FT Alphaville " Markets Live transcript 21 Sep 2012 Markets Live chat transcript for the chat ending at 11:15 on 21 Sep 2012. Participants in this chat were: Bryce Elder/FT Izabella Kaminska Friday. Hello. Markets Live. Thing with the waffle and prices. And joining me today, while Paul is off in an epic Fed-style two day management meeting .... Je suis ici...! L'ordinateur marche tres bon Oh - I thought that meant "I'm too drunk," usually followed by "Ou est mon hotel" ... That may answer why taxi drivers have been laughing at me. Anyway, should we kick on? Let's reconvene in english. What's going on. Seems a bit dull today? Options expiry. Quadruple witching. Caused a 50 point fall at 10:20 or thereabouts. Today is quadruple witching.. ah! FTSE daily graph looks like Sugarloaf Mountain. We can't handle all this options stuff in crappy illiquid markets like this.. as an aside, my sources say options were responsible for crude's mysterious slide on Monday as well... (to some degree) Not surprised, though the detail will baffle me I'm sure. It all seems to be a symptom firstly of bipolar, risk on/off correlated markets .... And rather low ACTUAL trading. By which I mean people buying things. That is a splendid diagnosis I tried to get the "bipolar" diagnosis into paper once. It was removed on taste grounds. So I see there's M&A excitement being referred to. I have to say.. when I was in London i stumbled across a somewhat stressed out Anousha.. Looks like after months and months of nothing, we are having a bit of a london bus situation Is this a correct diagnosis? The M&A beat is awful. Famine through summer, now we just have mega deals. Yeah, expect another slew in the weekend press. XTA has to respond by 7am Monday. This is from our story. Can you explain this to me? What do they mean a different base? This is why I just don't get M&A I'm not sure. Guessing, they might be using a 90 day average price? You can get into arguments about undisturbed prices. When things are actually being priced into the market, etc. So it's like me valuing you based on five years of work, as opposed to a few months? It's continuous assessment rather than a final exam. Anyway, interesting interview with Glencore founder Marc Rich They cracked that box open The larger a company is, the more market power it has, and that makes it easier to control price-setting. In the end, this means higher profits Isn't that advocating a bit of err........ You can read it that way, yes. Yes, this company should grow because it will be better at manipulating prices ... The Marc Rich school of trading Actually, i'm just rubbing my eyes on that. That quote is pretty priceless. May have to use it for a Quote Du Jour on the blog. It's remarkably frank. Though not remarkably Ivan. what do you mean bryce? Can't imagine Glasenberg being so .... unvarnished .... about the motives here. Particularly at this stage, when Glencore really needs to keep XTA middle management inside the tent. are you suggesting Ivan is cringing on the back of that comment? It won't make his day easier, I suspect. Anyway, should just note that Glencore's added to the S&P Europe 350 and S&P UK indices at the close today. May be a squeeze, but don't count on it. Glencore International PLC (GLEN:LSE): Last: 369.50, up 1.35 (+0.37%), High: 375.18, Low: 367.80, Volume: 9.05m Xstrata PLC (XTA:LSE): Last: 1,047, down 2.5 (-0.24%), High: 1,064, Low: 1,041, Volume: 4.61m Otherwise on miners, we're up. We're up because we're up. Vedanta Resources PLC (VED:LSE): Last: 1,082, up 28 (+2.66%), High: 1,097, Low: 1,065, Volume: 548.45k EVRAZ plc (EVR:LSE): Last: 265.00, up 4.2 (+1.61%), High: 272.50, Low: 263.10, Volume: 1.78m Eurasian Natural Resources Corporation PLC (ENRC:LSE): Last: 347.90, up 4.3 (+1.25%), High: 355.70, Low: 344.90, Volume: 1.12m There's a UBS note knocking around .... A really weird one full of MS-Paint style charts. Which basically just says "these are high beta so keep buying" The Grand old duke of Glencore.. he had 10,000 men, and when they were up they were up... Should we keep buying the high beta miners? What stops the high beta miners trade? Too big a rise in oil prices and US mortgage rates. What should we buy when the high beta trade runs out? Gold, not the US dollar. As to how far the rally can go ..... There's a certain school boy logic to that. Our analysis of capital flows under "global QE," the potential for restocking of key commodities like iron ore and copper, and the extreme skew in equity positioning away from miners suggest that the rally in high beta commodities and miners could go "further than you think." And someone wake the goldbugs. They're in there as well .... Moreover the Fed's commitment to increase QE further should US labour markets not improve substantially means any growth weakness would likely be met with gold buying, in anticipation of further QE. That makes gold a structural buy. As for their punts ..... Key stocks on the deeply discounted/high beta and silver miners tactical call, all Buy rated: Rio Tinto, Ferrexpo, Kazakhmys, ENRC, Walter, Alpha Natural, Freeport, First Quantum, Fresnillo and Silver Wheaton. Key buys on