IFA Hub Extranet
The Hunters' Tails
Number 79 5 March 2010
Greeks bearing rhubarb......
It's like something out of Tintin. This week the Treasury Select Committee has been quizzing one Baron Alexandre Lamfalussy, supposedly the Captain Haddock of the "European regulatory framework", in the final part of its inquiry into banks that are deemed 'too big to fail'. Perhaps this time, words will butter parsnips.
But the EU really has done something useful at last. There is rejoicing in Yorkshire's Rhubarb Triangle this week. The region has been granted Protected Designation of Origin (PDO) status by the European Commission - for its rhubarb. From the Latin rheum barbarum, the big-leaved barbarian from the banks of the river Rha (Volga), this early immigrant has flourished in and around the village of Carlton. Local farmers have developed high-tech methods, said to involve upturned buckets, for producing their tender, sweet and pink Yorkshire Forced Rhubarb. Now it stands alongside champagne and Parma ham - and Eurosceptics everywhere are confounded.
At this rate the Eurocats may even sort out Greece. It has a population of 11 million. But it seems that only 6 (yes, six) have a taxable income of more than 1 million euros a year. "Where", says oor ain Adrian Frost, "are all those shipping magnates when you need them?" But since this week's austerity plan and signs of German support, the spread between German bunds and Greek bonds continues to contract. (The 10-year Greek bond is now yielding 'only' 6.08% vs the 10-year bund at 3.25%.)
Since independence in 1832, Greece has been in default on its sovereign debt for longer than it has not been in default. And you have to go back 2,500 years to find a prior example of Greek prudence: after the battle of Marathon in 490BC, the Athenians voted by the narrowest of margins to spend the riches of their newly-discovered silver mines at Lavrion not on lower taxes, but on a fleet with which they were able, at Salamis 10 years later, to defeat the returning Persians. So by Greek standards any deal at all is progress.
In benighted Britain, by contrast, even our dustbins are now bugged, and so we go on forwards - backwards. Under Attlee it was the factory worker; under Thatcher, the entrepreneur. But who has benefitted from Blair/Brown? The public 'servant' [sic]. A study published this week shows that in 1997 the NHS had 12 hospital beds per manager. That is now four. Over the same period, the number of council staff earning more than £50,000 a year has multiplied almost 12-fold (from 3,300 to 38,000), while in the private sector it's gone up by a factor of three. This explains, among other things, the overseas bent of our UK stock selection.
As certain stocks ...
Unless you've been an anchorite on Mount Athos recently, you'll have read or heard the views of the reclusive Tim Steer, he of our UK Growth Fund, on Babcock/VT. (Tim's just left for Athos to tell the monks, actually. But he says he'll be back soon.) Tim owns both stocks - as do Derek and Ruth in UK Special Situations. We await, as they say, developments. In the latter fund, there have been agreeable results from two holdings: Devro, which makes casings for sausages, and Ricardo, the engineering consultancy. But when, when, Derek wonders, will the market recognise such fine firms and allow the rally to broaden?
In Strategic Bond Fund, this week James and Alex have continued their overweight in financials (48.3% of the fund) by buying Co-Op LT2 bonds. With a yield to maturity of over 9%, and a small chance of that being called next year, our duo are comfortable with the Cope's financial ratios. And after their merger with Britannia, co-operative brands are bonding.
We suggested to Adrians Frost and Gosden yesterday that they raise a glass of orange juice. Why? Because [y]our Income Fund has gone through £3 billion this week, and we thought that even Frostie might regard that as an adequate margin of safety to mark the fund passing through £2 billion. They demurred, of course. Instead they started new holdings in Amlin and Ashmore, and added to Novartis and to (cheap) transport stocks.
Amid general signs of corporate spring? Our managers have been anticipating more M&A in the main markets (and the investment bankers, of course, are drooling). Well, we are starting to see it even amid the micro-caps. Andy Gray, who co-manages our VCT, reports much vigorous activity in corporate Darwinism that does not often reach the main news. More ballast to our general, if guarded, optimism. After all, it seems it is still true, as the jingle goes, that "greater fleas have lesser fleas upon their backs to bite 'em/ And so ad infinitum."
News of the Week
Wig-ware ...
A Kiwi has put up for sale this week a unique hovercraft that can also fly. Mechanic Rudy Heeman took the model of a hovercraft to create his 'wing in ground effective vehicle' - or WIG (for short). It rides like a normal hovercraft. But once it reaches 70km/hour, it takes off. Rudy has spent more than a decade building WIG. Some of the parts used to create his flying hovercraft are complex household items, including "an old gas bottle off a barbecue", he said.
The wings are removable. This is useful for transporting WIG, but fatal if they are not secured properly. Attaching the wings before a flight, Rudy said: "I call that the J*sus pin. When that pin comes out, you see J*sus." The vehicle does not need a flying licence because New Zealand's aviation and maritime authorities have agreed to classify it as a "marine craft". Rudy added that WIG is an efficient form of transport and could be used by farmers. "You could land on your fields and you wouldn't have to worry about opening or closing your gates: you just go over them."
Article last updated: Mar 5, 2010
Derek Bradley, CEO
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