Morning Mumble: China's rebalancing, ISAT, VED, Lex bemusement, SXX, GENL and SNCL read across to KGF? + BofE

Good Morning,

For some reason or other certain entities prefer to call EMC commentary as negative rather than realistic on Chinese growth. We'll ignore how numbers are reported and 'massaged' within the Chinese GDP focal-points. China's premier Li Keqiang (FT) has reiterated a more relaxed approach to growth with the terminology of 'around 7%.' 

China and those better versed in the politics and industry know full well there's significant wastage, which is symbolically represented by the housing slump in China. With industries reliant on stimulus for growth, when in reality, after such a sustained period of growth consolidation would be wiser. 

The emphasis is on the 'around' terminology. China are logically accepting a slowdown/cooling in specific sectors and resetting expectations. Investors would be wise to consider this a cautionary note of things to come. The contradictions are already there, with such measures as increasing financial liquidity of mortgages but cunningly increasing the down-payment requirements for home purchases. 

Li (EMC not the direct line to the premier) has concerns for how resilient Shanghai and Beijing house prices and rental yields are, as they are already showing a larger housing price decline than expected. This is solely in part due to the exponential demands on house price to wage ratios, the latter being 50% above any other city in China, at circa 15 and 22% respectively. Raising questions about growth in the cities when balanced against affordability and wages which are slowing. China has surpassed western economies with an emphasis on home-ownership, with the lovely term fangnu meaning 'house slave'. In essence working just to keep the house.

With oil in decline, and commodities significantly lower, China will feel the benefits in the short-term, but deflation is a significant risk in China. Along with excess capacity, wage-stagnation and limited FDI. It's wise to ignore the recent jump in China inflows of FDI, on the basis of the lunar cycle being near one month earlier for the Chinese New Year. With China very much in the throes of Japan's 1980's models. Its becoming more evident that China are wary of excessive stimulation save for a populous of discontent that may force the Government to 'keep their comrades happy.' Those Chinese mega-bulls might be wise to revisit their expectations. 

Inmarsat plc (ISAT) updating the market that they're out of fashion with Government spending, down a whopping 20+%. ISAT will benefit from a trend in flight tracking and the Global Xpress system (specifically from London.) With a fairly decent run since October it would be sensible to take profits. Results likely to suggest a few downgrades to circa 850 pence. 

Vedanta have given some Cairn India guidance. We will save the debate on what proactive means, as Cairn recently updated us with Q3FY15 and "in light of the current oil price environment, Cairn is taking a proactive approach to capital allocation and shareholder returns." With an element of sarcasm, its positive that VED acknowledge they have "a" shareholder. I'm sure Anil Agarwal knows there's a few others on the register. 

Its with bemusement that the LEX column couldn't have been further off the market with their coverage of Glencore. One is resisting the urge to educate them some more, as Roger Bade rightly points out, "net income before extraordinary items might have fallen only 7% to US$4.3bn last year, but net income was only $2.44bn, after the significant items." LEX need educating about bottom and top line (Glencore: Trading Place) and what to allow for in deductions. It’s easy to spot crap, GLEN's results were crap and with some hope of a recovery in oil trading, GLEN might get some respite. 

Sirius Minerals (SXX) holders need to learn to avoid becoming the eternal short on their own stock. Holders simply won't learn nor will the management if they continue to utilise this type of funding in future. Near 40% of the fall (aided by impatience and an idiotic understanding of the planning process) is as a result of warrants and the flipping of said stock. 

Genel (GENL) full year results, suffice to say GENL expect significant growth in the future. Perhaps aided with an all share purchase? Despite exploration costs being just shy of $500M, depreciation being $141M, GENL remain bullish for the future with revenues even at $50/bbl being positive for the bottom line. As such, GENL can potential leverage or alternatively, take on leveraged assets. Is it enough to stop the rot in the SP? In the short-term yes.

Sinclair Williams (SNCL) continue their historic trend of disappointment with the CEO falling on his sword today. As asked last year about SNCL, my flippant comment that I hope you aren't composting your share certs created upset. Perhaps now they'll have a group hug! Over to SNCL to sum up trading above their "poor start to the season." 

William Sinclair has had a difficult season so far. While some progress has been made in the ramp up of production, we are not as well developed as we had expected to be at this stage. We have also seen a slow start to the season with sales to retail and professional customers below last year. There has been margin pressure in both professional and retail sectors. Consequently the Board expects that the result for the year on an underlying basis will be materially worse than last year.

Allowing for debt, SNCL will have to pass the cap around soon, the read across to B&Q (Kingfisher/KGF) might not be as favourable if one measures compost against KGF sales. It would be very unwise to bet against KGF with the current buyback in progress. With a few savvy investors spotting the money for old rope long. SNCL benefited with the hope value in the recessionary grow your own that failed to materialise. With the younger generations avoiding any form of home horticulture and DIY, the future isn't so rosy, quite how they’ll turn around this business remains to be seen. Price perception of compost and gardening materialise is amazingly difficult with older generations being the driver rather than the youth of today. 

