8th April 2011

Artemis: The Hunters' Tails

In the manner of the Métro ...

We are of course a capricious species, and markets reflect that fact. An (unlikely) analogy is the naming of Paris' 368 Métro stations. From the vast span of human history, the seven people from 'abroad' chosen to have a station named after them were three revolutionaries, Bolivar, Garibaldi and the Greek Botzaris; one artist, Michelangelo; one American, Franklin D Roosevelt, he of the Nouvelle Donne; one king, George V (of England); and, perhaps the most bizarre of all, Lord Ranelagh. He was a passionate advocate of outdoor concerts, who installed a bandstand in his garden in Chelsea for daily public recitals and whose name remains unpronounceable to the English, let alone to the French.

In like manner it has emerged this week that Larry Summers, a Democrat and academic at Harvard who opposed more oversight of derivatives, also collected generous speaking fees from investment banks. Frederic Mishkin, a Dubya appointee to the Federal Reserve who teaches at Columbia, co-wrote a report praising that perfect paradigm, the Icelandic financial system. In theory, Saudi Arabia is rich. Yet we note this week that the rate of unemployment among 20 to 25-year-old Saudis has risen to 42%.

So does paradox remain plentiful. For further example, the market is greeting Eurozone banks' calls for more cash -- rights issues galore -- with higher share prices. And it's the first time in 40 years that Europe's interest rates have risen before their US equivalent. Up to 1.25%, with another two hikes of 0.25% to come this year? The ECB has joined China, India, Poland and Sweden in raising rates even as the Fed, and our own MPC (26th month @ 0.5%), remain reluctant. Investors have already priced in a 0.25% jump in the UK's interest rate by July, according to forward rates on the 'sterling overnight interbank average' -- fondly known to the cognoscenti as Sonia.

From Portugese penance ...

Meanwhile Portugal has stepped into the confessional. As Tom Lehrer has it: "There the guy who's got religion/ 'll tell you if your sin's original." The question still presses as to whether or not sovereign debt will have to be restructured, particularly in the case of Greece. Should there (have to) be such a restructuring, Germany's banks would issue expletives. Götterdämmerung, anyone? At 12.7%, Greek 10-year bond yields are almost 390 basis points higher than they were before the hapless Hellenes had to be bailed out last April.
But at least Spain's latest bond auction went well yesterday. Improbably, capriciously, QE and bail-outs and 'one size fits all' seem to be working. It reminds us of what Socrates said of a dog walking on its hind legs: one marvels not that it is done well, but that it is done at all. If markets can rise under recent circumstances, what might they do were the world to enter a period of absolution?

Er ...
Go on up. Because the corporate news is good. The sap is rising; mergers are acquiring. For example, one of young Tim Steer's holdings in UK Growth, Balfour Beatty, has just bought Power Efficiency, an "energy procurement and carbon strategy consultancy" (apparently). "Too small to get too excited about," says Tim. "But the company is clearly increasing its footprint in environmental services -- and can cross-sell these to existing clients. There's a lot of derring-do left in corporate UK."
Witness also Xaar, the printhead technology business, which Derek and Ruth own in UK Special Situations. Recession? Xaar has orders for everything it can produce from now until the end of 2012.
For European Growth, Philip Wolstencroft notes that salmon producer Marine Harvest sits on a prospective p/e ratio of 9x and "is benefitting from the global uplift in food prices, but has fewer of the cost issues of meat producers. So it is seeing strong growth in its profits." That will do.

In bondland, James and Alex still see attractive opportunities, especially in high yield. The pair have just bought bonds in Ontex, a nappy maker, and Kabel, a German cable company as, for Global Income, Jacob has just taken profits in Lorillard, the largest menthol-cigarette company in the US. It has been under intense regulatory scrutiny on allegations that menthols are even more addictive and dangerous than normal fags. But as they are a huge source of greenbacks for a strapped government and federal states, we didn't think the US authorities would rule menthols illegal. We were right, and Lorillard's shares shot up. Smokey.

News of the Week

Caucasian circles ...By cutting a fibre-optic cable, an elderly woman scavenging for scrap has brought down internet services in two countries. Georgian police have arrested a 75-year-old pensioner, as yet unnamed, after she cut off internet connections in Georgia and neighbouring Armenia. "She found the cable while collecting scrap metal and cut it with a view to stealing it," Georgian interior ministry spokesman Zura Gvenetadze explained.

Charged with damaging property, the woman could face up to three years in prison. The company that owns the cable, Georgian Railway Telecom (GRT, slogan "Your reliable partner in the Caucasus"), said that the damage was serious. "I cannot understand how this lady managed to find and damage the cable," GRT's head of marketing, Giorgi Ionatamishvili, said. "It has robust protection and such incidents are extremely rare. If she doesn't go to prison, we're thinking of hiring this lady as an adviser on how we can stop such a thing from happening again."

Investments