24/7 Real Media in a deal that valued the group at $649m. It also follows Google’s deal to buy DoubleClick for $3.1bn and Yahoo buying the RightMedia advertising exchange outright for $680m.
PM:
yeah, but how does this relate to Blue Index and the financial cops??
NH:
well, this is the deal that case relates to
NH:
there is another amusing fact
NH:
but I haven’t checked it yet
PM:
Okay — we are going to have to do some further checking on that
PM:
Given the sensitive nature of the case
PM:
apols
PM:
let’s mvoe on
11:33AM
NH:
about our short position
NH:
this week is a big one for data
NH:
and by the end of it there could be green shoots everywhere
PM:
we must keep the faith
PM:
4675
PM:
rising bond yields and crude price play into our thesis nicely
NH:
sure
NH:
but have a look at the slew of data that’s coming
NH:
this is a good preview from Deutsche Bank’s ever readable Early Morning Read
NH:
By the end of this week we’ll know a lot more about the strength of the US and
Global economic rebound in Q2. The week kicks off today with what is
increasingly being seen as one of the key Global reports at the moment, namely
the US ISM. It seems to be viewed as a quick one-stop barometer of the
temperature of the Global economy at the moment. Friday’s weak Chicago PMI
number does slightly temper expectations but there may be an auto bias to this
report. Overall this number really could set the tone as we start June.
Global economic rebound in Q2. The week kicks off today with what is
increasingly being seen as one of the key Global reports at the moment, namely
the US ISM. It seems to be viewed as a quick one-stop barometer of the
temperature of the Global economy at the moment. Friday’s weak Chicago PMI
number does slightly temper expectations but there may be an auto bias to this
report. Overall this number really could set the tone as we start June.
If we then fast forward to the end of the week we have all the fun and games that
Payroll Friday brings. DB is currently going for -500k (consensus -530k) with an
unemployment rate of 9.4% (consensus 9.2%). These are the key reports of the
week but we also have US Income and spending numbers (today), Auto sales
(Tuesday) and ADP and non-manufacturing ISM (Wednesday). Clearly outside the
US, the ISM data coincides with the PMI data released on the same day across
the Globe. The micro story to watch is the well flagged bankruptcy of GM set to
be announced later today. Bondholders yesterday agreed the government’s
reorganisation plans for the company and the story may now move on to working
out the economic aftermath of the bankruptcy. The most pertinent question being
how much extra unemployment will we now see as a result?
PM:
Reid
PM:
hmmm
NH:
you see, things could be getting quite uncomfortable by Friday lunchtime if the payroll figure is in line with expectations
NH:
we could be nursing some serious burnt fingers
PM:
things could be getting quite uncomfortable by Friday lunchtime if the payroll figure is in line with expectations
NH:
in fact we might even need skin grafts
PM:
PM:
4675
PM:
Actually, look at this call
PM:
The end of the recession?
NH:
Eh?
PM:
That’s from the strategy team at ING – daily Prophet
PM:
Looking at the US
PM:
ISM manufacturing index.
PM:
The end of the recession?
The ISM manufacturing index is probably the best lead indicator for GDP and there is a real chance that today’s ISM report will produce a figure consistent with positive growth. However, there are doubts as to how durable this story will be.
The regional purchasing managers’ indices in general have been pretty good over the last month. The Empire, Philadelphia Fed, Dallas Fed, Richmond Fed and Milwaukee NAPM manufacturing indices rose, which bodes well for today’s national ISM report. However, there was some disappointment from the Chicago PMI, which fell. This can largely be attributed to the woes of the auto sector – the Chicago PMI covers companies in Illinois, Michigan and Indiana – with orders falling sharply while actual production held up. Consequently, today’s national ISM measure should report another rise. The key question is how big it will be with Figure 2 suggesting that if we get a number around 42 it would be consistent with GDP growth of 0% YoY. In fact, the consensus is looking for a reading of 42.0, but we are more optimistic, looking for 44.0.
