Markets live chat transcript for the chat ending at 12:05 on 9 Oct 2009. Participants in this chat were: Neil Hume, FT (NH) Bryce Elder (BE)
NH:
Hi there
NH:
welcome to Alphaville
NH:
and Markets Live
NH:
our daily markets chat
NH:
which starts at 11.03am sharp
NH:
Bryce is here
BE:
Hi
NH:
Listen
NH:
I have discovered why H&M Capital Management consistently underperform
BE:
go on
NH:
facial hair
BE:
eh?
NH:
not beards obviously
NH:
any company that has a bearded leader should be avoided
NH:
think WorldCom
BE:
True. And a few others I can think of.
NH:
no, I am talking about
NH:
mustaches
BE:
right
NH:
apparently mustachioed men make more money and spend more of their income than the bearded and the cleanshaven
BE:
says who?
NH:
the American Mustache Institute
NH:
The research found that Mustached Americans earned 8.2 percent more on average than those with beards and 4.3 percent more than the clean-shaven. People of Mustached American descent, however, also tended to spend 11 percent more and save 3 percent less than their collective counterparts.
NH:
Read more
NH:
here
BE:
BE:
do you want to tell Murph or shall I ?
NH:
what?
NH:
tell him to grow a handlebar rat
BE:
Yup – a soup strainer.
NH:
very victorian
NH:
NH:
Murp with a soup strainer
NH:
perhaps Tracy could do a Paint version for us
NH:
would hang well in the Long Room
BE:
Anyway, enough of this levity, on to the wider market
NH:
yes
NH:
let’s head there
11:07AM
BE:
So we’re off a touch
BE:
Down 6 points at 5148
BE:
but that’s mainly down to a bit of profit taking in the miners
BE:
As the dollar rebounds a bit
NH:
yes the dollar index is up 0.4% to 76.26
NH:
and as usual
NH:
dollar up
NH:
equities down
NH:
(Very good Monkey)
NH:
actually I have a better UBSOTD
BE:
Go on then
NH:
hang on
NH:
just getting the link
NH:
but Lotus might have crashed
NH:
it has
NH:
Cocaine Survivors Losing London Bonus See End to Bubble’s Binge
NH:
now
BE:
I see. Bloomberg on coke.
NH:
does anyone recognise this picture of the City
NH:
I don’t
NH:
but then I don’t talk to many money brokers
BE:
(Not literally “Bloomberg on coke, ” to be clear.)
BE:
Although if you’ve ever been in the bathrooms at the Finsbury Square offices ….
NH:
STOP
BE:
Lots of flat surfaces, is all I’m saying.
11:11AM
NH:
Right
NH:
we should have a look at the dollar
NH:
in the wake of the intervention in Asia
BE:
Yeah, bit of greenback support this morning as we noted earlier
NH:
88.85 vs the Yen
NH:
and 1.474 against the Euro
BE:
HSBC has put out its regular epic on the fx market today, as it happens
NH:
and
NH:
is the dollar dead?
NH:
or dying?
BE:
Yes, basically.
BE:
in essence, the sun is setting on the USD.
BE:
Here’s how they reach that conclusion …
BE:
We have seen the FX market move through different phases over the past few years.
1 In the pre-crisis phase the market became obsessed with yield and low volatility. This was bullish for EM currencies.
BE:
2 We then went through a decoupling phase and that was still EM currency positive. Here it looked as though EM inflation was becoming a major issue
BE:
3 Then, after Lehman’s collapse, volatility spiked and the premium put on liquidity meant the USD appreciated. The issue of inflation died away.
BE:
4 We are now moving more into the post crisis or as we call it the fourth phase. Low volatility means carry will make a comeback and the incentive will be to indulge in EM carry trades. The risk reward trade off favours EM over the G10. We expect US policy rates in 2010 to remain unchanged.
4 We are now moving more into the post crisis or as we call it the fourth phase. Low volatility means carry will make a comeback and the incentive will be to indulge in EM carry trades. The risk reward trade off favours EM over the G10. We expect US policy rates in 2010 to remain unchanged.
BE:
If growth is being spurred by China and commodity prices continue to rise, EM countries will face a massive policy dilemma. Policy will be too loose and they will need to raise rates to stop price pressures building. Higher rates will see greater inflows and greater appreciation pressures on the currency.
