BHP crushes Anglo

"So let us start with a five year view of the two entities. BHP Billiton is up 38 percent, whilst Anglo American is down nearly 30 percent. Over ten years Anglo American is up 101 percent (these are all prices in London, the currency translation is irrelevant here, I am guessing for the purposes of this exercise), whilst the BHP Billiton is up an astonishing 548 percent. Over the last year things are not so pretty, Anglo is down nearly 34 percent and BHP Billiton are off an equally yucky, but less noticeable 17.3 percent."

Jozi, Jozi. 26^o 12' 16" S, 28^o 2' 44" E. Wow. For all the problems and issues that seem to be crossing our screens on a daily basis, it might be difficult for some folks to believe that yesterday we clocked an all time high on the Jozi all share index. The overall market closed off at the highs of the day notwithstanding the hard landing, soft landing debate around Chinese economic growth, that is still getting many anxious, in my world that is a non debate. Their sporting prowess as a nation has certainly grown, they have the numbers, and now they have the facilities, no wonder they are going to be so hard to beat in the coming decades.

But that is another story altogether, the soothing Mario Draghi words are still echoing through markets, and either shorts are rushing out in a hurry, or folks are deciding they cannot stay on the sidelines any longer. Because it seems that the European debt issues are going to be resolved one way or another. In a very slow and distinctly European fashion. In this office that is all that we have expected all along, even the perma-bear, "the Nouriel" Roubini suggested that the perfect storm that he predicted for next year, well that might not happen. In 2013 that is. I guess if you are bearish on life in general and were given wedgies at school (it happens) then your outlook on life is never going to be as cheerful as someone who enjoyed their childhood. That is what keeps humans in check, born optimists and born pessimists posturing against one another all the time.

Waffling again here. The Jozi all share index closed at 34959 points, a gain of 0.83 percent on the day, thanks in large part to a late rally, which coincided with a stronger open in the US. All major sectors were strong, banks were up over a percent, retailers rocked and added nearly one and three quarters of a percent, the resource sector added over a percent and a half. Someone pointed something out, at one point in the morning yesterday, the share price of BHP Billiton was more (in Rands) than the share price of Anglo American. So what? Their market caps are vastly different, Anglo is not the giant in the mining space that it once was, and BHP Billiton are the big daddy amongst the mining resource companies. