Category Archives: The In & Out

Buy the blood!

Hugh Hendry, co-founder of Eclectica Asset Management, puts it beautifully: “To succeed today you have to believe in the imagined reality of the stock market.” Basically: Just don’t try and make sense of anything! Utterly pointless. Mr Hendry is right, of course.

Stock market indices at record levels, climbing a wall of hope and fear. Fundamentals are truly dire but then, who cares about fundamentals? So yesterday… well, pre-historic!

Meanwhile, the bond bubble is turning into a nuclear bubble with some government debt now generously offering a negative yield to safely park your money, no doubt soon to be joined by the corporates. Inflation is dead… long live inflation? No, the new phrase is “benign deflation”. Confusion reigns. Geopolitical turmoil and Eurozone troubles are not a negative but act as a useful catalyst to propel markets to ever loftier levels; time to hand out the oxygen masks! It’s called ‘relief rally’ as, of course, it could all be so much worse!

Herd instinct and chartism: Ignore it at your peril. Even poor ancient gold has fallen out of favour and this, of course, makes sense: Who would want to hedge when there is nothing to hedge?

So what next? Perhaps Crispin Odey is right in forecasting an almighty crash? After all, he’s got a pretty good track record? Or perhaps just ulterior motive? He certainly loves a short… or two!

The big question is what is going to happen when / if things eventually calm down and investors’ prayers are answered? Almost certainly a massive anti-climax… and what is left then: Back to good old fundamentals, such as company earnings? A rude awakening on the cards.

And poor old Pinkers Post? We are sticking to our guns: Contrarian investing will pay off. It always does. But this is not a game for the trader. It’s for those who have the guts to buy the unloved and embark on a 3-year roller coaster. So what to buy right now? Well, the blood in the street, of course! And this is plentiful. Especially in the commodity / engineering and support sectors.

Best commodity bets: Glencore and Fenner! Both no brainers. Glencore has a top management with vested interest, holding a large stake in the company: Really, a sort of John Lewis Partnership! And Fenner? A well managed and well diversified engineering company that’s been clobbered only because of its exposure to the mining industry. Very short sighted. it now offers a juicy yield of 5%.

Best support bets: Connect Group and John Menzies. Connect is a great one: It has a tendency to move inversely to the general trend, no surprise with a P/E ratio of under 10 and a yield approaching 5.5%. This really is a great company: Terribly old-fashioned service (boring old distribution!) but rapidly adapting to new tech and, indeed, adopting new tech! Excellent management and bloody cheap! Menzies more than halved after a minor profit warning; an hysterical overreaction! P/E 8.7 and yield approaching 7%. Another  no brainer. Furthermore: Consolidation in the sector is ripe and a merger between the two would make eminent sense. Watch this space!

Just plunge in there, hold… and laugh all the way to the bank when the herd is crashing into the electric fence!

 

M&S = Messy & Superfluous!

The week that was. The retail boys have delivered… or rather underdelivered. ‘Drastic Dave’ of Tesco clearly taking the top spot, judging by the s/p reaction that is. ‘Cool Coupe’ of Sainsbury’s hasn’t done badly, either, but, right now, the City is hot… and cool doesn’t quite cut the mustard. Left on the shelf, poor ‘Bolly Bolland’ who really is struggling trying to keep his vessel afloat.

So what’s going wrong at M&S? The answer is surprisingly simple. In a recent interview, retail consultant Richard Hyman put his finger on the spot: “The market today is different in every conceivable way to that associated with the golden ages.” In recent months, there have already been two high-pofile defections. The M&S managers who decided to leave the sinking ship before it’s too late are Jan Heere, outgoing Director of International Operations and Chief Finance Officer Alan Stewart who recently left for Tesco’s.

It is, of course, not Bolland’s fault. It’s nobody’s fault. The food may be nice (Pinkers loves the Cauliflower Cheese!) but the truth is less palatable: The business model itself is redundant. Selling baked beans alongside ladies knickers? Let’s face it…: The simple truth of the matter is nobody in their right mind would invent M&S in today’s retail environment and not even a magician could turn this business around. It’s almost surprising it wasn’t wiped out with the last dinosaurs 66 million years ago. A classic case of redundant retail!

Further reading: The Sains go marching in! 

Bold on gold!

In this weekend’s FT Magazine Gilliant Tett has written an excellent column on the precious metal. Perhaps one of the best ever written on the subject. Gold is, indeed, a “premier currency”: It possesses all the characteristics other ‘fiat’ or ‘virtual’ currencies lack: Historically ‘anchored’, finite supply, tangible and, last but not least, a beguilingly beautiful substance with an enigmatic appeal. This explains its enduring appeal, creating the illusion of permanent, intrinsic value.

However, it is a myth to believe gold is a constant store of value. Like anything else, the price of gold is created by supply and demand: Gold in need of a polish?

The Sains go marching in!

What a disappointment! Here we go again: The ‘safe pair of hands syndrome’! The last thing we want to see at Sainsbury’s is a Tesco repeat. Clarke turned out to be a genetically modified Leahy clone and now it appears Mike Coupe has been cast in the same role at Sainsbury’s.

Only a couple of weeks ago, Mr Coupe was unexpectedly handed an early Christmas present after Dave Lewis of Tesco announced that “[the company is] not currently working on a rights issue, but never say never”. He should have been ruthless and seized the opportunity to raid the markets first, delving as deeply as possible into investors’s pockets! It is hardly a secret that liquidity, artificially boosted by years of QE, is drying up fast and this was a golden opportunity not to be missed under any circumstances. To add insult to injury, not even an interim divi cut! Sainsbury’s is a vessel in distress and playing it safe will inevitably lead to yet another remake of ‘Titanic’. Dear Mr Coupe, just a little reminder: Titanic has already been digitally remastered in 3-D version. Investors want a different movie! Rights is right! 

PS: Judging from a televised interview with CEO Mike Coupe, yesterday, there appears to be an admirable lack of panic within the Sainsbury’s camp. Mr Coupe as cool as a cucumber? Or perhaps just plain boring? The analysts verdict of the strategic review is unanimous and unambiguous: Distinctly unimpressed. It would be in nobody’s interest if Mr Coupe were to suffer a major panic attack, however… a sense of a little more urgency would have done no harm.

Rights is right!

Dave Lewis, the new CEO of behemoth Tesco, has stated: “We are not currently working on a rights issue, but never say never”. So now we know:  A rights issue will come… but will not be announced just yet. What a blunder! And, surely, an early Christmas present for Mike Coupe, CEO of that other vessel in distress. He would be positively mad not to seize the opportunity and rush to the markets, first. Sainsbury’s will be presenting their “strategic update” in 2 weeks on the 12 November and one can only hope he will have the guts to go for a generous dose of ‘no pain, no gain’ medication. The supermarket’s shareholders and, indeed, the financial markets would welcome it! Further to this: Saintly Sainsbury’s!