BE:
The old fashioned method of buying ever more dollars will become problematic. The way out of these spiral problems will be to let their currencies appreciate. In essence, the inflation threat through commodity and asset price inflation will break the dollar dependency cycle. The larger EM currencies will be incentivised to internationalise their currencies, whilst other small EM currencies will gravitate towards these larger EM currencies and move away from the USD. This is a longer-run theme but in essence, the sun is setting on the USD.
BE:
And here’s a bit more
BE:
Is the dollar damaged goods?
BE:
Central bank and finance ministry officials have
been having a round of both G20 and G8 meetings
in recent weeks. The debate about reserve
currencies seems to have moved back into the
spotlight again, especially since the USD’s
longer-term fortunes look set to erode further. Our
view comes from the idea that a number of EM
currencies will internationalise and will break
away from the influence of US monetary policy.
been having a round of both G20 and G8 meetings
in recent weeks. The debate about reserve
currencies seems to have moved back into the
spotlight again, especially since the USD’s
longer-term fortunes look set to erode further. Our
view comes from the idea that a number of EM
currencies will internationalise and will break
away from the influence of US monetary policy.
BE:
This expected shift by EM currencies away from
the USD is in some ways analogous to the way
GBP lost is key reserve position vis-à-vis the
USD in the early part of the 20th century.
GBP was the world’s reserve currency in the
second half of the Nineteenth Century before
being undermined by the UK’s poor growth and
fiscal position after World War One. Because of
the various strains on the UK economy,
confidence in GBP as a store of value faded. In
contrast, confidence in the USD was rising as it
was seen as embodying the ‘new world’, much
like EM currencies are today.
the USD is in some ways analogous to the way
GBP lost is key reserve position vis-à-vis the
USD in the early part of the 20th century.
GBP was the world’s reserve currency in the
second half of the Nineteenth Century before
being undermined by the UK’s poor growth and
fiscal position after World War One. Because of
the various strains on the UK economy,
confidence in GBP as a store of value faded. In
contrast, confidence in the USD was rising as it
was seen as embodying the ‘new world’, much
like EM currencies are today.
BE:
The USD turned into the world’s reserve currency
over a period of time but part of its ascendency
was also a natural function of GBP’s demise. The
rise and fall of a reserve currency is not a
common event. So it is important to know the
factors that helped lead to GBP losing its key
reserve status, as a guide to seems to be
happening to the USD. It would seem that the
USD is damaged goods, and 2010 will feel like a
moment when this process is accelerated as EM
countries ponder their monetary policy options.
Sam I am…
over a period of time but part of its ascendency
was also a natural function of GBP’s demise. The
rise and fall of a reserve currency is not a
common event. So it is important to know the
factors that helped lead to GBP losing its key
reserve status, as a guide to seems to be
happening to the USD. It would seem that the
USD is damaged goods, and 2010 will feel like a
moment when this process is accelerated as EM
countries ponder their monetary policy options.
Sam I am…
BE:
We have argued US monetary policy remains very
influential but global growth in the future may not
necessarily be driven by the US economy. This
means that liquidity in many areas of the world
may be plentiful and we remain concerned that
new asset price bubbles, spurred on by excess US
liquidity will spill over into generalised inflation.
If growth and commodity prices are to be driven
up by influences outside US GDP growth, this
will put upward pressure on EM asset prices and
may cause many EM countries to consider
desynchronising their policy rates away from the
US. In turn EM rate rises in response to a
domestic inflation threat without associated rises
in US rates will put upward pressure on EM
currencies. Also bigger EM countries may want to
internationalise their currencies, whilst other
smaller EM currencies will gravitate towards
these and away from the USD.
influential but global growth in the future may not
necessarily be driven by the US economy. This
means that liquidity in many areas of the world
may be plentiful and we remain concerned that
new asset price bubbles, spurred on by excess US
liquidity will spill over into generalised inflation.
If growth and commodity prices are to be driven
up by influences outside US GDP growth, this
will put upward pressure on EM asset prices and
may cause many EM countries to consider
desynchronising their policy rates away from the
US. In turn EM rate rises in response to a
domestic inflation threat without associated rises
in US rates will put upward pressure on EM
currencies. Also bigger EM countries may want to
internationalise their currencies, whilst other
smaller EM currencies will gravitate towards
these and away from the USD.
