Trading The Housing Market

The Financial Markets - 18 Mar 09

• And this morning, the big question for the tech space is will the sun turn blue? The WSJ is carrying a report that the “Big Blue” aka IBM is in talks to buy Sun Microsystems for $6.5bn in CASH and that this would represent a 100% premium on yesterdays closing prices.
  
  
• Most of the comment this AM is crediting yesterdays rally in stocks on the unexpected 22.2% jump in US housing starts. But the data was almost certainly inflated by unseasonably warm weather during the month and is it just me but I would have thought more SUPPLY was the last thing a housing market whose prices are still in freefall requires. Also see Spread Betting on the Housing Market.
  
  
• Overnight the Bank of Japan kept its target rate stable but announced that it is to step up its JGB purchases to Yen 1.8 tn per month from Yen 1.4tn as the government prepares its third stimulus package. The accompanying assessment of the economy remained bleak, citing worsening economic conditions and ongoing stresses in the financial markets.
  
  
• The World Bank is predicting that the Chinese economy will grow by 6.5% over 2009, significantly lower than potential, but adds there is still plenty of space for policy stimulus. Local press reports suggest that the country’s FX reserves dropped by $30bn over January, which would mark a second decline in four months.
  
  
• BoE’s Mervyn King was speaking overnight, his most interesting comments revolve around QE where he notes that Central Bank balance sheets will have to contract at some time and that the CPI outlook will determine the reversal of asset buying.
  
  
• The ECB’s Weber said that default concerns for Euro countries were unfounded, but that the ‘no bailout’ clause is indispensible.
  
  
• Irish Banks: Finance minister saying that any bad bank structure will not be using Anglo Irish as the receptacle. Seems like the establishment of a property company is more likely to manage out the banks’ property lending or some form of insurance scheme. The decision will probably hinge on the ability to fund any new vehicle. Lenihan also saying he will not force banking mergers (presumably with the benefit of 20:20 hindsight of HBSO/Lloyds).
  
  
• Early Sunrise Equity News from Europe. RBS is up about 5% after it’s new chairman Hampton told the FT that they benefited from “buoyant” corporate banking activity since the start of the year.
  
  
• Strategically proactive as ever Ryanair has reported that its pilots are taking a 12-month pay freeze along with productivity increases as the airline looks to a target of 5% unit cost reduction in the coming year. It recently announced a move to eliminate completely airport check-in desks as it seeks to reduce airport and handling charges. It is also aggressively cutting capacity at certain airports – notably Dublin, where total weekly rotations will be down 20% this summer. Should leave the firm as one of the big winners & survivors emerging more lean & mean when the upturn finally comes
  
  
• Drug problem in Japan for Roche. Roche’s Japanese unit Chugai stated that 15 deaths have been directly linked to its Rheumatoid arthritis drug Actemra. Apparently it was already known that there are more side effects with this drug than other competing drugs, but this is not particularly good news nonetheless.
  
  
• Not good news for Smurfit’s. Stora Enso issued another profits warning this morning - the Group expects that Q1 profits will be “clearly down” on the Euro 28m generated in Q4. In addition to the weak economic environment, production cutbacks at a round 20% of capacity have had an additional negative impact on earnings as the Group has tried to control working capital. Stora also plans to manage capital expenditure down from Euro 500M to Euro 400M with the emphasis clearly on cash retention.
  
  
• Bloxham’s are carrying a piece about a possible bid of between Euro 11-15 by Moonduster for ICG. A fast developing economic recession in ICG’s home market, with associated declines in car, passenger and freight volumes, is the primary reason for a bid at this level. Since the €24 bid in 2007 by the management group Aella, the ISEQ has collapsed by 80%. Other shipping companies have also suffered with Maersk’s share price down 60% in the last six months. A key attraction in any bid is the cash component at a time when liquid resources are tight and bank credit lines difficult to access though Bloxham’s doubts a bid a low as 11 euro would work Developer Liam Carroll owns 29.2% of ICG
  
  

Tim Geithner’s days may be numbered at the Treasury!