Daily Mail + Cyprus Mortgages. Talk about reactive reporting, wasn't yours truly reporting on this in FTML a few months ago pre-CHF debacle? What the article does not say is the lengths the Cypriot banks will go to seek recovery of their money. With UK holders with property in the UK potential having to sell / lose their homes to repay their potential obligations. For those with potential obligations over there, they'd be wise to contact Christofi Law, who are conducting a class action.

We have the excitement of the Bank of England rate decision today, which I'm sure will thrill people with no change!

Atb Fraser

N.B Avoiding Oxus commentary at the moment on the basis a) trading, b) potential misinformation is in the public domain about the size of any award and c) holders should have made considerable monies already. 

Morning Mumble: PGM Horse Trading &...and real economics.

Good Morning,

The rocky road of Republic of South Africa (RSA) PGM industry, or soon to be known as the shareholder gift-aid scheme. Aquarius Platinum (AQP) has managed to find a sucker in Northam Platinum (NHM: Johannesburg) for the Everest Mine that's been on care and maintenance since mid-2012. The costs associated with mining, allowing for a weakening Rand(ZAR) and labour disputes settling down, makes the industry untenable at current costs and a surplus in the platinum industry mean prices are going to stay around production costs plus 7% (ish) for the foreseeable future unless something changes. So any leveraged outfit is unlikely to achieve a sensible level of shareholder returns. 

Will it benefit Sylvania Platinum (SLP) J/V at Everest North tailings operation? Unlikely, but the management can of course use some crystal ball gazing to award themselves some more no-cost options to reward them if Everest North does come back online. Its difficult for a platinum company, if they don't invest in platinum they're essentially saying what everyone else knows, there's better returns elsewhere. Until the gap between demand and supply narrows mothballed mines coming back into production will only prolong the pain for the sector. 

Inspirit Energy (INSP) signs letter of intent yesterday and conducts a "micro" placing today. This appears to go in for a seasonal ramping. Having a position and traded this stock according to ramps and news flow. The company needs a decent partner with funding that removes the risks to the current holders. It’s "almost" identical to LGO's Spanish oil news flow all those years ago. Not without risks, but with some potential, one hopes any deal isn't hindered by a JV with a Goliath that has little interest in pushing the market share. We'll ignore the obvious with the Micro-placing terminology, it’s a placing and very small at that...almost implying its crowd funding. One just hopes they don't open a microbrewery! 

With Oil tracking the bi-polar mood of the world economics at the moment, it’s disappointing to see the likes of TUI AG Plc (TUI) hedging so significantly in their 1st Quarter Results. Forget hindsight, when would have TUI have not benefited from a 50% (approx.) hedging and fill the rest from the spot price? Perhaps this amateur is missing something, but a quick gauge over the past 5 years would have meant a net benefit of circa 6-7% on fuel costs.

Copper is hanging on the cliff of appreciation or depreciation, with some gossip in China that the numbers and trade are down further. In contrast financing seems to be improving for leveraged trading (attempted bottom feeding) and restocking taking place contradicting all those bulls the market was artificially low. trading circa $2.5450/lb. Chinese trade data now increasing the odds of Chinese full-on stimulus if they wish to maintain their growth targets, the market awaits the direction or revisions to growth. 

London Property Bets in the FT. EMC commentary on Berkeley Group & Foxtons, the first set of shorts were 5 months ago and now the market is waking up to the realities again where there's a secondary short as the market accepts the facts. 

Zoopla (ZPLA) and Rightmove (RMV) have to do maintain their competitiveness with their fees and advertising. OnTheMarket.com (OTM.com) is the dilution for the sector and a disruptor over the long term for earnings, whether it is a success is immaterial to estate agents whom can negotiate harder, with London normalising, ZPLA and RMV will be under pressure. Expect the denial and ignorance to persist with price appreciation in the market, until OTM.com's marketing and impacts are felt. 

UBS find themselves with the no news award today confirming they've been affected by the CHF both short-term and longer-term. It will impact on their longer term results, unless of course they've employed a magician.  

Atb Fraser

Morning Mumble: QE...the amateur simpletons view & WRN...+++Rio, BLT, Monitise, Fever tree and Euroscepticism.

Good Morning,

Its coming and the bets are on but with the Swiss National Banks (SNB) decisive actions on Friday the market is looking for something a bit more charged. Putin will be praying for a significant cold spell, perhaps even planning a late 2015 re-entry where he can obtain leverage. QE is likely to assist this conversely promoting inflows of investment (where possible). The markets are getting hooked on drama rather than consistent and solid performance (read as also investing in crap!) with common-sense being applied. 

Unlike America where the culture may have ranges (diversity) but similar agendas, the Eurozone does not have this luxury with contrasting voters and more so agendas of protectionism (read as Germany and France albeit not a united front). 

