Archive - Jul 2010 - Blog entry

In what is surely one of the more unusual approaches to a pensions shortfall, Diageo, the drinks group, has offered up a veritable lake of its whisky as collateral for the growing shortfall in its benefits scheme. In my opinion, this is a bad idea. If pensions want to drink themselves silly, they should be focusing on the liquidity tsunami driving risk assets higher.

BP's attempt to hide the amount of oil gushing from the sea floor led to months of counterproductive shenanigans like Top Hat and Top Kill ...

All of a sudden, the world wants to buy this company while there is blood in the street and oil on the water. Sovereign buyers from China to Singapore to Saudi Arabia have been lining up. That well known value stock player, Libya, is in play. Cap that sucker, and the next stop is $40 or more.

As the heat wave sizzles North America and Europe, global pension heat is rising. Let's hope stock markets keep sizzling instead of fizzling because at this rate, it won't take long before we reach the pensions boiling point.

It's hard to ignore the data that is coming out. There is a definite slowing trend in the economy. It supports my forecasts of a slowdown coming in the second half of this year. Expect the data to be its normal uneven trend, but it is clear that the economy is slowing. Here I show you what I'm seeing.

It's hot. An old story.

I've written blog posts calling government officials liars when they said the Greek crisis was over, written posts calling for inevitable haircuts while the bulls said the Greek crisis was overblown, and even put up with BS EU stress tests that won't even account for the possibility of default - or its economic cousin, restructuring. Well, how ironic that the EU puts out the criteria for its banks stress tests sans default/restructuring scenarios today, the same day that Greece releases a press release of a broad restructuring of its hospital debt. Hmmmm.... As realistic as platinum frog farts!

An industry that was sweating bullets poured tens of millions of dollars into lobbying efforts to render this bill toothless. The new restrictions on credit amount to a de facto quantitative tightening that will shave a few dozen basis points off of our long term GDP growth. For the banks that are left it means lower earning, higher cost operations deserving of shrunken multiples. Toss all this in with the unknown amounts of toxic waste that still lurk on bank balance sheets, and I want to avoid the sector like a blind date who shows up with bleeding sores on her face.

HSBC's Chief Economist states that emerging markets hit a bump in the road in terms of growth (duhhh!) but their longer term outlook is positive. I agree, but since we happen to live in the present, we have a few wrinkles to iron out first. After all, it can be said that HSBC is simply talking their book since they are highly levered into the emerging markets! Here is my take on the situation from a more objective perspective.

UPDATES: First relief well may be finished this month; the former President of Shell Oil said he HOPES that the relief wells have a 50% chance of succeeding; huge amounts of natural gas make relief wells trickier ...

The Canada Pension Plan's investment arm is spending $250 million for a piece of privately held Laricina Energy Ltd. — the fund's first direct foray into northern Alberta's oilsands industry. But the politics of oilsands are very messy, both in the US and in Canada where politicians have just mysteriously cancelled an oilsands pollution probe, tearing up draft reports.

I'm getting scared.

At a 13 times multiple, the S&P 500 is not cheap. A permanent downshifting from a 3.9% to a 2%-2.5% GDP growth rate only deserves lower earnings multiples for equities. I think we are in a long term 900-1200 band that lower growth demands, and that we are trending towards the bottom end of that range.

News items of interest and related analysis for the day

They may work, but ...