The ISM manufacturing index is probably the best lead indicator for GDP and there is a real chance that today’s ISM report will produce a figure consistent with positive growth. However, there are doubts as to how durable this story will be.
The regional purchasing managers’ indices in general have been pretty good over the last month. The Empire, Philadelphia Fed, Dallas Fed, Richmond Fed and Milwaukee NAPM manufacturing indices rose, which bodes well for today’s national ISM report. However, there was some disappointment from the Chicago PMI, which fell. This can largely be attributed to the woes of the auto sector – the Chicago PMI covers companies in Illinois, Michigan and Indiana – with orders falling sharply while actual production held up. Consequently, today’s national ISM measure should report another rise. The key question is how big it will be with Figure 2 suggesting that if we get a number around 42 it would be consistent with GDP growth of 0% YoY. In fact, the consensus is looking for a reading of 42.0, but we are more optimistic, looking for 44.0.
PM:
We will also be paying close attention to some of the sub-components. The employment component will be especially important, given the release of non-farm payrolls on Friday and at present is consistent with a further moderation in the rate of decline in payrolls (Figure 3). Meanwhile, the new orders component is suggesting that we should be looking for a sharp rebound in investment spending (Figure 4). However, we are somewhat cautious that these readings may be providing a false dawn and doubt that the end of the US recession can be called just yet.
The inventory correction story may be driving much of the improvement as firms look to rebuild stock levels that have been run down aggressively in recent months. Moreover, with corporate profits continuing to contract we have major doubts that we will get the scale of turnaround in investment spending that is signalled in Figure 4. Indeed, with sources of funding for investment projects (either from profits or borrowing) being heavily restricted we doubt there will be much of a turnaround before the end of the year. Nonetheless, the figures that we are expecting will provide more support for the recovery story and therefore will likely provide an additional boost to risk appetite.
The inventory correction story may be driving much of the improvement as firms look to rebuild stock levels that have been run down aggressively in recent months. Moreover, with corporate profits continuing to contract we have major doubts that we will get the scale of turnaround in investment spending that is signalled in Figure 4. Indeed, with sources of funding for investment projects (either from profits or borrowing) being heavily restricted we doubt there will be much of a turnaround before the end of the year. Nonetheless, the figures that we are expecting will provide more support for the recovery story and therefore will likely provide an additional boost to risk appetite.
NH:
What are they saying about the UK?
PM:
Well, they’re looking for a V
NH:
Natch
PM:
Looking for the ‘V’
There is growing evidence to suggest that despite all of the fundamental problems with the UK economy, the outlook is improving significantly.
We are in danger of soon having to revise up our UK growth forecasts. After having been among the most bearish forecasters on the UK for the past two years, the recent macro data have been providing near universal upside surprises. Despite our worries concerning the impact of the bursting of the house price bubble and the implosion of the banks on a household sector that is the most indebted in the world, it appears that the slashing of interest rates and support from quantitative easing is generating a tangible improvement in the economy. Consumer and business confidence has recovered significantly, while even the housing market is showing clear signs of life with new buyer enquiries at all-time highs, according to the Royal Institution of Chartered Surveyors and mortgage approvals starting to turn higher. Even the rate of house price deflation is slowing. However, the most remarkable turnaround has been seen in the purchasing managers’ indices.
There is growing evidence to suggest that despite all of the fundamental problems with the UK economy, the outlook is improving significantly.
We are in danger of soon having to revise up our UK growth forecasts. After having been among the most bearish forecasters on the UK for the past two years, the recent macro data have been providing near universal upside surprises. Despite our worries concerning the impact of the bursting of the house price bubble and the implosion of the banks on a household sector that is the most indebted in the world, it appears that the slashing of interest rates and support from quantitative easing is generating a tangible improvement in the economy. Consumer and business confidence has recovered significantly, while even the housing market is showing clear signs of life with new buyer enquiries at all-time highs, according to the Royal Institution of Chartered Surveyors and mortgage approvals starting to turn higher. Even the rate of house price deflation is slowing. However, the most remarkable turnaround has been seen in the purchasing managers’ indices.
