Wednesday, 1 August 2012

Trying to look at the road ahead . . .

I was just sitting here doing some reading when the Chinese July PMI flashed up on my iPad as 50.1 v. expected 50.5.  By coincidence I was just reading the latest comments from Zhu Jimin, chairman of the China Iron and Steel Association (CISA) who said in a speech that the aggregate profit of the nation’s steelmakers fell to Rmb2.39bn in the first half year due to falling demand and rising costs. On my blog yesterday I showed the separation between rebar prices and Iron Ore prices. If we believe Zhu Jimin then I would expect Iron Ore prices to fall in line with where rebar prices are trading. Of course if you're a bull you might see this as another sign that today's FOMC announcement will bring untold stimulus once again.

Speaking of slowdowns the UBS and DB results speak volumes about an industry needing to get its house in order. Too many long term guarantees seem to have been  made to staff in the 2009 hiring freenzy at many banks. DB said they planed to axe 1,900 staff. UBS cost-to-income ratio is 85. I remember seeing management panic if that ratio got above 50% . . . what is the board thinking now? 

The hardest thing in investing is to look through the windscreen and not into the rear-view mirror of the car you're driving. History is important, but you need to drive the road ahead first and foremost. Something I've been waiting for is for the weak GBP to have an impact of engineering exporters. We had confirmation that things were changing from GKN:

Pretax profit rose 33 percent to 266 million pounds and revenues rose 16 percent to 3.46 billion pounds in 1H12. They have really benefited from car sales and increasing orders in aerospace. I haven't followed the stock as closely as I should have considering my love for old school engineers such as CAT. I'll do some numbers on this one as it should benefit from any more loosening of policy by the central banks around the globe. First impressions are that it's not cheap, but then good things rarely are.

We'll be looking more closely at some British engineering tonight when they run the Olympic time trial over 44km's. All eye's on Wiggins and Froome. The outsiders for this in my mind are Cancellara (who went down heavily during the road race) and Phinney.

I follow Phinney on Strava and he's been training hard after not riding the TdF, but doing well in the Giro. Look up some of his recent training rides on this link. Wiggins deserves to be favorite, but a cheeky bet on young Mr Phinney might be worth a flutter.


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