BE:
We have said that this is a longer-run theme but in
essence, the sun is setting on the USD and its
reserve status. With this is mind it is good to take
a look what helps define the USD as the world’s
reserve currency and which qualities could be
under strain.
essence, the sun is setting on the USD and its
reserve status. With this is mind it is good to take
a look what helps define the USD as the world’s
reserve currency and which qualities could be
under strain.
NH:
Thanks for that. Worth posting in the usual place?
BE:
Yeah – absolutely. It’s a very good read.
BE:
Plenty about the slow death of the GBK as well.
11:16AM
NH:
Okay
NH:
it’s Friday
NH:
what about a little bit of RAW for the weekend
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.
BE:
Excellent
BE:
What you got then?
NH:
ITV for starters
NH:
shares up 1.76p to 48p
NH:
on the back of this
NH:
ITV LN – RTL NEW NAME STALKING (SPEC)…
NH:
AFTER ALL THE SPURIOUS RUMOURS OF SIMON COWEL ET AL, NOW RTL IS THE NEW NAME IN THE FRAME…
NH:
as noted on the right
NH:
an old one this
NH:
but it keeps spinning around
BE:
This comes after the death of Reinhard Mohn
BE:
Who was the architect of Bertelsmann
NH:
and they own RTL
BE:
A chunk of it, certainly
11:19AM
NH:
I have some JJB raw
NH:
on the rights issue
NH:
apparently it was due to come out today
NH:
and probably will
NH:
but only once the auditor gets better
NH:
he was supposed to sign off the £100m cash call today
NH:
but was taken ill overnight
NH:
I also have some detail on the structure of the call
NH:
should be around 25p
NH:
placing and open offer
NH:
spilt £50m and £50m
NH:
four times covered already
NH:
lots of recovery funds looking to get involved
NH:
and the shares
NH:
not doiing too badly
NH:
considering they are raisng more than their market cap
NH:
down 1.75p at 32.75p at the moment
NH:
and we have a bit of comment on the cash call
BE:
Hang on – having net issues …
BE:
Ok – this is from Altium
BE:
JJB Sports (JJB) Recommendation: Under Review (SELL)
BE:
We have been SELLers of JJB on the basis that a dilutive issue was ‘on the way’. The proposed issue is larger than expected. The scale of the issue removes any concerns over the group’s survival and provides it the firepower to expand the store base to better cover central costs as well as re-stock the existing estate. We suspect that, with the new funds in place, JJB might find its bank willing to supply additional credit, leveraging the recovery/growth potential. Until the final details on dilution are available we are suspending our target price and recommendation. However, assuming successful completion of the placing, the company’s prospects have improved substantially.
BE:
That’s from David Stoddart
BE:
And this is from Singer
BE:
JJB has responded to recent speculation about a fund raise and confirmed that it is finalising arrangements to raise £100m of new equity. If raised at 30p this would equate to a heavily dilutive 4-for-3 issue, probably being done via a Placing & Open Offer. The quantum of new cash being raised is a surprise, not least as management outlined at the recent interim results that initial relays to the store portfolio were being achieved on a low capex requirement and given that the issue of stock intake was said to be one of supply chain lead times rather than funding.
BE:
Although there is a need for additional stock over and above a ‘normal’ level in the run up to the World Cup, we estimated that JJB’s working capital dynamics are such that an additional c£30m would be required to achieve normal stock levels including supplier funding – i.e taking the business from its current c£50m to around c£100m.
BE:
Subsequent to the interims, losses in the current year are expected to be significantly deeper (SCMe £60m loss) than originally anticipated though which will no doubt have put an extra strain on the £25m debt facility. Although extremely speculative at this stage, we believe there could be scope for those losses to revert to a small profit next year to Jan’11 (SCMe £12.8m PBT), based on a 27.5% LFL increase and 500bps gross margin uplift. The range could be anything from £nil-20m though. After dilution from a £100m raise this would generate EPS of c2.2p (or a range of 0-3.4p) assuming a nil tax charge (given accumulated tax losses).