PM:
Figure 5 shows a clear ‘V’ shape with both the manufacturing and service sector surveys suggesting that the rate of economic contraction is slowing sharply and could in fact soon turn positive. We are still somewhat cautious on how sustainable this is though. We are uncertain as to how much of the rebound is due to some form of inventory rebuild post the plunge seen over the past six months. Indeed, the fact that corporate profits continue to plunge and unemployment is surging higher is likely to provide a major headwind for the economy for quite some time so there is still the threat of a double dip as inventories get run down a second time if there isn’t enough demand.
There are also the longer-term issues regarding deleveraging, higher savings, restricted credit access and the prospect of higher taxes and falling government spending, which will constrain the UK’s growth rate. Nonetheless, another increase in the purchasing managers’ indices this week would provide a strong argument to be less pessimistic on the UK.
There are also the longer-term issues regarding deleveraging, higher savings, restricted credit access and the prospect of higher taxes and falling government spending, which will constrain the UK’s growth rate. Nonetheless, another increase in the purchasing managers’ indices this week would provide a strong argument to be less pessimistic on the UK.
PM:
4675
NH:
you have to stop all this
NH:
making me very nervous about the short
NH:
and the stop loss
PM:
okay
11:37AM
PM:
lets change tack
PM:
any RAW market info for the readers??
RAW is market chatter – information that has not been formally tested through traditional journalistic channels (PRs etc). The story might be complete rubbish, but if we believe there is some substance to it we will say so. Either way, Reader Beware.
NH:
few bits, but my word is it quiet this morning
NH:
a lot of people away
NH:
and loads of markets around Europe closed
NH:
MKTS CLOSED
AUSTRIA
DENMARK
ICELAND
IRELAND
LUXEMBOURG
NORWAY
SWITZERLAND
MKTS OPEN BUT LOCAL HOLIDAYS (THEREFORE LIGHT VOL)
FRANCE
GERMANY
HOLLAND
BELGIUM
NH:
nonetheless, here’s the rumourtrage I have picked up
NH:
Persimmon
Persimmon (PSN:LSE): Last: 371.75, up 7.75 (+2.13%), High: 378.00, Low: 365.00, Volume: 823.53k
NH:
rumours they are working on a cash call
NH:
I don’t have any idea of size
NH:
All I have heard is that HSBC Securities are somehow involved
NH:
and people, well institutions, are being sounded out
NH:
Now, Persimmon is not the most highly geared housebuilder out there
NH:
but it was something of an acquisition machine and did take on a fair bit of debt during the boom times
NH:
and from the analysts I have been talking too
NH:
Persimmon could probably do with a couple of hundred million
NH:
to take advantage of cheap land prices to improve its landbank
NH:
have a look at this
NH:
it’s a note that was out from Citi last week
NH:
Rebuilt balance sheet — The group has worked hard to cut its debt levels to
sensible levels on the back of a working capital squeeze. While we still see
further cash inflow this year and next, an improvement in the market would
put this under pressure.
sensible levels on the back of a working capital squeeze. While we still see
further cash inflow this year and next, an improvement in the market would
put this under pressure.
Limited further asset write-downs seen — Having been relatively aggressive
with the 2008 results, we do not think the group has much more to go in
terms of its asset write-downs, especially as it went into the downturn
making better margins than the other 2 majors.
Fresh equity conundrum — While the group does not need fresh equity to
see it through the current trading downturn, a fresh injection of a few
hundred million would give it more freedom to build a stronger land bank for
the medium term.
New price target of 450p (from 480p) — We continue to see reasonable
value in Persimmon and certainly prefer this one to the other majors,
especially because of its balance sheet and operational track record. Our
new target price reflects our updated assumptions
PM:
thanks for that
PM:
any more RAW??
