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Bull and Bear – an optimistic and pessimistic view of investment news. Today’s stories include:  European car sales plummet as UK car sales pass summit. Will surging oil shake economy? Are mergers and acquisitions set to rise?  Japan avoided worst of sub-prime debacle because of poor English. Companies in the news: Ryanair, Invensys, Schneider Electric


European car sales plummet as UK car sales pass summit

So let’s blame Europe. Poor old Blighty is doing its best to pull out of a downturn – or depression, or whatever you want to call it – via exporting, and there is our main export market in an even deeper downturn – or depression, or whatever you want to call it.

Some people say that the UK’s long awaited export-led recovery is not happening. But this is only half a truth. UK exports to the US and BRICS are rising nicely; it’s exports to the Eurozone that are tanking.

And moving away from tanks – or tanking geddit – let’s take a look at cars.

Recent data from the ONS reveals that UK car exports are rising faster than imports.

 

Since 1998 car imports have risen by just over 100 per cent; exports by 178 per cent.

Yet according to data out this morning from the European Automobile Manufacturers’ Association or ACEA (no idea how they managed to get that acronym), car registrations across Europe fell 6.3 per cent in June, to 1.18 million vehicles. It was the worst month for sales since 1996.

As for the first half of 2013, sales were down 6.7 per cent to 6.44 million, which was the lowest level since 1993.

“In June, the UK was the only major market to expand,” said ACEA – in fact sales were up 13.4 per cent. “From January to June,” it added, “except for the UK, which expanded by 10.0 per cent, all other major markets faced a downturn ranging from -4.9 per cent in Spain to -8.1 per cent in Germany, -10.3 per cent in Italy and -11.2 per cent in France.”

So that’s the “UK was the only major market to expand” and “except for the UK.”

Is it that the UK is benefiting from years of neglect, and its lack of subsidies has created a more efficient industry, compared to that of, say, France where subsidies have created  a monolith too big to be allowed to fail, too inefficient to do anything but fail.

Or is this just a cyclical thing?

As for the UK, it appears that the next challenge is to find more engineers.

Will surging oil shake economy?

Some say it boils down to oil, or maybe carbon fuels.

They say that from the industrial revolution onwards carbon fuels are what charged the economy. And when we run out, well it’s back to the Stone Age – only a Stone Age in which we have nuclear weapons.

Let’s be a tad less cynical, but nonetheless nod in the direction of those who think carbon fuels are the route of all growth, and indeed lack of growth.

Conventional thinking says the reason why the economy across the developed world has taken so long to recover from the crisis of 2008 is that it always takes a long time to recover from financial crisis.

Maybe there is another explanation. And the explanation is oil. Apart from a brief spell in 2009 and 2010, oil has stayed stubbornly high.

Here is the story of oil, or in this case, US sweet crude oil. In the summer of 2008 it went within a few cents of $150 a barrel. The world fell into recession. By January 2009 it was down to $35. In 2010 it traded between $70 and $80 and the UK left recession. At that, many thought the UK was on the slow road to recovery.

In 2011 US Sweet crude went over $100, and – according to early ONS data – the UK went back into recession a few months later, but according to the latest data, it merely slowed down considerably.

Then cost of energy crashed in the US on the back of shale gas. The US economy appeared to begin a period of sustained recovery soon afterwards.

In 2013, and until a few days ago, oil was trading in the $80s and $90s. The UK economy appeared to be getting better.

Then Egypt happened and the world agreed that democracy was a good idea providing democracies elected governments that the West liked. Oil surged. At the time of writing US Sweet crude is at $106, a 12 month high. If it were to rise by another $6 it would be at a five year high.

Andrew Kenningham, senior economist at Capital Economics, said: “If prices rise much further, this would threaten our forecast that world GDP growth will gradually accelerate over the coming years.”

However, he added: “The economic impact of an increase in oil prices depends in part on what has caused prices to rise. In general, a price rise resulting from a supply shock will have a bigger dampening effect on growth than one due to a pick-up in underlying demand, as the latter would imply that the economy is stronger too. Admittedly, it can be difficult disentangle supply and demand factors. The turmoil in Egypt has probably increased the premium in prices due to the risks of disruption to supply from the Middle East. But the recent rise has coincided with an upturn in equity markets, which suggests that stronger demand, or at least greater optimism about the world economy, has been the key driver.”

Are mergers and acquisitions set to rise?

What happened in 1997 and 2003? Well lots of things. Princess Diana died in 1997, and the war in Iraq kicked off in 2003.

But something else happened in both those years that may be of interest to investors. In both those years there was a trough in mergers and acquisitions, and both troughs were followed by a significant rebound.

Now Ernst and Young has said: “With UK economic data looking increasingly positive, we may once again be at a tipping-point where M&A activity will surge as companies seek out new opportunities.”

Jon Hughes, head of transaction advisory services in UK & Ireland for Ernst and Young, said: “The total value of UK M&A deals in the first half of 2013 dropped to its lowest level for a decade, with deal volumes also declining year-on year. This mirrors the global picture, where deal values have now entered a triple-dip recession since the market peaked before the financial crisis. However, while M&A activity in the six months to June was held back by continued caution and inertia, past experience suggests this may have been the lull before the storm.”

Japan avoided worst of sub-prime debacle because of poor English

Did you hear the one about Taro Asa? He is Japan’s finance minister, and a former prime minister, no less. Recently he attempted to come up with a theory to explain why Japanese banks did not jump into the sub-prime bubble.

He said: “Many people fell prey to the dubious products, or so-called sub-prime loans. Japanese banks were not so much attracted to these products compared with European ones.” He added: “Managers of Japanese banks hardly understood English, that’s why they didn’t buy.”

Mr Asa is known for his gaffes, and the blogosphere has had something of a field day mocking the hapless politican for his latest faux pas.

But don’t you think that this argument makes sense?

Not only do crowds go mad, not only do the people who make them up seem unaware of this, but time and time again, we see evidence of this.

Mr Asa may occasionally put his foot in it, but the markets, and indeed the media, by laughing off such comments seem to be putting a lot more than just their feet in it.

Companies in the news

Bull:     Over at the ‘Telegraph’, Questor took a look at Ryanair this morning. It has bold plans to increase its share of the European market, and announced its purchase of 175 new Boeing aircraft in May. After noting that shares were trading at a multiple of 16.1 – similar in fact to Easyjet’s – Questor pointed out that this falls to 13.7 in 2014. It said “buy” based on expansion plans.

Bullish:            Over at the ‘Times’, Tempus took a look at Invensys. Schneider Electric has made a bid, and it’s a bid that gives Invensys shares a multiple of 18. But Tempus said: “Those who have been holding Invensys shares since the start of last year, when I recommended them, might ponder the share price graph and think that the present price offers a decent enough profit. Certainly, if it were my money, I would be tempted to take about half off the table and keep the rest in as a gamble that a counter-bidder will emerge.”

These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees


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