I just caught this new RTE program for the first time. How times have changed. Tonight’s show was about Irish investing in property in Florida. Some of these people were signing up to multiple properties. And the house of cards has come tumbling down.

I think it’s possible that we are as naive a race financially as you could come across. We’ve spent hundreds of years on the outskirts of civilisation, downtrodden, oppressed, wet. Then we discovered a niche. The EU as a single economic entity became a behemoth, and we became the likely geographical gateway. This all led to huge increases in incomes and quality of life. Thing is, many middle income people, lacking true independent professional advice, didn’t really know what to do with this new found affluence. We were led by agents and marketing campaigns. Concepts like asset diversification were and are alien. It’s property property property. 

Hopefully we’ll take away some good lessons from the current crisis when the dust settles - probably not sooner now that 2011. And hopefully as the Buyer Beware series progresses over the coming years, it might turn more upbeat and bring us some stories of financial innovation and success.

Market Decline

Wow, what a difference a day makes. The primary European markets, including the ISEQ, were way down today. Presumably, had it not been for the U.S. thanksgiving holiday, the NASDAQ and co. would have plunged also. Stocks that I have previously expressed an interest in were hit hard.  For example, Aviva was off over 6% at 370p. Speymill Deutsche was very volatile and finished at 0.275p, down 12.7%. Across the board, banks were hit hard.

So what happened? All of a sudden the severity of the global recession has been thrust to the forefront again. Some major debt noises coming out of Dubai – rumours of multi-billions of Euro of indebtedness to investors and banks – have spooked the markets. The Arab states are supposed to be immune from monetary problems! Looks like this current squeeze is all pervasive. Closer to home, flagship travel agent Budget Travel has shut down. And news of several other companies losing jobs (Aviva Investors, Talk Talk, Option Wireless).

Tomorrow is dubbed Black Friday in the U.S. and it is traditionally the busiest shopping day of the year. When the dust settles next week and we know how many Yanks actually went out shopping, we’ll have a much clearer picture of consumer confidence, an extremely important economic indicator.

Public Sector Strike Action

Tuesday this week saw over 200,000 workers take to the streets to protest at possible public sectors cuts. As I sailed into work on the bus – due to the lack of traffic - I spotted several small groups. And my god they were the best dressed protesters I’ve seen in a long time. What made my blood really boil though was the announcement that there would be a follow up strike. As if this country doesn’t have enough to be dealing with than floods, empty government coffers, economic contraction, and now striking masses.

More than another individual group these people seem hell bent on blaming everyone but themselves for their own financial circumstances. “I took out a big mortgage therefore I can’t take a pay cut” just riles me. I did the exact same thing, but I am willing to live with the consequences of my own decisions. Nobody but nobody put a gun to my head.

ISEQ Week Open: 2982.52, Week Close: 2875.92

Kingspan, Interim Management Statement

• Kingspan says overall trading has been more steady over recent months and it is expected that operating profit for the year as a whole will be in the region of €60m (after amoritisation).
• The Group’s cost reduction programme, which commenced late 2007, has yielded annualised fixed cost savings of approximately €60m.
• In general it is anticipated that the building environment will remain challenging during 2010. High rise is expected to weaken, and low rise commercial is expected to remain weak but stable, whilst residential is showing some signs of recovery.
• Source: www.kingspan.ie/kingspangroup/media/releases/pr2009/2009-11-16/

Greencore

• Agrees to sell its bottled water business to Highland Spring Limited. Greencore will receive up to £17.5m.
• The board confirms that it has, in the recent past, received a number of unsolicited approaches in respect of its Malt business from international ingredients companies with large-scale malting businesses. These approaches are being explored.
• Source: www.greencore.ie/content.asp

Independent News & Media

• Announced the complete reorganisation of its print and production assets on the island of Ireland. The group’s three leading print and production facilities, at Citywest in Dublin, Newry and Belfast are to be managed as a single, combined entity.
• Source: www.inmplc.com/investor-relations/news/island-of-ireland-print-strategy-announced/