NH:
yeah
NH:
one I think you mentioned last week
NH:
Amec for Wood Group
PM:
that’s was doing the rounds — but was getting heavily knocked back
NH:
well, the story has moved on
NH:
apparently what we are talking about now is some sort of asset swap
PM:
really
NH:
apparently
NH:
all a bit vague at the moment and I am trying to look at which bits could be swapped
NH:
but I am told it would be good for Wood Group
PM:
well, according to the Wood website
PM:
it has three main operations
PM:
take your pick from one of this lot
PM:
Engineering & Production Facilities, Well Support and Gas Turbine Services – providing a range of engineering, production support, maintenance management and industrial gas turbine overhaul and repair services to the oil & gas, and power generation industries worldwide
NH:
ta
NH:
will have a closer look into this
11:42AM
PM:
Just looking thru some of these risers
PM:
Enterprise inns up 8.5%
PM:
Why?
NH:
er, it is a piece of trash
NH:
and therefore rising because of rising risk appetite
PM:
Barclays!!
PM:
s back above three quid
PM:
Up 16p at 313
NH:
housebuilders up too
NH:
wasn’t there a good Nationwide survey out on Friday
PM:
yeah, but didn’t believe it
PM:
Why should this housing “dip” but half as long as previous “dips”???
NH:
well, we could bore about that for hours
NH:
as could Dinner Party Live
NH:
but let’s not go there
NH:
instead
NH:
what about Small Cap corner
PM:
ah yes
11:45AM
PM:
good idea
PM:
SMall cap corner
PM:
What have you got?
NH:
we should have a look at the companies where Saad Investments is a big shareholder
PM:
Ah yes, Saad stocks
PM:
for those of you who missed the story earlier
PM:
the Saudi central bank has frozen the assets of the billionaire businessman behind the company
PM:
which also owns 3% of HSBC
PM:
Saudi Arabia’s central bank has ordered the kingdom’s banks to freeze the accounts of Maan al-Sanea, a businessman and significant shareholder in HSBC, senior bankers said on Sunday.
The Saudi Arabian Monetary Agency issued the directive in two letters sent to banks on Thursday and Saturday, and included certain members of Mr al-Sanea’s family, bankers who have seen the letters said.
The Saudi Arabian Monetary Agency issued the directive in two letters sent to banks on Thursday and Saturday, and included certain members of Mr al-Sanea’s family, bankers who have seen the letters said.
PM:
you can find the rest of the story here
NH:
and courtesy of Bloomberg, here’s a list of Saad’s small cap holdings
NH:
the most eye-catching is probably the 28% stake in Berkeley Homes
NH:
which is probably more of a mid cap, but anyway
NH:
The group has international investments that include
Berkeley Group Holdings Plc, a U.K.-based residential and
commercial property develop company, York Pharma Plc a U.K,
provider of medicines for skin diseases, Imagination
Technologies Group Plc, the U.K. maker of Pure digital radios,
Syndicate Asset Management Plc which invests in the global asset
management industry, Proton Power Systems Plc, which produces
fuel cell systems for industrial applications.
Berkeley Group Holdings Plc, a U.K.-based residential and
commercial property develop company, York Pharma Plc a U.K,
provider of medicines for skin diseases, Imagination
Technologies Group Plc, the U.K. maker of Pure digital radios,
Syndicate Asset Management Plc which invests in the global asset
management industry, Proton Power Systems Plc, which produces
fuel cell systems for industrial applications.
