7th December 2010

Artemis - The Hunters' Tails - Whether the weather

So that's all right, then. For a mere �£600,000, a government report has just concluded that the problem with "winter planning" is, ah, the weather. Not even the latest 'voice recognition software', meanwhile, can cope with the sentence: "She wondered whether the weather would improve."

In like manner, and although the FTSE is back within sight of 5,800, markets remain prone to the vagaries and vicissitudes of debt. In the first four months of next year, the joint re-financing needed by the Spanish banks and government will be €72 billion. Insofar as there is such a thing, the Belgian government must replace €62 billion of its bonds in 2011 - more than Ireland and Portugal combined. Just as Ireland has whipped €17.5bn from its National Pension Reserve Fund, now the assets of the French pension fund, the Fonds de Réserve pour les Retraites, are in retreat, falling back to support France's social security.

And by the way, that fund's 40% allocation to equities is to go? Yes, to cash and short-term government bonds. La plus ça change. Our eminent Adrian Frost (of Income) just groans: "We are dismayed that pension funds and other institutions are following 'best advice' and continue to sell the equities of developed markets, using the proceeds to buy bonds - issued by those maestros of fiscal prudence, governments - and emerging market equities. It is this that has left some of our companies friendless and cheap."

As public, so private: in Q3 of this year British banks were forced to write off �£1.83 billion; and �£740 million of that was credit card debt. So those drifts are deep; and that precipitation is always within sight. Nonetheless, our main man on bonds, the donnish James Foster, is of good cheer. "Concerns about the survival of the euro and the peripheral European economies are overstated. Yes, they are very serious problems.

But the market has over-reacted. With governments implementing ever tighter austerity packages, the strict fiscal discipline will ultimately be seen as favourable for bond markets. As usual, it will be some time before markets 'look across the valley'."

And if ...

you want good news, both macro and micro there is plenty of it about. In Liberty's Land, both house and retail sales have just "surprised", in that hideous analese, "on the upside". German unemployment fell for a seventeenth straight month in November. The German consumer is spending again. Die Sonne geht in meinem Staat nicht unter. Back at the bratwurst, European companies are approaching 2011 with almost $700 billion in cash. That must mean M&A, dividends and share buy-backs. For those companies who want more cash, the bond market continues to oblige.

Ireland's CRH, for example (international building materials: we hold it in Global Income and UK Special Situations), has just raised $400 million in 10-year notes at 2.95% above treasuries, and $350 million in 5-year notes at 2.7% above US treasuries. War-chest? That will do.

Bearing further witness to the energy of corporate derring-do, another of Jacob's holdings in Global Income, Seadrill, has just ordered (at a cool $600 million each) two ultra deep-water drill-ships. They can reach 12,000 feet. Seadrill has also ordered four jack-up rigs for $780 million.

The runes, we reckon, read well for the energy sector - whatever Monsieur Trichet does or doesn't do. So for Global Growth, on the back of encouraging corporate newsflow and a more benign (or less malign?) background, Dr Saacke has just increased his exposure to energy by 5%. Enter US oil companies Frontier Oil, Tesoro Petroleum, Holly Corp and Patterson-UTI. For European Growth, Philip Wolstencroft has built a position in Gazprom. "Concerns over property rights have meant that we have tended to avoid venturing as far east as Russia. But the valuation on this stock is unusually low, profit progression has been solid and recent results have exceeded expectations." So while the stocks differ, on the sector such is Artemisian accord.

Speaker's corner ...

"Haircutting bondholders works like this. You go to your bank and tell them you are going to stop paying for your credit card. Then you ask them for an extension on your mortgage because you are now free of your short-term funding problems. So why should I go on buying PIIGS' bonds, unless they're paying a huge premium?"
- A fixed income trader, December 2010.

News of the Week

Sun's up ...

After billions of years, the sun has an owner at last. This week Ms Angeles Duran, 49, from Galicia in Spain, has registered the star as her property. There is international agreement that no country may claim ownership of a planet or star, but it says nothing about individuals, Angeles explained. "There was no snag, I backed my claim legally, I am not stupid, I know the law. I did it, but anyone else could have done it. It simply occurred to me first."

The document issued by Angeles' lawyer declares her to be the "owner of the sun, a star of spectral type G2, in the centre of the solar system, located at an average distance from earth of about 149,600,000 kilometres." Angeles, who lives in the town of Salvaterra do Mino, said she now wants to take a fee from everyone who uses the sun and give half the proceeds to the Spanish government and 20% to the nation's pension fund. She will dedicate another 10% to research, 10% to ending world hunger - and keep the remaining 10% herself. "It is time to start doing things the right way. If there is an idea for how to generate income and improve the economy and peoples' well-being, why not do it?" she asked hotly.

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