Some crumbs of comfort
By Richard Hunter | 29 Jul, 2008
Buried within the general headlines of the difficulties the market and the economy are facing, there can be some indicators which are only lightly reported since they do not conform to the current pessimistic attitudes.
For example, the FT recently ran a story which noted that the number of hostile bids had risen to nearly 20% of the total, a figure not seen since 1999, on the basis that boards are under particular pressure from shareholders at the moment and a new owner could be seen as the answer. Nonetheless, the very fact that there have been a number of multi-billion dollar approaches in the first place from cash rich companies (Microsoft/yahoo!, InBev/Anheuser-Busch, Roche/Genetech etc) is a positive sign.
Similarly, that the private equity group KKR has chosen this moment to enlarge and switch its listing to New York (from Amsterdam) is a clear sign of confidence – firstly that this could give a greater return to shareholders in the longer term (from its current lower base) and also that those very shareholders could be approached for capital in the future as opposed to relying on bank loans. The issue itself will raise no new capital, but I believe it is clearly a statement of intent.
There is also an increasing number of voices in the US who are making the point that whilst the sub-prime fallout continues to wash through the system, the number of defaults – in other words, the first step towards foreclosure in the US – rose by under 7% in the second quarter of 2008, as opposed to a spike of nearly 40% in the previous quarter. The argument therefore follows that perhaps the final rush of higher priced defaults are flushing out of the system.
There is even what must be the first piece of positive research on the UK housing market, recently released by the National Housing Federation. They do indeed forecast an average 4.4% drop in house prices – and 2.1% in 2009 – but maintain that in the overall five year period leading up to 2013, prices will rise by 25% as the housing momentum story starts again. They argue that there will be the requirement for more houses than ever, through a combination of increased life expectancy, higher divorce rates, and single homeowners delaying getting married. It is a brave call – but at the current time it is also trying to look through what will undoubtedly be a difficult time in the short term.
In themselves, these examples are not strong enough to signal a turnaround – individually or collectively – but as news flow they nonetheless need to be considered in the round in order for the investor to arrive at a balanced view.
It is unlikely that we are there yet, but nobody rings a bell at the bottom.