PM:
Berkely price is down 6.5p at 880
NH:
York Pharma
NH:
unchanged at 3.25p
PM:
Proton power is unchanged at 6.25 — but the spread is 5.5/7
PM:
Syndicate Asset Management is actually up — a tad
PM:
up 0.11p at 2.91
PM:
That has a muppet look
NH:
Imagination Securities up 1.5p at 84.5p
NH:
actually no quote on York Pharm
NH:
looks to have been suspended
PM:
Actually, Victor Haghani was supposed to be bidding for Syndicate
PM:
I’d forgotten
NH:
because York did not publish figures
11:51AM
PM:
Getting some interesting msgs through on Blue INdex
NH:
me too
PM:
Difficult to share off the cuff — for obvious reasons
NH:
it seems they had some mystical clients
PM:
Clairvoyant
PM:
IG found it uncomfortable doing business with them
PM:
Too good on M&A
PM:
apparently, allegedly, etc etc
PM:
PM:
Are we done — ive got a lunch to go to
NH:
where?
PM:
Shoreditch Hosue
PM:
House eve
NH:
ah the Soho House sister place
PM:
even
PM:
That’s the one
PM:
Richard Caring seems to own just about every eatery I use at the moment
NH:
what, the upmarket ones?
PM:
hmm
PM:
Anyway, what else before a rush off
PM:
?
NH:
is H&M hiring at the moment?
PM:
Hang on, we havent got rid of Sam yet
PM:
But why?
NH:
because I have found someone who could do a good job for us
NH:
already writes for the FT
NH:
he is more of a stock picker though
PM:
that’s good, because I am more of a big picture, macro man
PM:
who is it?
NH:
David Schwartz
PM:
the stock market historian??
NH:
and ace small cap stock picker
NH:
I have been watching him for the past couple of weeks
NH:
and he has been on fire
NH:
and I mean on fire
NH:
he tipped Porvair before a rival took a 22% stake
NH:
that stock went moon bound soon after
NH:
NH:
before that Fenner
NH:
which went ballistic after a decent set of results
NH:
and on Saturday he tipped Phoenix IT
NH:
Turning to my own trading activity, I have just opened a speculative position in Phoenix IT Group. The company will issue an earnings report on Monday morning.
Right now, its shares are drifting near their all-time low. By contrast, the FTSE Software and Computer Services index gained about 50 per cent since touching its low last November. Phoenix shares clearly failed to participate in that rally and several factors probably contributed to this poor performance.
Some analysts claim Phoenix had trouble digesting an acquisition made in May 2007. Institutional investors are also concerned about the heavy debt load caused by that acquisition.
Another problem was the departure of the chief executive. He was considered to be the driving force behind the partner services division, a sub-
contracting business. Revenues in that division soon began to slip.
But a flood of fresh information leads me to suspect the City may be missing a turnround opportunity. On the issue of debt, Phoenix generates cash and is rapidly reducing its debt load. Progress is well ahead of expectations.
The company’s recent trading update spoke of good trading conditions. The ex-CEO is now back at the helm. Analysts believe he will reinvigorate the partner services division. Several have issued strong “Buy” ratings on the company.
Some “soft” information also intrigues me. Investor bulletin boards make little mention of Phoenix, suggesting this company is unloved by private punters as well as City institutions. Daily trading volume is low as well. Big bounces often occur when unloved shares suddenly catch on
Right now, its shares are drifting near their all-time low. By contrast, the FTSE Software and Computer Services index gained about 50 per cent since touching its low last November. Phoenix shares clearly failed to participate in that rally and several factors probably contributed to this poor performance.
Some analysts claim Phoenix had trouble digesting an acquisition made in May 2007. Institutional investors are also concerned about the heavy debt load caused by that acquisition.
Another problem was the departure of the chief executive. He was considered to be the driving force behind the partner services division, a sub-
contracting business. Revenues in that division soon began to slip.
But a flood of fresh information leads me to suspect the City may be missing a turnround opportunity. On the issue of debt, Phoenix generates cash and is rapidly reducing its debt load. Progress is well ahead of expectations.
The company’s recent trading update spoke of good trading conditions. The ex-CEO is now back at the helm. Analysts believe he will reinvigorate the partner services division. Several have issued strong “Buy” ratings on the company.
Some “soft” information also intrigues me. Investor bulletin boards make little mention of Phoenix, suggesting this company is unloved by private punters as well as City institutions. Daily trading volume is low as well. Big bounces often occur when unloved shares suddenly catch on
PM:
and what happened?