We have always speculated that JJB could deliver £500-600m of sales or £50-60m PBT (6.2-7.4p EPS fully taxed) on a fully recovered basis and we have no reason to change that view, albeit new competition has emerged since JJB’s troubles started, including Next which announced a branded sports offer in-store just this week. However, with a new CEO yet to be announced, and a capital refit plan yet to be outlined, there remains a lot of uncertainty around the recovery profile which, in time could feasibly lift the stock price to 62-89p (10-12x recovered EPS). No doubt there will be a presentation accompanying the new fund raising which will hopefully outline more detail in terms of forward plans and the allocation of cash.
NH:
thanks for that. here’s a bit of euro RAW
11:24AM
NH:
from Germany
NH:
Saltzgiter
NH:
looking at something called
NH:
Aurubis
NH:
apparently 32/33 euro bid coming
BE:
Aurubis?
BE:
Can’t say I know about that one.
NH:
neither had I until this morning
11:25AM
NH:
and I have another story
NH:
small cap though
BE:
go on
NH:
company callled Earthport
BE:
ah yes, payment services company
BE:
been in any offer period for yonks
NH:
that’s right and next week the company is supposed to announce the results of that review, which went under the codename of Project Gold
BE:
And?
NH:
well, the word in the market is that there is no bid
NH:
but that is the least of it
BE:
sounds interesting
BE:
Familiar, but interesting.
NH:
well, there is also talk in the market that the company might also issue a profits warning
NH:
because revenues are £2m below expectations
BE:
which were
NH:
around £4m I think
BE:
hmmm
NH:
now, I want to say right away
NH:
Earthport won’t comment on this story
NH:
I have put it to their PR people and they point blank refuse to say anything
NH:
now that could be because they are in an offer period and a closed period
NH:
but the silence is deafening
NH:
and this should be pretty simple to clear up
BE:
you would have thought so
BE:
We should also note, though, that these rumours are habitual
BE:
And the last time they went around, the company came out with the following
BE:
18 August 2009
BE:
The Company notes the recent press speculation surrounding its Strategic Review. The Company wishes to clarify that the Strategic Review remains ongoing with a number of parties and reconfirms its commitment to make further announcements as appropriate
BE:
Then at the end of September, we had this
BE:
The Board has noted, with regret, recent negative press speculation surrounding the Company and the Review, which the Board herewith confirms is both ill informed and incorrect.
The Board has noted, with regret, recent negative press speculation surrounding the Company and the Review, which the Board herewith confirms is both ill informed and incorrect.
NH:
my point exactly. if there is nothing in this – why not say so. they have before. anyway, the whole thing leaves me puzzled.
NH:
anyway
NH:
next week’s statement will be something to keep an eye
NH:
on
NH:
shares down at the moment
NH:
off 2.5p at 37.25p
BE:
Looking at the graph …. they’ve halved during the offer period.
BE:
Hm.
11:31AM
NH:
let’s move on
NH:
what’s moving this morning?
NH:
actually
NH:
an FSA press release has just come through
NH:
Sally Dewar addresses FSA’s Liquidity Conference
NH:
now it is not what you are thinking
NH:
the FSA aren’t encouraging people to drink
NH:
no
NH:
it is this
NH:
Sally Dewar, managing director of the Risk Division at the Financial Services Authority (FSA), today emphasised the need for changes in the prudential regulation of banks and key investment firms given the high social costs of the financial crisis.
Speaking at the FSA’s liquidity conference, Sally Dewar said that:
“Firms will have to hold in advance appropriate levels of liquid assets for the liquidity risk they are running. In combination with the capital regime changes, there will be no more ‘heads the banks win, tails society loses’.”
Speaking at the FSA’s liquidity conference, Sally Dewar said that:
“Firms will have to hold in advance appropriate levels of liquid assets for the liquidity risk they are running. In combination with the capital regime changes, there will be no more ‘heads the banks win, tails society loses’.”
NH:
On the timing of introducing the quantitative aspect of the regime, Sally continues:
“Until economic recovery is robustly established we must be patient about the rate at which we expect liquidity levels to increase, otherwise we could threaten levels of bank lending and jeopardise that recovery. There is sense in making haste towards the long-run goal, at a measured pace.”
The speech also covered the calibration of the liquid assets buffer and international developments. The full text of the speech can be found on the FSA website.
“Until economic recovery is robustly established we must be patient about the rate at which we expect liquidity levels to increase, otherwise we could threaten levels of bank lending and jeopardise that recovery. There is sense in making haste towards the long-run goal, at a measured pace.”
