1st July 2011

Artemis: The Hunters' Tails, Timeo Danaos? Now non ...

Timeo Danaos? Now non ...

So a rally of relief as, for the time being, investors are making less of a drachma out of this crisis. Paid in euros, Greek politicians have delivered the votes required and proved they do not want to be paid in new or any drachmas.

Most welcome, of course, would be Footsie back above 6,000. But justified? Caught between Scylla and Charybdis, Greece will, apparently, flog €50 billion of the state's assets. (To put this in context, the Greek stockmarket's entire cap is €38 billion.)

In order to meet the terms of the EU's mollifying dole, Greece now has to sell something every 10 days; and given that they haven't sold anything in over a year ... Sellers need buyers, and though much changes this essence of life endures.

Secondly, the Greeks need to start paying something called income tax. But why break the habits of a lifetime? Many Greeks still follow the Julian calendar, under which today would be the day to pray to Saint Leontius the Clairvoyant of Mount Athos. For prime minister Papandreou, that might do. Because, in our view, the outcome will and should be default(-like, or even -lite.) The question isn't whether. It's when.

Meanwhile, the absurdities of the Spanish housing market grow ever clearer. According to a report from the EU Commission, 6.7 million houses were built in Spain between 1996 and 2009. At least 1 million remain unsold. Almost nine out of 10 of the Spanish mortgages used to buy these depreciating properties are tied to the 12-month Euribor rate. And it, as we all know, is going up. The roof will have to fall in on some of those cajas.

And then German retail sales were disappointing yesterday, while even Swedish retail sales are very poor. Chinese manufacturing is slowing down, US unemployment refuses to budge and, in short, even a eulogist would have to describe the outlook as "challenging". Yet we are, in two words:

Cautiously confident ...

Value is one reason. All our fund managers are finding stocks they want to buy, often at compelling valuations. For UK Special Situations, for example, this week Derek and Ruth bought (much) more of engineering group Keller when its share price plummeted on a profits warning. Explains Derek, loquaciously: "Oversold."

For Strategic Bond, the donnish James Foster has been buying back into banks -- Crédit Agricole, for instance -- on the back of the Greek weakness. He's also been buying high yield on the dips.

For Global Income, Jacob de Tusch-Lec saw China's toll-road operators drop on tales that toll roads are considered, by the communists who command, too profitable. And so Jacob has got onto Anhui Expressway. Its p/e is under 10x, but that's almost immaterial. It's cheap, and has pretty inflation-proof earnings.

M&A is a second reason. Alpha Trust's Ideal Shopping has gone to private equity. LVMH is buying Bulgari. Heavens, Valero Energy is even to acquire Chevron's Pembroke refinery in Wales.

While energetically ...

We thought we would close this week with an update on John Dodd's young Global Energy: "In our opinion, investors will start to realise that oil prices, although volatile, will continue to go up as a result of rising demand, essentially from China and the Far East. The IEA have just revised their estimates for global consumption in 2011 to be up by 100,000b/d on 2010.

“Instead of waiting for this stability, we are investing directly into non-OECD markets such as South America, Hong Kong and India. At least two-thirds of our stocks are scheduled to release positive newsflow in 3Q/4Q. We think this will act as a catalyst to drive these stock prices up, regardless of the oil price and general malaise in the OECD."
So, stock-picking. On that, were Mr Dodd a racehorse, you would have to agree that he has, ah, form. Verb sap?

Speaker's corner ...

“The prolonged period of very low interest rates entails the risk of creating serious financial distortions, misallocations of resources and delay in the necessary deleveraging in those advanced countries most affected by the crisis ... Tighter global monetary policy is needed."

— Bank for International Settlements, annual report, June 2011.

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