NH:
they have been up 25% after figures this morning
NH:
but now up just 31p at 183p
PM:
goodness me
NH:
a wonder if he can make if four in a row next week
NH:
and I like the way one of this inidicators is to look at bulletin boards to see if people are talking about his speculative buys
PM:
David Schwartz, shrewdie
NH:
and don’t you like the way he checks the BB’s
NH:
and then if there is no mention
NH:
he feels safe to buy
NH:
obviously doesn’t like muppett investots
PM:
11:59AM
PM:
And finally, for our Irish readers
NH:
who seem to have set up their own Webby drinks
PM:
This is in the Long Room already, but here’s an extract
PM:
CS on the Irish banks
NH:
the Credit Suisse banks team have been having a look at Nama
PM:
Irish Banks
Revisiting NAMA
Revisiting NAMA
¦ Irish banks have rallied on NAMA optimism
¦ We still remain cautious given uncertainty over details of scheme
¦ Political risks could also pose a threat to NAMA implementation
PM:
We first explored the impact of a bad bank in our piece, Irish Banks – Bad Bank, the way forward?, on 19 March, 2009. We then concluded that there was too much uncertainty surrounding the potential details of such a scheme, and a risk the banks would have to raise further capital. The process of setting up NAMA is now underway, but the details of the scheme have still not been confirmed, other than the governmet have flagged that it will buy €80-90bn of loans from the banks. However, we still don’t know how long this process will take, how much each bank will transfer and more importantly the discount at which the banks will transfer the loans. Despite the ongoing uncertainty, the stocks have rallied strongly on the belief that this scheme will now prevent further recapitalisation.
PM:
We continue to be cautious with stocks at the current levels. Our sensitivity analysis on the discount at which the loans are transferred does not give us sufficient upside to the stock given the ongoing risks of implementation of NAMA. For BKIR we see a blue sky TNAV (based on no further equity injections and 10% discount on loan transfer) of €2.35 but downside risk to potentially negative TNAV, and for AIB our blue sky TNAV is €7.34 with downside risk to €1.74. We continue to view AIB as more attractive but would not be chasing the shares due to current uncertainties and deteriorating economic outlook. In particular note the severe deterioration in asset quality at Anglo Irish where NPLs increased to 14.8% as at March 2009 from 1.2% as at September 2008.
PM:
What’s more, we see a possible political risk to the NAMA with the upcoming local elections. There are four elections to be held in Ireland on 5 June, 2009 (two by-elections, one local and one European) and the results of these could put pressure on the current Fianna Fail government. The Irish Times/TNS Mrbi poll suggested that support for Fianna Fail had fallen to 20%, behind both the Labour party at 23% and Fine Gael at 36%. Such an outcome at the elections could trigger the call for a general election which, if won by the opposition, would be negative given the opposition parties have previously questioned the viability of the NAMA. We think this risk should not be ignored.
PM:
For these reasons we still see the risks as too great to justify the potential upside to these stocks and hence remain Underperform rated on both Bank of Ireland and AIB. We have however increased our target price for AIB to €1.30 from €0.80 as we now base our TNAV on our fully diluted base case scenario rather than our stressed case in line with the methodology used on Bank of Ireland.
PM:
And just before we go, how much headroom have we got Neil?
NH:
200 points
NH:
market come off a bit
PM:
Ah, more than where we started this hour
PM:
4476, up 58 — footsie
NH:
although I might refine that
NH:
hen next fib level is 4767
NH:
assuming the market breaks 4,500
PM:
hahaha
PM:
we can’t give our selves that much slack!
PM:
And surely we are not reduced to fibonachi levels
PM:
over how ever you spell it
PM:
Got to go
PM:
Thanks for joining us today.
PM:
We will be back tomorrow at 11am
PM:
Reggie — target is 4000
PM:
seeya
NH:
bye