13th May 2011

Artemis: The Hunters' Tails

Corryvreckan's coral ...

Its two-year bond yields 25% and its 10-year yields 15%. Can Greece borrow at rates it can afford; or will the cradle of European democracy become the coffin of European finances? Over-indebted countries with sovereign currencies inflate. Over-indebted countries with foreign currencies default. BNP Paribas holds about €5 billion of the finest Hellenic debt. Dexia has €3.5 billion, Commerzbank has about €2.5 billion, RBS €0.5 billion -- and so on. Thus default would be, ah, demanding, far beyond giving Greece's barmy army even more about which to huff and puff.

This is one reason for investors' nerves -- and the markets' volatility. A second is alchemical. Investors seem to have accepted that America's QE3 won't set sail -- unless markets droop in six weeks time when QE2 comes to its conclusion. At least the end (?) of the Fed's largesse will remove one of the factors that has weakened the dollar -- and bolstered commodities. (And no, despite its prospectus of 3.4kg and 1,620 pages, we won't be investing any of your money in Glencore's IPO. Apart from anything else, no less than 23 banks are behind the float. Could that be why most analysis of the firm and its float is all but hagiography?) Aphanitic will do.

Thirdly, recession meets recovery. 'Austerity Britain', perhaps. Yet we see that the UK's police forces have spent over £300,000 in the last two years repairing diesel vehicles which officers had filled with petrol. On the other hand, perhaps the long-suffering English taxpayer will get rid, at last, of the recalcitrant Scots and their Cuba-like economy. Scotland contains 4 million voters, of whom just 2.3 million pay income tax. They have spoken. Be careful what you wish for, as the Gaelic proverb doesn't go.

With these three and other matters at work, small wonder that markets resemblethe Corryvreckan whirlpool (which almost killed George Orwell as he was writing 1984.) But while some think that its hostile waters can sustain only such tough hydroids as Tubularia indivisa and Sertularia cupressina, not to mention the hardy bryozoan Securiflustra securifrons,

we prefer ...

... to note, for example, the soft corals such as Alcyonium digitatum which also flourish there. Before one of you castigates this august organ as obtuse (at best), what do we mean? That as stock-pickers and profit-hunters, we find much that is fruitful beneath and beyond the flailing waves.

Exempli gratia, and for Global Income, Jacob has just added to Yue Yuen, the world's largest manufacturer of athletic and casual shoes, sales of which are moving very quickly. Or take US media shop, CBS. Jacob bought it because it is a tremendous cash generator: a true income stock, despite not being a dividend stock. A subtle difference, a soft coral even, which is rather important to proponents of free cash-flow such as ourselves. Not all of you agree. We have been getting questions like: why do you hold a stock that only yields 1.5%? Our answer is that dividend growth is as important as the dividend yield itself. (That said, it was kind of CBS to raise its dividend by 100% recently.)
For Global Growth, Dr Dr Saacke continues to favour those sectors less exposed to the slings and swings of things. So he has increased [y]our exposure to healthcare (buying Sanofi and Merck), tobacco (Philip Morris and BAT) and utilities (Enel) while reducing banks (selling BNP Paribas, Soc Gen), energy (taking profits in CNOOC and Valero) and resources (Rio Tinto, Freeport-McMoRan).

For UK Growth, young Tim is scratching his still quite hirsute head. Overseas earners like Croda and Kentz have served him well. Now what? Very selectively, enter domestic stocks. To Howden Joinery, Tim welcomes Berkeley (houses for plutocrats and university vice-chancellors) and Albemarle & Kent (certain services for people who wish they were plutocrats -- or university vice-chancellors).
In Strategic Assets, William has added to his bond shorts, especially those of liberty's land, taking his position from 73% to 77% of the NAV. Is Unilever, held in UK Special Situations, caught in a whirlpool of sharply rising costs? Yes. But Derek and Ruth prefer to note the company's "exposure to geographies and products offering significant growth." So with investors focused only on the cost issue, our duo have used weakness to add to their holding. In these and other ways, this week as next, do we seek to see the coral under Corryvreckan.

Speaker's corner ...

“Reporting to the Member Insight and Engagement Manager, you will be responsible for detailing key customer journeys for all member segments, using the member engagement strategy to capture the objectives for all member touch-points identified in the journeys, and relating these to relevant member insights. You will document the communication deliverables that will support these journeys, and work to ensure consistency and join-up between them."

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