The speech also covered the calibration of the liquid assets buffer and international developments. The full text of the speech can be found on the FSA website.
11:33AM
NH:
what’s Autonomy doing
NH:
had big turnaorund yesterday
NH:
after the statement
BE:
Yeah, not that the statement said anything that particularly changed perceptions
BE:
But the fact is it was up 20% or so in the month before
BE:
After management “indicated” that Q3 was going to be gangbusters
NH:
and it was
BE:
Indeed
BE:
And on this rumour that Microsoft might bid
BE:
Which, most analysts think, is nonsense
BE:
Anyway, I think Piper Jaf has downgraded today
BE:
It’s a valuation call, which I don’t have handy at the moment (net’s playing up)
BE:
Otherwise – same old same old.
NH:
actually
NH:
as luck would have it
NH:
I have a copy
NH:
and here it is
NH:
Decent Q3, but not enough to drive the shares higher from here in the
short term. Autonomy’s Q3 has come in above expectations that were
lowered at the Q2 results, but below our original view. With some
large contracts announced post period end, an element of Q4
pull-forward vs cautious guidance seems to be in play; our revised
estimates still call for Q4 EPS above normal seasonality.
short term. Autonomy’s Q3 has come in above expectations that were
lowered at the Q2 results, but below our original view. With some
large contracts announced post period end, an element of Q4
pull-forward vs cautious guidance seems to be in play; our revised
estimates still call for Q4 EPS above normal seasonality.
NH:
Potential small EPS increase already priced in. We have nudged our
FY09E EPS up to 108c, implying we expect Autonomy to raise its EPS
outlook by 3% at the results later this month. At 19x CY10E earnings,
however, we don’t feel this will be enough to drive the shares
materially higher in the short term.
FY09E EPS up to 108c, implying we expect Autonomy to raise its EPS
outlook by 3% at the results later this month. At 19x CY10E earnings,
however, we don’t feel this will be enough to drive the shares
materially higher in the short term.
NH:
Longer term, we continue to view Autonomy as one of the
best-positioned companies in the sector. Recent deals show the
potential for cyclical upside is returning to the core
(non-compliance-driven) IDOL business. In addition, the OEM business
provides exposure to any improvement in broader software spend (which
we expect to crystallise in Q1/Q2 2010).
best-positioned companies in the sector. Recent deals show the
potential for cyclical upside is returning to the core
(non-compliance-driven) IDOL business. In addition, the OEM business
provides exposure to any improvement in broader software spend (which
we expect to crystallise in Q1/Q2 2010).
NH:
We don’t think a bid is imminent. We feel widely-reported talk of a
potential bid for Autonomy from Microsoft has been overplayed. In our
opinion, Microsoft’s experience in enterprise search has been poor
(the FAST deal) and the deal economics are not compelling (ROI below
5%); in addition, Microsoft management has commented that M&A in
search is not in the cards.
potential bid for Autonomy from Microsoft has been overplayed. In our
opinion, Microsoft’s experience in enterprise search has been poor
(the FAST deal) and the deal economics are not compelling (ROI below
5%); in addition, Microsoft management has commented that M&A in
search is not in the cards.
BE:
Yeah – that’s the one. Cheers.
NH:
So, no MS bid then?
NH:
(Isaac – will have a look and see what can be done)
BE:
It always seemed an unlikely tale, to be frank.
BE:
Takeover stories for Autonomy largely depends on whether you think the technology is unique and disruptive to the rest of the industry
BE:
If you do, then perhaps Oracle or someone might come in some day
BE:
If you don’t, then it’s damn obvious it’s just too expensive for M&A.
NH:
thanks
11:40AM
NH:
The Nobel Peace Prize
NH:
is causing a bit of stir in the newsroom
NH:
Gideon Rachman very surprised
NH:
and here’s an interesting fact
NH:
Obama achieved world peace in just 11 days
NH:
deadline for entries was Feb 1st 2009
NH:
and Obama only entered the White House 11 days before
BE:
11:41AM
NH:
Anything else you want to look at?
BE:
DSG
NH:
Again?
BE:
Yup. Fraid so.