the gold structural call; physical gold, and tactically gold stocks while cost pressure is diminished: Goldcorp, Newmont, Osisko, Perseus and Alacer. hmmm. You know how i feel about goldbugs. I have similar feelings, albeit without the ability or tolerance to argue with them. Anyway, I may LR that UBS note, if only for posterity. So should we talk "reflation" on the back of that? Please? What are your thoughts? Well i liked this point from Morgan Stanley today for one Economic theory suggests that a highly dovish Fed should increase inflation premiums. The fact that inflation expectations have remained well behaved is very notable, in our view. They could yet keep moving higher, but the absence of a more significant jump suggests that the reflation trade may not have long legs. More relevant though is what inflation expectations say about growth. Growth and inflation are close cousins, and it's doubtful that there will be a meaningful move higher in inflation expectations until the recovery appears more significant and durable. Given the modest move higher thus far, it doesn't bode well for growth and thus the path for risk assets, in our view. (@Jarvis2009: take a look at recent steel shipments/production data too. It's starting to look very 2009 ...) And in more signs that it's not inflation but No-flation that you should be fearing...the last Hawk standing capitulated yesterday we're talking about the man with the impossible K-surname Sorry i had to find the name to copy and paste Fed is right to keep rates at zero and is even advocating this whole new trend of employment targetting Look, I'm an idiot, as I demonstrate daily. But isn't QE-infinity entirely about employment targetting? Here's a recap from dennis Gartman... His PDF is one of those non-copyable ones Kocherlasdhklasdash has joined the doves. Said Fed should keep interest rates low for a long time. Kocharhkjahklsdhajkh is less concerned about inflationary effects than he was before says: "concern about an event that may not take place for four or more years" Anyway Cardiff has the statement here On the flipside Bullard is not happy about tying monetary policy to an unemployment rate. Can we move on? I'm getting macroeconomic vertigo. @fjp73... He's saying that there is no concern about inflation with zero rates for as long as unemployment is crappy. Hey! I've been invited to "Forex Trading Boot Camp" Join some of the forex industry's leading analysts for an exclusive, full-day educational event hosted by FXCM, DailyFX and City A.M. Friday, 28 September The Grange Tower Bridge Hotel Will they crown the "Biggest Loser"? Ah, don't be cruel, Iz. That's what they usually do at Bootcamp Missed it. Caught highlights. Any of the rabble catch it? Impressions, folks? So the most news-ish bit .... Is that he gave an econ 101 and justified Osborne missing targets if the economy doesn't grow If its because the world economy has grown slowly, so we have in turn grown slowly, then that would be acceptable. It would not be acceptable if we have no real excuse. Something of a feedback loop argument. He does look a little uncomfortable Well economics is a giant feedback loop Bryce Here's a followup from Investec Some stabilisation in borrowing. The main measure of government borrowing, PSNBX, was recorded at £14.4bn, slightly below consensus estimates of £15.0bn and Investec forecasts of £15.5bn. This means that for the first time in 2012/13 figures for the public finances for August were better than expected. Moreover following a recent run of numbers showing that the deficit is on the rise again, today's figures virtually matched last year's outturn, hinting at some stabilisation in the public finances. But tax receipts are still weak. This is reasonably good news but figures on government borrowing should always be treated with a degree of caution since they are very volatile on a monthly basis and are frequently revised, often heavily. Moreover looking at the first five months of the financial year so far still shows a marked deteriorating trend. Stripping out the effects of the transfer of Royal Mail pension assets and profits from the Special Liquidity Scheme suggests that even when August's numbers are included, government borrowing is still rising by £2.6bn per month. This is not, as some suggest, because the Chancellor has failed to control spending. Indeed current expenditure over the year so far has risen 3.0% on a year ago, virtually in line with the OBR's forecasts. The problem concerns the sluggishness of tax receipts which, at just 0.4% higher than a year ago, are running some 3.5% below official projections. OBR's forecasts under threat. The better news was that borrowing for 2011/12 was revised down by £5.7bn, to £119.3bn. But despite this the OBR's forecast for 2012/13 of £92bn is looking increasingly under water, requiring an annual improvement of £1.4bn per month to achieve it, which looks a very big stretch. In all likelihood the OBR's Autumn Statement forecasts on 5 December will revise the UK's borrowing profile materially higher. Hence the recent talk about fiscal rules. The government's "supplementary target" is that net