25th February 2011

The Hunters' Tails

In the business of Basque ...

From oil back to $150/barrel, petrol at £6.50/gallon, anyone? Until middling matters are resolved, the FTSE 100 will find it hard to resume those sunlit uplands above 6,000. These ‘paradigm shifts’ ... A $10 rise in oil prices usually knocks 0.5% off US growth over two years; and clearly the world could do without that just now. The oil price could reach $220/barrel if unrest in Libya continues, according to some alarmed and -ing analysts. On the other hand, present fears could be less than wild imaginings. Spare oil capacity worldwide is 5-6 million barrels a day; and OPEC’s official target is still $70-80/barrel.

Contagion is the spiky fear. Between them, Libya, Egypt and Tunisia account for only 3.4% of global oil production. So, manageable. If the unrest spreads? Iran, Syria and Algeria represent about 8% of global production. The daddy of them all, Saudi Arabia, musters 12%. It can cover disruption to Libya, but Iran’s output of 3.7 million barrels a day would be too much for even Saudi to swallow.

Meanwhile, cuts domestic. “False Economy”, says the TUC. What cuts? All that’s being cut in the UK is the rate at which the deficit is growing. Check the Treasury’s Red Book. “Total managed expenditure” will rise from £696.8 billion in 2010/11 to £737.5 billion in 2014/15. Public sector net debt will rise from £932 billion in 2010/11 (62% of GDP) to £1.3 trillion in 2014/5 (70% of GDP.) As our senior partner, Mark Tyndall, reiterated at our roadshow in Edinburgh last night, even if/when the Middle East is resolved, debt of such degree just cannot be denied.

Or will we muddle through? There is good news. On higher receipts from tax, oor ain HMG may have to borrow around £10 billion less than the £148.5 billion expected for 2011. More than $4 trillion of goods are containerised and shipped each year, so the following matters. The Port of Los Angeles has just reported data for January: a 15% increase year-on-year, and the second-busiest January in the port’s history. Unemployment is falling (slowly), and the US Fed has just raised to 3.9% its forecast for growth in 2011.

And so, bitter-sweet, the uneasy antithesis continues. It’s all infernally complicated — like the Basques. Their language, Euskara, distinguishes between laminal and apical articulation of the alveolar fricatives and affricates. It is so complex that a verb, for example, incorporates in its one word not only the pronoun but also the complement. So each transitive verb has twenty-four variations: ‘He gives to you’ is one word. ‘She gave to us’ is another. In like wise bull markets must overcome problems Protean — in Basque or any tongue.

From sausages to Shell ...

Come bull or bear, the case for certain stocks remains clear. One such is an outlying anomaly of entrepreneurial energy in the People’s Republic of Scotlind. Devro, just topped up to a 2% position in UK Special Situations, makes (from collagen) skins for sausages. The price of sheep gut — up around 40% of late — and the scarcity of good gut is serendipitous for Devro as it expands internationally — from a factory in the Czech Republic to, next, China. “The shares are trading on 12x earnings, and yet this is a 22% ROCE business in a structural growth market. That will do for me,” says Derek. Gie Ruth a haggis.

Cheap and under-valued media stocks is a theme common to several of [y]our funds: Reed, Pearson, Prosieben and CBS. For UK Special Situations, this week add ITV: the ‘self-help’ Derek and Ruth like to see, and a strong recovery in the sector’s revenues. In Global Income, Jacob is glad to have added America’s CBS — which has just come out with some storming Q4 numbers: revenue jumped 11% to $3.9 billion. “And this is not (yet) in the price,” Jacob says.

In UK Growth, meanwhile, young Tim is steering his oil weighting higher. “The oil price has shot up, obviously,” Tim observes. “But the oil majors are flat — albeit in a falling market. That looks like an opportunity to me.” And so, though remaining underweight overall, to more BG Group and Shell; leaving BP to go, ah, beyond petroleum.

Speaker’s corner — Do you get it?

“Public sector mutualisation and budgetary takeover by citizens of the state is a crucial initial phase in endowing ordinary citizens with the power to ensure that the services they run are operated in a way that combines public interest with economic efficiency and localised employee ownership building in all the gains that this model delivers.”
— Phillip Blond, political thinker and theologian, ‘explaining’ David Cameron’s ‘Big Society’; February 2011.

News of the Week

Chana’s coming ...

A 66-year-old man has 39 wives, 94 children and 33 grandchildren, all living together in a four-storied house with 100 rooms in a mountainous village in India’s Mizoram state (which borders Burma and Bangladesh.)

This week, philoprogenitive patriarch Ziona Chana said: “Even today, I am ready to expand my family and willing to go to any extent to marry again. I once married 10 women in one year,” he added. His wives share a dormitory near Ziona’s bedroom. The sons and their wives, and all their children, live in different rooms in the same building, but share a common kitchen. The wives take turns cooking, the women do the housework and the men farm. The family, all 167 of them, consumes around 200lb of rice and 130lb of potatoes a day. Mr Chana heads a local Christian religious sect, called the Chana, which allows polygamy. Formed in June 1942, the sect believes it will soon be ruling the world with Christ.

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