BE:
Not least because we’ve generally been a bit snide about Dixons on here in the past
BE:
So this is an opportunity to redress the balance
BE:
By highlighting that the staff are happy to use their cash on DSG paper
BE:
Here’s a line from a SocGen note this morning
BE:
We take comfort from the fact that management has demonstrated recently its high conviction in the recovery strategy, with the majority of the top 90 senior executives participating in the Reward Sacrifice Scheme, giving up current basic salary for three-year share options, with a strike price of 28.4p.
NH:
Ok. So most of the middle management has been taking options that are marginally under water
NH:
Brave shout
NH:
And that’s a buy signal?
BE:
Apparently
BE:
Here’s the rest of SocGen’s note.
BE:
We are upgrading to a Buy from Hold, with a revised target price of 50p (from 23p), and raising our EPS forecasts by +8%, +19% and +76%, respectively for 2010-2012. This puts us materially above consensus. Our key point of difference with the market is forecasting that management meets the bottom end of its margin target of 3% to 4% by year 3 from a combination of the positive impact from the Renewal & Transformation plan and some uplift from the global economic recovery from Q4 2009 onwards.
BE:
Beyond the UK, management has made good progress restructuring the problematic international business, exiting or downsizing the loss-making operations, with a medium-term focus on the winning positions in the Nordic region, Greece and the pure play e-commerce business, through Pixmania/Dixons. Following this year’s refinancing the group has the resources to invest in the recovery strategy, with capital spend accelerating in 2009-11.
BE:
The most important newsflow should relate to an update on the performance of the new format stores, representing the heart of the recovery story and the £370m of capital spend over the next two years. Watch out for an investor evening at the opening of the 4th Megastore (combined Currys/PC World) in Fulham, London on 20 October. In this context, weak H1 results on 26 November are less important.
BE:
Our TP of 50p reflects our revised forecasts and new-found confidence in the recovery story. It implies nearly 100% upside, based on a P/E of 12x – normalised EPS of 4.2p, in line with our 2011/12e estimates and our DCF valuation of 53p. Our TP values the group at 0.24x sales, a 20% discount to No.1 peer, Best Buy.
BE:
DSG’s small up this morning
DSG International (DSGI:LSE): Last: 26.86, up 0.11 (+0.41%), High: 27.70, Low: 26.75, Volume: 24.86m
NH:
thanks for that.
NH:
I can’t believe they have given up their salary for share options
BE:
Well, think of the quality advice you get from Currys staff generally before jumping to any conclusions here.
NH:
good point Pakora
11:44AM
BE:
While we’re in the midcaps
BE:
Anther one we’ve been talking about all week
BE:
SSL International
SSL International (SSL:LSE): Last: 635.00, up 4 (+0.63%), High: 640.00, Low: 629.50, Volume: 117.42k
NH:
still ticking higher then
NH:
more bid talk?
BE:
None that’s fresh
BE:
Although that’s been true for about a decade
BE:
There is, however, a quite hefty push from the chaps at Nomura
BE:
Here’s the summary
BE:
Despite recent outperformance, partly fuelled by bid speculation returning to the name following KFT-CBRY proposal, we reiterate our BUY on SSL as the market continues to underestimate the Chinese opportunity, medium-term prospects in Russia and increased take-out probability. Moreover, valuation remains compelling with SSL trading on a 2% discount to the sector despite offering superior earnings growth profile of 3 year EPS CAGR of 18% vs. sector average of 6.5%.
BE:
Change to medium term estimates due to reassessment of China and Russia; we now forecast organic growth of 8% (7% prev) and EBIT margin expansion of 40-50bps (30-40bps prev) over the next 5 years.
BE:
Fundamental standalone PT raised by 19% to 690p reflecting higher medium-term forecasts, recent FX moves and time value
BE:
Prospect for acquisition now higher than ever. Our take-out value of 900p offers 43% potential upside.
BE:
Trading update (H2 Oct) may demo some consumer softness in Italy/ Russia but downside limited due to growing investor appetite
BE:
(And thanks as ever, Rabble, for your condom puns.)
NH:
thanks for that
NH:
900p takeout price
NH:
punchy
NH:
why is the prospect for a takeover higher now though?
BE:
Sector consolidation, I guess. Cadbury, Sara Lee, etc.
BE:
I’d have thought the implosion of all potential debt funding would have been a damper, but what do I know?
