29th November 2010

Artemis - The Hunters' Tails

Facing the fable ...

Flaithiúlacht. That's the thing. In Oirish it means ruinous generosity -- especially with someone else's money. Anglo-Irish Bank spent €250,000 on golf balls for clients now lost in the rough. As private, so public. Dublin airport's new terminal opened at last this month: one year late and, at €1.2 billion, five times over budget. Dublin's trams completed not for €290 million, but for €750 million. It's all more fabulous than anything you'll read in Ireland's great martial epic, the Táin Bó Cúailnge (all about cattle-rustling, really.) A rotund taoiseach Brian Cowen, TD, huffs and puffs his way to a €1 reduction in Ireland's minimum wage to €7.65 (£6.48) an hour -- leaving it still well above the £5.93 minimum across the water, and 14% of his warriors unemployed.

Well, bankruptcy is as unfashionable as diction and the letter 't': "we're gunna buil(d) a be-a Bri-in," chants Ed Milliband at each and every opportunity. On the two-three year view that passes among politicians as long-term, they'll muddle through, somehow. After all, with what easy insouciance did our own wunderkind Osborne announce a cool £7 billion for the Oirish from 'austerity' Bri-in. If Herr Weber, Schiffahrtsgesellschaftsdirektor of the Bundesbank, says the €750 billion package of this summer "will have to be increased," then against the taxes of those yet unborn, increased it will be.

On the other hand, Spain's economy is double that of Ireland, Portugal and Greece combined. Some 100,000 houses and apartments owned by banks are already on the market. Yet as new accounting rules prompt lenders to dump depreciating assets, the number of foreclosed homes for sale in Spain may triple next year. Spanish lenders already have a declared total of €181 billion in "troubled" construction and real estate loans. Opines starkly [y]our William Littlewood of Strategic Assets: "Greece and Ireland may be manageable. Spain won't be."

Or will miracles happen? A boa constrictor in Sneedville, Tennessee has now produced 22 baby boas -- by parthenogenesis. Perhaps, as it were, so will the EU.

And so?

5,900 is the number for the FTSE. 11,450 for the Dow. 1,225 for the S&P 500. Some say that just as investors 'got over' Greece in the summer, present travails are just a short-term top to be overcome as soon as markets have finished with the Táin. Others think that's it. The big bounce, which began in March 2009, is over. As Prospero's iambic pentameters put it:

"Our revels now are ended. These our actors,
As I foretold you, were all spirits and
Are melted into air, into thin air."

In such oxymoronic times, we turn to our eminence of Income, one Frost, A. He says: "Some companies are cheap not because of economic conditions, but because they have been abandoned by institutions who have given up on equities and have chosen to buy bonds issued by those maestros of fiscal prudence, governments. These guarantee them a low return with no defence whatsoever against inflation. In five years time, commentators will ask what possessed them to do such a thing. Sovereign debt crises and spending cuts will continue to cause concern for equities. Yet on balance we feel that there is enough that is positive to stay with the revival of equities."

Buy-backs, we reckon, will grow. Microsoft has $37 billion in cash -- and yet has just issued $5 billion of bonds, some of them yielding less than 1%. Now eBay, which has net cash of $4 billion, has issued $1.5 billion of bonds. Neither of these companies needs the money, but both have taken advantage of the tiny yields to raise extra cash. For at least some of such largesse, even though Frostie's not clear why they should borrow first, buy-backs will do?

To wit ...

In its understandable enthusiasm for 'riding the recovery', the market tends to neglect companies that are essentially sound and high quality -- but, as the saying goes, 'lack any near-term catalyst'. Often this reflects impatience and has no bearing on the stocks' longer term prospects. Examples in Income, to whom plight we troth, are Reed and Cobham.

For UK Special Situations, as has Philip Wolstencroft for European Growth, this week Derek and Ruth have been adding to Ireland's Greencore -- ahead of its proposed merger with Northern Foods. For Global Growth, Peter Saacke has completed his move to a big position in US healthcare, especially such biotech as Gilead Sciences and Biogen Idec. Why? "Growth and price. These stocks' earnings are growing very strongly, way ahead of the market, and yet they're trading only on a market p/e of 12x."
In UK Growth, young Tim Steer is 'running those winners' like a recovering Croda and GKN. But the sizzle on the sausage is coming from the shorts (3% of the fund) -- that, of course, too compliant to name are we.

News of the Week

It's for the birds ...

A French duck farmer has been given a one-month suspended sentence and fined 500 euros after feeding cannabis to his birds. The farmer, Michel Rouyer from the village of Gripperie-Saint-Symphorien on France's Atlantic coast, admitted that he smoked some of the drug himself -- but maintained that most of it went to his 150 ducks for medicinal purposes. "There's no better worming substance for them, and a specialist advised me to do it," Monsieur Rouyer said, without being able to identify the specialist in question. "This is for real. You are not hallucinating," said Monsieur Rouyer's lawyer, Jean Piot, in an effort to convince the court. "Not one of my client's ducks has worms and they're all in excellent health. And when did you last hear of so many ducks without worms?"

Police arrested Rouyer after discovering 12 cannabis plants and around 11 pounds of grass in a bag during a visit to his home after he reported a theft. "It's the first time we've heard of something like this," police said. "And ducks aren't yet under our jurisdiction."

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