AIB

• Dan O’Connor, currently Non-Executive Chairman of AIB, is to take on the role of Executive Chairman on a temporary basis in order to oversee the Group’s work on the completion of the key tasks of capital raising, the implementation of NAMA and the EU restructuring plan.
• Colm Doherty, formerly Managing Director, AIB Capital Markets, has been appointed AIB Group Managing Director. Mr. Doherty will take up his new role as Group Managing Director with immediate effect. Mr Doherty will be responsible for the day to day running of the Group. He has agreed to take up his new role for a salary of €500k. His contractual remuneration package will therefore be considerably lower than applied in the past to the Chief Executive Officer role, or indeed to Mr. Doherty’s previous role in AIB, reflecting his personal commitment to the Bank and its future.
• AIB Group Chief Executive, Eugene Sheehy, is to retire on 30 November.
• Source: www.aib.ie/servlet/ContentServer

Aer Lingus

• Board meets to review progress on its objective of delivering €97m of cost savings required as part of its Transformation Plan. Compulsory redundancies not ruled out.
• Source: www.aerlingus.com/cgi-bin/obel01im1/Corporate/display_news.jsp

United Drug, Preliminary Announcement of Results Year ended 30 September 2009

• Good revenue growth in a difficult trading environment. Revenue 2% ahead of 2008 and 5% ahead on a constant currency basis.
• Operating profit growth of 5% in the year (before sterling adjustment).
• Dividend maintained
• Source: www.united-drug.ie/download/prelim_09.pdf

Glanbia, Interim Management Statement

• Persistently weak consumer sentiment is driving an increasingly competitive retail market for consumer products. So earnings per share are forecast to be between 30 and 31 cents.
• Debt expected to not exceed €470m in 2009 (was €452.1 in 2008)
• Source: www.glanbia.com/static/cms/2/2/9/4/9/6/6/8/0/1/binary/5118510476/8073058.pdf

Kenmare Resources, Interim Management Statement

• Production performance at the Company’s Moma Titanium Minerals Mine in Mozambique has continued to improve quarter on quarter.
• Shipping volumes for the third quarter were 131,000 tonnes, a 38% increase in tonnages shipped in quarter two.
• Source: www.kenmareresources.com/news/press/2009/18_11.asp

Kerry Group, Interim Management Statement

• Revenues 6% below the same period of 2008 due to currency movements, lower pricing and elimination of non-core activities.
• Group confident of increasing earnings for the full year in the range of 160 to 165 cent (2008: 153.9 cent).
• Source: www.kerrygroup.com/news_index.asp

FBD, Interim Management Statement

• Group confident of having operating earnings per share ahead of the current mean expectation of broker forecasts (between 63 cent and 104 cent per share).
• FDB will focus on profitable growth, maintaining underwriting discipline. Will continue to implement its plans to increase penetration of key urban markets.
• Source: www.fbdgroup.com/media/FBDGroup/files/InterimManagementStatement-dec09.pdf

Datalex, Interim Results

• Transaction revenue in the first half of 2009 is up 40% on the same period last year.
• EBITDA increased by 30% to $0.8m in the period.
• Total revenue in H1 was $14.4m, down 11% on 2008 (3% when currency adjusted).
• Cash reserves at 30 June were $11.1m, down from $14.8m at 31 December 2008.
• Source: www.datalex.com/pdf/Datalex_Interim%20Report_2009.pdf

France Vs Ireland

Congrats have to go out to France for reaching the world cup in South Africa by beating Ireland on aggregate tonight. And well done to the Irish too, from 1 to 11 (+3), they played out of their skin…even the perennially annoying Robbie. The French goal was a big injustice and I’m sure when the referee sees in again he’ll have nightmares.

Government Loves AIB

And just as we’ve been robbed by the French tonight, so too it seems that the banks will keep trying their underhand methods to rob the taxpayers. Both Irish Life & Permanent and AIB have both come out this week to say that their ‘impairment provisions’ will be increased due to fall offs in commercial property values. Now, what timing! The government has already committed to NAMA and the bailout. Surely this is not new information and surely this now makes the bailout even more expensive.