debt (PSND) to GDP should be falling by 2015/16. In broad terms achieving this would involve cutting the deficit at a pace such that the deficit is around £50bn at the end of the period. In contrast with the government's main fiscal mandate (eliminating the current budget deficit in five years" time), this is a "straight" target with no "get out clauses" involving cyclically adjusted figures or five year rolling targets. On current trends our guess is that the OBR's conclusion will be that the debt to GDP objective will be missed. Letting the target slip? In all likelihood the Chancellor seems likely to be faced with a choice of tightening policy further or dropping his rule. Bearing in mind both the parlous state of the economy and the strains with the Conservative / Lib Dem coalition, Mr Osborne will probably opt for the latter. Indeed Sir Mervyn King's interview on Channel Four yesterday evening, where he endorsed this course of action in the grounds of a slowdown in the international economy, gives the Chancellor a considerable amount of cover to maintain his credibility. @phil - Mervyn always reminds me of a womble Do you support Steve Hawkes" bid to become next Governor? Steve Hawkes, business editor of the Sun Yes - your opinion is highly influential. I would rather apply myself BOE minutes presented in fuzzy felt. I think we can all get behind that. Ok - 43 minutes gone and barely any stocks mentioned .... I guess we should change that. Though, frankly, there ain't much around ..... No clearer on what spooked Chemring yesterday afternoon Chemring Group PLC (CHG:LSE): Last: 338.10, down 4.9 (-1.43%), High: 345.30, Low: 333.30, Volume: 480.40k Nothing appears to have changed, according to people who'd normally know if things had changed. Otherwise on the RAW front ..... Lots of talk around about Northgate Northgate PLC (NTG:LSE): Last: 242.00, up 3 (+1.26%), High: 247.83, Low: 238.25, Volume: 199.30k Van hire, for those who don't know. Volume off the scale yesterday, which was a day after its AGM. And still edging higher today. The theory, such as it is, seems to be that PE's had a look. Tad cautious about this, not least because it's up by a third in three months. Though still on an ev/ebitda sub 3. And about 20% below the tangible NAV. It tends to trade at parity. There's a little logic here. UK restructuring largely complete, if still a bit slow to show any improvement. Spain, which is 28% of earnings, can either improve or be shut down. Anyway, dunno basically. Volume suggests something's up, but not sure what. can we apply that philosophy to spain the country? sorry, couldn't help myself Is there anything to say on Spain this morning? I haven't really been concentrating on the eurofudge. Oh .. they are going to be saved. The Financial Times reported that EU authorities are working behind the scenes to pave the way for a new Spanish rescue program by helping craft an economic reform program that will be unveiled next week. Right - it's Friday and I don't care about Spain. Sorry about that, Spain. Ok - one exception to the miners rising ..... Lonmin PLC (LMI:LSE): Last: 596.00, down 14.5 (-2.38%), High: 620.63, Low: 592.00, Volume: 614.06k i think Joseph cares and David (Yes. They're young, so have higher tolerances to repetitive tedium.) besides last time i cared about spain, i got internet murdered. Was that the time they turned up outside the office with a TV camera and a paella pan? (That was fun. In retrospect.) Right! Lonmin. Actually, just noting the price really. And having rebased pay inflation in South Africa at 20% plus. Four out of five AmPlats workers have walked out. Anglo American PLC (AAL:LSE): Last: 1,936, down 8.5 (-0.44%), High: 1,973, Low: 1,928, Volume: 2.28m Fairfax summarises for us ..... Job losses are inevitable as shafts close and companies go under. Violence will ensue as workers demand protection from the ANC which will struggle to support mining activity. Nationalisation is an option but will inevitably fail. The ideal background on which to launch a rights issue. @Emptyend, I'm sorry, RAW is of a rather substandard quality at the moment .... We do try, but it's difficult right now. For example, you may have been here for that Monster Worldwide story last week. US recruitment website. Shares been bouncing around like a kitten in a washing machine .... bryce how did your brain even come up with that analogy? My brain is not a happy place .... Anyway, story up on DealReporter last night Which has a spokesman on the record saying the things we had from people close last week. Axel Springer has not submitted a bid for Monster Worldwide (NYSE:MWW) and does not plan to make a bid, a spokesperson told this news service. There has been market chatter that Axel Springer, a German integrated media company, could bid for Monster since it recently formed a strategic partnership with US-based investment firm General Atlantic. The deal would give General Atlantic a 30% future participation in Axel Springer Digital. So I guess that nails that. But with the most likely bidder out, it remains a mystery who on earth is bidding for this thing. Oh, and I wanted to mention