NH:
indeed
11:49AM
NH:
what are the banks doing?
Royal Bank of Scotland Group (RBS:LSE): Last: 48.42, down 0.53 (-1.08%), High: 49.29, Low: 46.89, Volume: 47.57m
Lloyds Banking Group (LLOY:LSE): Last: 93.59, down 0.72 (-0.76%), High: 94.78, Low: 92.22, Volume: 50.60m
BE:
So, off a touch
BE:
Any thoughts as to why?
NH:
not really
NH:
but
NH:
just been a sent a copy of an interview Neil Woodford
NH:
has given to Citywire
BE:
That’s superstar fund manager Neil Woodford
NH:
yeah – manages around £20bn
BE:
Invesco Perpetual poster boy
NH:
anyway
NH:
he thinks the banks are still broken
NH:
there is a 25-30% chance of nationalisation
NH:
but then again
NH:
what does he know
NH:
he owns over 20% of Yell
BE:
BE:
So do you have this thing?
NH:
I have
NH:
Neil Woodford, one of the UK’s most consistently successful fund managers who looks after almost £20 billion of assets, thinks the UK banking sector remains ‘broken’ and says big pharmaceutical companies such as GlaxoSmithKline and AstraZeneca are ‘incredibly cheap’.
NH:
At the same time Woodford, who runs several huge equity income funds for Invesco Perpetual, has sold out of BP and Royal Dutch Shell in the belief that they may be forced to cut their dividends next year.
BE:
Big call in BP and Shell, that
NH:
it is – not sure I would want to be long of the FTSE 100 if that happens
NH:
Outlining his views, Woodford maintains that:
NH:
• There is still a ‘25 to 30% chance’ that RBS and Lloyds could be brought under full state control in a bid to speed up their repair while the banking sector as a whole needs ‘gigantic’ amounts of further capital in order to resume lending.
NH:
Not only are the oil majors ‘affected by the global recession, but it is also getting increasingly expensive to find new oil and gas reserves… at these sort of oil prices … we are now seeing both Shell and BP fail to generate enough cash to cover both their capital expenditure and their dividends’.
NH:
Big pharma companies ‘are rated now in a way that ascribes no growth going forward. They are the cheapest assets in the stock market right now. I see them as financial assets, not just drug companies, and as such they are incredibly cheap.’
NH:
A manager of rare conviction, Woodford’s sector views have seen his funds suffer in relative terms this year – with his Income fund returning 5.9% year to date, compared to the 14% returned by the average manager in the IMA UK Equity Income & Growth sector.
NH:
However, his longer-term track record is exceptional. Over five years he is the top ranked manager in his sector with a return of 59.43%, more than double the average fund manager’s return of 24.7%.
Further back, Woodford’s funds also lagged in the Internet ‘gold rush’ era when he refused to buy what he saw as crazily-expensive technology stocks – a stance that was proved right once the Internet bubble burst.
Further back, Woodford’s funds also lagged in the Internet ‘gold rush’ era when he refused to buy what he saw as crazily-expensive technology stocks – a stance that was proved right once the Internet bubble burst.
NH:
some interesting stuff in there
NH:
people have been pushing the cheap pharm line for a while
NH:
trying to get a link for that piece
NH:
but Notes has crashed again
NH:
every time you try to search for something
NH:
it just collapses in a heap
BE:
Many, many system issues today. Apologies.
NH:
grrrrrrrrrrrrrrrrr
NH:
still won’t work
BE:
We can wait
NH:
go it
11:56AM
NH:
while we are on a strategy tip
NH:
I have something from Albert Edwards’ new sidekick
NH:
the very bearish Dylan Grice
BE:
Oh good. That’s always a nice way to start the weekend.
NH:
he has been looking at inlation
NH:
and guess
NH:
what
BE:
I’m guessing it’s not all sunshine and roses
NH:
he thinks long-term inflation is massively underpriced
NH:
the biggest anomaly in the market right now
NH:
Even before the “Great Recession”, unfunded fiscal obligations made government finances an
accident waiting to happen. The crisis has merely brought forward the day of reckoning. The
question isn’t whether developed governments will “default” on them, with attendant
consequences for other asset classes, it’s when and how. Yet long-term inflation is priced at
2% in the US. This could be the biggest pricing anomaly across markets today.
accident waiting to happen. The crisis has merely brought forward the day of reckoning. The
question isn’t whether developed governments will “default” on them, with attendant
consequences for other asset classes, it’s when and how. Yet long-term inflation is priced at
2% in the US. This could be the biggest pricing anomaly across markets today.