Also today it was announced that Colm Doherty has become the new AIB group managing director. An insider. How soft is Brian Lenihan that he has not completely obliterated the board and brought in a complete clean sweep. The only reason I can possibly think off is that an outsider offered the job possibly turned it down because of the salary cap….”say it’s so Brian”.

Don’t know about you, but it looked to me like the French players were all wearing sports bras during the match last night! Whatever, it worked. The game resembled more of a relegation scrap than a high-class battle. The French looked weak, and Ireland looked worse. But it was exciting. After the 0-1 defeat we have it all to do in Paris on Wednesday. Good luck to the boys.

On a lighter note…there’s noises coming out today that all medical card holders will be required to pay a charge of 50c when filling prescriptions. This is to discourage overuse of medication.50c!! Honestly, our social welfare recipients are some of the best off in the world. 50c is nothing. When the health people sat down and decided on a charge, did they really think anyone would be put off by 50c? I hope our leaders are not that stupid.

For anyone not sick to death of the doom and gloom that surrounds this government effort to restabilise the banks, i.e. NAMA, Margaret Ward has written a good and concise list of what she sees as the as yet unanswered questions. See here for the details.

With most of the Q3 financial results now behind us, it’s time to take a breather and digest what we’ve been presented with. According to NCB Stockbrokers the percentage of companies to beat estimates has come in around the 80% mark. The average apparently is around 61%. This tells us 2 things in my opinion:
- Analysts more often than not get it wrong, so take their recommendations with a hefty pinch of salt.
- Analysts have been slow to ‘believe’ and back the market rally.

I understand their dilemma. The market has soared, yet the economies of the world still flounder. There is still much financial services reform to be hammered out. Institutions need to make decisions worth millions of Euro. “Do I enter a position, or do I not”. Their clients could be angry that they have missed out on the great returns, yet the managers may believe deep down that it is a ‘junk rally’ and doomed to reverse.

The position of the amateur investor is no better, in fact it is made worse as we are rolling the dice with our own hard earned cash. Although I am admittedly sometimes prone to speculative buys (e.g. E*Trade, Providence Resources), the take away is to try to seek out quality. Companies with good maintainable dividends, good competitive advantage and good growth prospects. Companies that are not going away. A couple of high yielding mid to large-cap shares I’m keeping an eye on at the moment are Aviva and Vodafone.

Aviva

Aviva seems to have it’s capital provisions and restructuring/growth under control so I don’t expect any real nasty surprises is 2010. It’s value has been depressed significantly this year providing an excellent dividend yield, so it’s on my watch list. Probably a buy if it hits 380p.

Vodafone

Despite it’s size, it looks like there are still growth prospects for this behemoth. Emerging markets, data bundles, utility style network, etc. No real hurry with this one. It trades fairly consistently within the 120p-140p range. If it falls back to the low 120′s in the coming months I’ll jump in and add to my existing holding (legacy of the Eircom floatation debacle). If it breaks out of the 140 before I buy I’ll curse my luck and move on.

All in the same week that the U.S. officially exited recession.

Some will put this down to profit taking. Fact is the appetite for risk has dissipated again. Economies are now is a more stable state, however they are still depressed. Metrics such as consumer confidence still struggles.

I invested some money this month. I bought into the growing consensus that despite certain indicators, the economic environment was again all rosy. Needless to say, looking back now, I don’t know what I was thinking. I’m sitting on a loss of about 10% currently, but I will be holding on for the long-term, so not immediately concerned. I normally stick by the mantra: Buy on weakness (in other words, wait for a dip); in this case I didn’t and now I’m down. Lesson hopefully learnt!

It’s something I’ve been thinking about since the recession began. In particular it frightens me a little that rate decisions will be based to a large extent on the performance of the German and French economies. This could leave Ireland and the Irish out in the cold. The problem became glaringly obvious to me when I realised that my treasured tracker mortgage would probably bounce up and down more in tune with the DAX and CAC than the ISEQ!

Our crash has been more severe than most in Europe, therefore it is highly conceivable that other economies will recover first and faster (a scenario that is already coming to pass). Therefore, when the time comes, the ECB will raise interest rates in order to curb the inflation created by fiscal stimulus. That’s fine. However, it will be the same rule for all countries across the common currency. So next year possibly, when we are still struggling, the rates will rise. This will put further pressure on households, and further pressure on businesses, especially exporters. This will in turn further depress the economy.