Vodafone before we wrap up. Im totally behind on Voda What we used to call Vodafone is now just a minority shareholder of Verizon Wireless with a few disconnected regional divisions attached. Meaning the majority of its cashflow is coming from an asset it can't really exert any control over. Which puts a big question mark over dividends, which don't come close to being covered without Verizon Wireless cash. Vodafone Group Plc (VOD:LSE): Last: 176.77, up 1.77 (+1.01%), High: 177.55, Low: 175.80, Volume: 61.70m I note this because Barclays says there's nothing to worry about. Argues that Verizon needs the money too, so will keep on upflowing VZW's cash. The note's rather difficult to read, but here it is anyway. In the upcoming months Vodafone's board has to make a significant decision on future dividend policy. As one of the biggest cash dividend payers in the FTSE100, this clearly has significant implications. In this note we examine Vodafone's dividend cover and yield in the context of a rebased Telco sector and its importance to income funds. Since announcing the previous policy in May 2010, the Europe vs VZW performance dichotomy could influence the ordinary/special mix. We conclude that US proceeds should most likely be used to buy back shares and delever to support a 10p ordinary dividend. Overweight, 200p PT (was 195p). Dividend - great expectations but times have changed. Vodafone's 7%/year ordinary DPS growth policy ends in Mar"13, and gives a 10.2p dividend (5.8% yield). Including the 4p/share VZW special last year would give 8.1%. Crucially the Telco sector yield has fallen to 7% (from >9%) due to sustained European FCF pressure and leverage, with high profile recent cuts since our 8 Dec 2011 "Addicted to dividends" report. Europe (controlled) pressure vs US (regular) outperformance. Macro, regulation and competition has resulted in consolidated OpFCF falling £1.1bn/14% over the past 3 years (Europe has fallen £1.9bn). Unlike 3 years ago this has left the ordinary dividend barely covered once spectrum is considered (Mar 14 £5.2bn equity FCF ex VZW vs £4.8bn dividend). Conversely US OpFCF (prop, £5.5bn) has risen £1.1bn/>25% over the FY09-12A period and our work on VZ cashflow indicates upstreaming dividends should be a regular event. Ordinary (Europe) vs Special (US). Buybacks/deleveraging to support 10p ordinary. Given the above analysis we see two main choices for the board. 1) Reduce ordinary DPS to improve cover, but increase the payout from VZW proceeds. 2) Maintain ordinary DPS but use VZW cashflow to fund spectrum/M&A, delever or alternatively buy back shares to reduce future ordinary dividend commitments. We model a buyback rather than special dividend. Our price target is 200p (14% upside); stock trades on 10.4x/8.6% Mar 14 P/E & equity FCF yield compares to the sector on 10.4x/11.1%. It's all gone Dinner Party Live on the right. I thought it had gone a bit DM May I recommend this video featuring Ed Hammond? I was doing a little research of my own.... was kinda shocked there are more 2m+ 2 bed flats than 300k 2 bed flats i have no pound signs on my keyboard also everywhere I look there is a new development They are building these integrated hotel type things with pools and wine cellars The chart that really struck me in that video .... Was that just 19% of purchasers of central London developments are British with 2-beds going for 1.2m in "fulham" which is actually hammersmith Word has it it's all foreign buyers This is the non-dom discount, I suspect. Chinese and middle east Keep your domicile elsewhere and you're getting a fifth off the ticket price. Makes sense. Unless you're from here and want to live where you work. Which'd be nice. But since i'm the only person I know who moves to switzerland and gets a higher tax rate than i do in the UK.. Personally, I find worrying about tax impossibly boring .... Bryce. You live in the west. I recommend a stroll to the show apartments I'm happy enough to just open my wallet and let the government take what they want. It's the path of least resistance. Yeah, Shepherds Bush has two new developments that look rather upscale for what is, in effect, a craphole. I was just noting that living in switzerland is not as tax efficient as some people think possibly why everyone is leaving Anyway, I think we've probably drifted off the remit now ..... Should we wind up for the week? We should anchor ourselves Haven't mentioned any of the smalls..... Including the unamazing news that Smiths Electric Vehicles hasn't got its IPO away Tanfield Group PLC (TAN:LSE): Last: 31.00, down 20 (-39.22%), High: 40.00, Low: 26.25, Volume: 3.87m Another kick in the teeth for Tanfield shareholders ... Oh, and HMV results of course. They're rubbish. Shares are down. HMV Group PLC (HMV:LSE): Last: 2.80, down 0.25 (-8.20%), High: 2.96, Low: 2.70, Volume: 2.83m And that summarises that. Ok - thanks for joining us everyone. Lively on comments today, so thanks for that. Property always gets people going True. We should pull that trick more often. Thanks for keeping me company, Iz. And join us next week, when Spuds should be back. yes. in the mean time it's goodbye from me