NH:
Believe it or not, the first great inflation occurred in third century AD Rome. The territorial
limits of empire had been reached several decades earlier and the huge army, which in
former times had financed itself (through the conquest of new, plunderable and taxable
lands), was now needed to protect the border from barbarian invaders.
limits of empire had been reached several decades earlier and the huge army, which in
former times had financed itself (through the conquest of new, plunderable and taxable
lands), was now needed to protect the border from barbarian invaders.
NH:
Just like the baby boomers of todays developed world, that cohort of Roman society
which had once been its engine of growth became its unsustainable financial burden,
straining imperial finances so thoroughly that the government could only fund itself by
debasing the coinage. The silver content of a denarius, which had been 75% in 180AD, was
a mere 0.02% by 270AD. Fiscal pressure had caused the first inflation and the Empire would
never regain its former greatness.
which had once been its engine of growth became its unsustainable financial burden,
straining imperial finances so thoroughly that the government could only fund itself by
debasing the coinage. The silver content of a denarius, which had been 75% in 180AD, was
a mere 0.02% by 270AD. Fiscal pressure had caused the first inflation and the Empire would
never regain its former greatness.
NH:
And since this early Roman experience the theme has repeated itself again and again.
Medieval Europe, Sung China, revolutionary France, America during its civil war, Weimar
Germany and arguably even post WW2 Britain and America, all saw inflations in which
money was the vehicle, but the root cause was a government unable to pay its way.
Medieval Europe, Sung China, revolutionary France, America during its civil war, Weimar
Germany and arguably even post WW2 Britain and America, all saw inflations in which
money was the vehicle, but the root cause was a government unable to pay its way.
NH:
Albert Edwards has always said the Ice Age would end in substantially higher inflation
because political desperation to avoid Japans fate would drive government debt to such
extreme levels that default would be inevitable. Driven by an age old dynamic, this is exactly
what is playing out now.
because political desperation to avoid Japans fate would drive government debt to such
extreme levels that default would be inevitable. Driven by an age old dynamic, this is exactly
what is playing out now.
BE:
Blimey. ” The crisis has merely brought forward the day of reckoning.”
BE:
And a bit of a Roman history lesson too.
NH:
yes
NH:
good stuff
NH:
mini Albert is coming along very well
BE:
Drawing parallels with the fall of the Roman empire. Kudos.
NH:
yeah we like that
12:00PM
NH:
Good morning Chopper Bear
NH:
don’t think you have missed much
NH:
apparently there is a story about in your fav stock
12:01PM
NH:
Okay
NH:
a few things to clear up before we depart for the weekend
NH:
one is that Salzgitter rumour
NH:
By Nicholas Comfort
Sept. 23 (Bloomberg) — Salzgitter AG rejected a “rumor”
that the German steelmaker is planning to raise funds in a bond
sale to boost its stake in copper refiner Aurubis AG.
Salzgitter spokesman Bernd Gersdorff, speaking by phone
today, said that while his company still views raising its
holding in Aurubis to a maximum 29.9 percent as a possibility,
there aren’t currently any plans to do so.
Sept. 23 (Bloomberg) — Salzgitter AG rejected a “rumor”
that the German steelmaker is planning to raise funds in a bond
sale to boost its stake in copper refiner Aurubis AG.
Salzgitter spokesman Bernd Gersdorff, speaking by phone
today, said that while his company still views raising its
holding in Aurubis to a maximum 29.9 percent as a possibility,
there aren’t currently any plans to do so.
NH:
and apparently
NH:
the JJB rights was not held up by a sick auditor
NH:
but it sill might come out today
NH:
Bryce anything from you
BE:
Nah – I guess we should go and find something to write about for the paper.
BE:
They’re less keen on waffles about Nobel Peace Prizewinners and Roman history on the markets pages, generally
NH:
I do like that Grice piece though
BE:
Yeah – likewise.
NH:
thanks for joining us this week
NH:
some good banter and comments
NH:
have a good weekend everyone
BE:
Bye
NH:
cya