Without pretending nor even attempting to be all things Euro or Macro, it’s looking more and more like an inverted pyramid with Germany propping up the fragile economies of the Eurozone. When considering the outcome, the markets will be cooking on gas again until they're taken off the market welfare assistance (QE). The real risk is the incapable governments utilising excuses to justify their spending rather than address their budgetary needs quicker to re-correct the fundamental issues within their economies.

The sticking point is who will be responsible for each member states debt. Its ironic that in alleged harmony the wealthier members do not want to share the load (read as take the load). So whilst the finer print is muddled through one can't help but wonder if the EU is in for some re-branding, to European Disunion. 

The conflict of interest is disliking all things EU, with yet another tier of bureaucracy where if the costs of the EU were stripped out it would be a long-term form of QE anyway. For every country contributing there's a net benefit to 2 by their membership in the EU, its a wonder its lasted this long. The EU may or may not have a determination of strength in due course if QE does not work. 

The issues of high level unemployment (Circa 10%+*) are unlikely to be improved by the EU's bond purchases as greater focus on the issues within each country are needed. France has yet again (for the third time) asked for an extension to deal with its deficit. The French are notoriously difficult to deal with when they're doing something or not...(yes thought was put into the phrase). So in the absence of economical stimulus with a focused approached its unlikely to be as effective bar a few KPI's  (Key point indicators). These are likely to be superficial living standards and welfare claimants measures (distorted by in work benefits).

In the markets today, we had Worthington Group (WRN) (still suspended pending a prospectus which should have been out by now) update on CPS Energy Resources. The question should be, with the information (surely) to hand why was it not specifically excluded in in the Company's calculation of consolidated assets, profits, sectors or geographic locations announced on the 9th January 2015. After all the deal was announced back in October 2014. 

Is this one for the regulatory team of AIM...even as far as the FCA. The company made no exemption for CPS in their calculation of the net asset value for mining, oil and gas within the announcement on the Friday 09 January, 2015. Today, in the RNS only four areas are now included: property, litigation claims, new economy and emerging markets, yet 13 days previously it includes oil, gas or energy, oops and also mining now! If you hold the stock it would be wise to call an EGM and force disclosure of everything including the prospectus. Actually why bother, if you own this stock don't read on, close the page!

Copper woke up this morning, I suspect with some draw from gold and the dollar weakening. Iron ore minnows were getting a kicking, whereas Rio and BLT shrugged off the obvious and went on an easy trading run. In the absence of traders and pension funds would Rio and BLT be circa 2,500 and 985 pence respectively? Although there’s starting to be a good argument for near bottom of cycle buying that I disagree with. Rio's ramp up and inventory sales support their thesis on expansion, will it continue?!

BLT having further issues with Manganese as Roger Bade pointed out, prices down circa 10%. Over to the Atlas Iron (ASX: AGO) whom had opportunity to get out considerably higher thanks to the DCE (Dalian Commodity Exchange) extension in trading hours. Gold and silver both stabilising and awaiting the next indicators its over to ECB QE. Oil likely to benefit as well with the steady appreciation continuing, appreciating to circa $55/bbl give of take 3% drift between WTI and Brent.

AB Foods (ABF) finally giving in to common-sense with significant selling. Does it really take that long to digest the results? EMC view January 15, 2015, who'd have thought it and time to quote myself: "With little upside on the current SP, it’s wise not to carry profits much past the news. Under review for the short, now January 2015 has arrived." Will a DRIP (Dividend re-investment plan) assist? I doubt it...

Hulme Capital had a few issues this morning with the 'wording', for which having wanted to find out more had some diplomatic clarification from two companies in RNS REM & UKOG after this morning's Dismissal of Adviser REM & UKOG. By sheer coincidence both with a related party associated to both companies, Mr David Lenigas.

Monitise's (MONI) trading update & initiation of strategic review, informs us its up for sale with the price reacting in the right manner. With UK Mail (UKM) coming out the reporting starting blocks 10 days ago Royal Mail (RMG) Nine Months Trading Update had little in the way of surprises and was the long to the news. With little commentary (in fact none) on fuel cost benefits, RMG have missed an opportunity to promote their own stock, improving margins and energy costs reducing. 

Limited time for some, including Tullow (TLW) and Gulf Keystone (GKP) but to my left eye Malcy has saved myself via his blog today. Fever Tree (FEVR) pre-close update come with no surprises from a quality label. FEVR are the Carlsberg of tonics in my view! Having been drinking FEVR tonic for a good time, its about the only additive to gin I can differentiate in taste save for Hendricks Gin and Adnams Copperhouse Gin after one.

Atb Fraser

*Unemployment stats: Greece 25%, Spain 23%, Cyprus 16%, Croatia 16%, Portugal 14%, Italy 13%, Slovakia 12%, Bulgaria 11%, Ireland 10%, Latvia 10%, France 10%....all 17 others sub 10% with an average of circa 10%.