Notes From Underground: Are British Assets Cheap? Kraft Pursues Cadbury with Sweeter Deal

The news was rather light today as the U.S. markets were closed, but electronic platforms were open part of the day, which gave us some sense of where markets will open tomorrow. Global equity markets were higher, as there were no negative events during the weekend to dispel the role of cheap money that continues to support the stock traders.

Political news was rather light as the elections in the Ukraine went as expected and there will be a runoff between the two leading vote-getters: Viktor Yanukovich and Yulia Tymoshenko. If was a beauty contest, the winner would have already been determined as Tymoshenko makes Sarah Palin look like Janet Reno! Both candidates have leaned toward repairing the rifts with Moscow and the Russians have kept a low profile after the initial flareup over payments for gas supplies that IMF aid brought to an end. In a tribute to democracy, the incumbent,Victor Yushchenko, received only 5% of the vote as was widely expected. (Being domained in Chicago where dead people receive more than 5% of the vote, we have new found respect for the people of Ukraine and their political will.) We also applaud Mr. Yushchenko for allowing a fair and open election–that is good news for the benefits of the “Orange” revolution.

Greece has been in the news all weekend for their egregious failure to come close to adhering to the precepts of the Maastricht Accord. It is now all in the open how badly the Greeks cheated and lied to falsify their budgetary numbers. But in their defense, they were not the sole European nation playing such games. That is water under the bridge, as now we need to look forward and see what the European response is going to be. The big question facing all the players in this drama is whether or not the good Burghers of Bavaria are going to foot the bill for bailing out Greece and potentially other PIIGS. If the answer is “nein,” we will look for this to occur: The hardline budgeteers of Europe will push for Greece to be fined under the dictates of Maastricht, which of course would be the opposite of a bailout, as well as a disaster for Greece and other stressed economies. If this were to happen, the EURO would sell off against the world and we would look for equities to be sold worldwide as confusion and chaos would reign. We don’t think this action will be foisted on Greece, but we want to be alert nonetheless. We believe that Europe will try to buy time and muddle through, but with so many policy makers voicing an opinion, you never know when the wrong policy will be put forward. This is a very unsettling time in Europe and the financial markets need to stay alert. The markets are presently far too fragile to absorb a Greek default.

Tonight, we learned that the Cadbury board has agreed to accept a £12 billion offer from Kraft. As we are not involved in either stock, we don’t give a damn about the minutiae of the negotiations. What we care about is the increased bid for STERLING, as Kraft increased the cash part of the offer, and what it will mean for British assets in the bigger picture. Is this a statement that with the POUNDS depreciation from the $2.11 highs made in November 2007,  that British assets are cheap? The Brits have gained a competitive advantage in Europe during this time of global recession by experiencing a 20% depreciation against their largest trading partners in Europe. Remember that although Sterling is not part of the EURO,the U.K. is part of the EU–the best of both worlds. More importantly,will this same thinking come to the aid of U.S. assets in the same way the DOLLAR is deemed cheap on a relative basis? Presently, the emerging markets are thought to offer better values based on future growth prospects, but when will the depreciated developed markets provide the siren song for global capital? This is the sea change we will be watching for but with the ill thought-out economic policies emanating from the developed world, there will be rough seas as far as we can see the horizon.

On an unrelated note, for those who missed Saturday’s radio spot, listen here:

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One Response to “Notes From Underground: Are British Assets Cheap? Kraft Pursues Cadbury with Sweeter Deal”

  1. Notes From Underground: Just A Small Piece On Some Critical Issues | Notes From Underground Says:

    […] January 18, 2010: Are British Assets Cheap? Kraft Pursues Cadbury with Sweeter Deal […]

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