In McWilliams’ article, it is argued that with currency devaluation not at our disposal, then unemployment and consequently depressed wages is the inevitable side-effect; as businesses are squeezed. We’re in for a rough ride. Ireland must now focus, not on our internal problems with external entities (such as the ECB, the IMF, and multinational companies), but on our own productivity. The infamous anti-Lisbon posters showing how insignificant our say in Europe (Germany 17%, Ireland 0.8%) actually is are correct. So no one is going to come along with a blank cheque (sorry farmers!) and save our bacon. We need to go to work and we need to do a good job, and we need our government to invest in our future in the form of education, health, and business incentive. And for heaven’s sake, no public sector strikes; that will make the public’s blood boil.

As Bart Simpson would say, “Nobody saw me do it, you can’t prove anything”! Brian Cowan today again reiterated his view that former FAS director general Rody Molloy’s ‘golden handshake’ was above board, citing some obscure employment law. And Mary Harney has come out to distance herself form the €70,000 given to HSE head honcho Professor Brendan Drumm; insisting that if the board decides so, then the man must be doing a ‘fantastic job’. Ministers…long deep breath…the issue is not the contractual entitlement; it is the disproportionate remuneration against a backdrop of cuts and suffering of the lower level workforce and ordinary citizens. All this also in the same week that John O’Donoghue made a hasty retreat from public life in the light of embarrassing expenses claims. He won’t be the last. The travails of the current government are well known at this stage, but really, are they so completely disconnected from the reality on the ground, that they think these kinds of decisions will be let fly?

My initial reaction to the new program for government that Fianna Fail and The Greens agreed last week was positive. University fees would not be introduced and teacher jobs cuts were off the table. Also, some green initiatives such as water charges and incineration caps would be looked at. However, after having some time to digest the deeper details, and having read the Sunday newspapers take on it, I’m worried again. In particular I’m worried that in the upcoming budget we may be hit with several new stealth taxes (and maybe even an increase in the non-stealth ones) in order to pay for some Green pie-in-the-sky stuff. A few weeks ago Brian Lenihan categorically ruled out any further income tax burden on the workforce (on the Matt Cooper Today FM show). But I don’t necessarily believe him, and in any case, the stealth taxes can be just as damaging.

So, more squeeze to come in the next budget, and 2010 will likely see base interest rates from the ECB begin to rise again. This will lead once again to a choke on the economy and in particular on retail activity. Great fun!

Anyone else sense the mood change? Ok, we’ve had the O’Donoghue expenses scandal, we’re facing into another difficult budget, unemployment is still increasing, and the economy is still contracting…but! Beyond our own shores, out in the wider world; bears are becoming bulls, JC Trichet is talking about the process of unwinding fiscal stimulus, and the sun is even shining!

Today, big aluminium company Alcoa reported a return to profit based on cost-cutting measures and increased demand. NorskHydro also popped based on the news. In the coming days earnings will be reported by many companies that will provide an indicator as to how well things are really shaping up. Perspective is urged though as even if companies beat expectations it must be borne in mind that compared to previous years profitability is likely down significantly.

So it’s all good right? Well, despite the increasing evidence that the worst is over, more and more are focusing on 2010 and 2011 predictions, and the conclusions are not often favorable. While most countries may pull out of recession, growth is another matter. Some believe we are in for a sustained period of stagnation (‘U’ shared recovery), others think that the market is becoming overbought relative to economic fundamentals and that there will be a big correction (‘W’ shaped recovery), while the optimists among us still cling to the hope of a sustained and lasting bounce (‘V’ shaped recovery). From my own reading (not necessarily my own opinion), most are in camp ‘U’, and growing number are in camp ‘W’, and a dwindling number are in camp ‘V’.

No matter what angle you take on it, Ireland is likely to lag. Our flagship companies such as AIB, Bank Of Ireland, Independent News & Media, and Aer Lingus all have their own big issues to overcome. And our dithering rulers don’t seem to be helping.