Wednesday, 28 August 2013

Editorial focus, dropped chains and US housing. Time to tango in Paris?

Sydney cycling seems to be getting a little more attention in the media of late. On Sunday a show on one of the commercial channels was all about "the war on our roads". Today after I wrote a short piece on a popular cycling website here I got interviewed by a reporter from the Sydney Morning Herald. It's always difficult to tell what journalists and their editors are putting together, especially in the Herald which has in my view lacked a little bit of editorial focus over the years. I think cycling is such a growth "industry" that the Herald still has a chance to jump on board as The Times did in London and get a free ride on the wave. As an investor it would please me no end if they also thought about the possibilities in terms of revenue streams for this and other recreational orientated past times.

So after struggling through the morning news I managed to get the Cannondale out for a short hop to the beaches followed by lunch in Darlinghurst. Great weather and some happy people helped me put aside nearly getting cleaned up by a garbage truck a matter of only 200m from my house. The truck indicated incorrectly on a roundabout and it was only the pure luck of a second glance that saved me. A pedestrian standing at the crossing acknowledged as much and said so to the truck as it went past her. Oh well, that's the way things go sometime in Sydney.

The guys over at released a new edition of their tech show today (it's free: John and Sean went through the basics of bike maintenance including pre-ride checks and discussed what the home mechanic can do themselves. Most of it was familiar to me, though like a lot of riders I'm always a bit reluctant to start pulling apart headsets or remove the chain rings and cranks myself. On Monday I dropped my chain on my Pinarello and somehow it got stuck behind the crank arm and managed to take off the protective patch and give the frame a good scratching. For once I was close to a bike shop I have dealt with and the guys at Velosophy let me sit in while they removed the cranks etc. and put on a new protective patch. It was a $49 charge, with $29 of that for the extra thick frame protector. I should have said I'll give you another 50 if you let me try it myself, but I didn't think fast enough and missed my chance. I reckon bike shops could make a little more cash if they gave you the option of a lesson for these type of repairs. Why not?

On my ride I was thinking about the latest figures from the US housing market and particularly the S&P/Case-Shiller 20-City Composite Home Price Index:

The rate of positive change in the index is slowing and I'm wondering what Fed Chairman Ben Bernanke and his merry crew might be thinking. Surely the sensible central banker must realise that the housing market cannot be supported forever via QE and there must come a time where it has to sink or swim on its own merits. There will be no perfect time to stop the $85bn a month of QE currently in  play and the markets will just have to live with it.

The US consumer seems a little happier given all this cash and the Conference Board said its index rose to 81.5 from 80.3 in July, beating expectations for 79.0. Looking forward the expectations index rose to 88.7 from an upwardly revised 86.0. Consumers, however, were less optimistic about their current standing, with the present situation index slipping to 70.7 from July's more than five-year high of 73.6. It's still a reasonable set of numbers and if unemployment trends down you have the Feds window for tapering. Stay long the US dollar and add some GBP.

In some ways it's a pit we don't have Deutsche Marks to invest in anymore. Mind you if we did the exchange rate would be pretty high and as such you might not have got an IFO number such as the one published yesterday. IFO, the index of German business optimism, rose more than expected in August to 107.5 from 106.2 in July. Market analysts had expected 107.0. Thats the fourth rise in a row. Germany's economy expanded 0.7% in the quarter v. the rest of the Eurozone's positive 0.3%. Unemployment still stands at 12.1%, though the amount of hidden unemployment suggests that number is a little soft. I'm getting tempted to spread my portfolio into some French assets even though the current political leadership their looks at best mediocre.

Finally one of my major themes for the year continues to bubble along. Amgen is buying Onyx Pharmaceuticals for $10.4bn. M&A hasn't worked out exactly as I thought, but it's probably helping bankers tread water in the Hamptons over the northern summer. The Pharma-nerds continue to see the industry shrink as the majors gobble up anything with a pipeline. Investors know that I hate the whole space as it's completely beyond me and requires bankers and advisors to be ultra focused in order to achieve stable low volatility returns. As such I advise you to traed lightly and devote only the speculative part of your portfolio into the bio-tech niche.

I'll be back on my bike tomorrow for a longer ride and if you see the Cannondale somewhere around the Eastern suburbs of Sydney don't be afraid to say hello.



  1. "cleaned up by a garbage truck"? That would be ironic. Glad you're ok. Keep your eyes on the road and keep up the good work on the blog. I always enjoy reading it!

  2. Amgen has reached a deal to buy all outstanding shares of California-based Onyx Pharmaceuticals for $125 per share in cash. The purchase price of the transaction that is expected to be closed by the beginning of fourth quarter is $10.4bn, or $9.7bn net of estimated Onyx cash.