Good morning,

Markets are called higher this morning. This is what's happening today:

  • US building permits climbed to a four-year high. Applications for construction permits in the U.S. rose to the highest since August 2008, a month before the bankruptcy of Lehman Brothers Holdings Inc., signaling stabilization in the housing market that triggered the financial crisis;
  • Germany signaled its support for a European Central Bank plan to resolve the debt crisis. German Chancellor Angela Merkel said the ECB’s insistence on conditionality in return for helping lower borrowing costs for indebted governments matches her priorities;
  • Facebook Inc.’s 6.3 percent drop yesterday, after the end of restrictions on share sales by its biggest investors, was the second-largest post-lock-up decline among companies that have gone public since January 2011;
  • 10-year Italian debt is trading at 5.793%, 10-year French debt is trading at 2.147% and 10-year Portuguese debt is trading at 9.849%;
  • Brent is trading at $114.10/barrel;
  • Apple closed the session at $636.34 and Priceline closed the session at $586.79

Markets are up this morning and this time it has to do with a comment made by Merkel that complements that made by Draghi a few weeks ago. The bottom line is that European leaders want to find a solution to this crisis and the market is happy to know this. But this is not the first time that we are hearing this sort of news from EU leaders. What we need now is words which are backed by facts and until that day comes we will continue to see large swings in the markets. Having said that, the probability that EU leaders will act at this point in time is greater than it was last year because now countries started to report negative GDP figures and it is just a matter of time before we see France and other European companies back into recession. So now it is not just a probability, but the problem is real!

I am still skeptical on the timing of purchasing European stocks but picking a bottom is not a talent but more an art. Stock picking is not benchmarked against the return in the markets in the short run but it should be compared against its long run performance. You buy a stock because you believe in the company's potential and it takes time and patience to see the company start delivering what you were pricing into the price target.

Having said that, there are alot of stocks in Europe which have been hammered down and are interesting buy opportunities at this point in time. If you want a bank look nowhere else but BNP. The fundamentals are strong and although we have seen the share price come off, those investors who were patient and stayed the course started to see the price come back up in line with the market. There are other very interesting stocks in Europe. Examples include EADS NV, Siemens, Arkema, SAP, Danone….the list goes on and on (for a copy or our CC equity list, please contact our offices on 25688688.) In my opinion, all portfolios that hold European stocks should hold the DAX for diversification purposes and because of the strength of Germany companies which have been delivering good results despite the weakness we have been seeing coming out of Europe. Apart from Germany being the strongest economy in Europe, it has also benefited from a weakening Euro as Germany is a net exporter.

At this point in time, although it is wise to take some profits from your USD position, US companies should remain a core holding in clients' portfolios. The likes of Apple, Footlocker, Priceline, Dick's Sporting Goods etc are all winners which should be held in a portfolio for the long term. All those investors who tried to trade these stocks to make a quick buck ended up selling at a price much lower than the actual market price. Patience is key in these markets.

Still alot of uncertainty in Europe but know we have a feel good factor because although the European economies are falling into recession we have authorities saying they will do something to save the Euro. It could take years for something to happen or they could start doing something now. When they will take action is anyones guess. Though what's for certain is that there are alot of opportunities in the market and picking the right stock and being patient will generate profits in the medium to long term

Siemens (Price E74.02, Citi's Price Target E85)

Having written about the potential balance sheet capacity at Siemens for over 2 years, we are finally seeing activity. Siemens has unexpectedly announced a €3bn share buy back which should be c4% EPS accretive. We see this as an attractive first step with, on our estimates, Siemens having €8-13bn excess capital versus its “One Siemens” targets. Added to consensus EPS forecasts, that we believe have now bottomed out, we see this as further support of our Buy case.

For further information on Siemens or other stocks and bonds we follow, contact our offices on 25688688.

Good day and happy trading!

Kristian Camenzuli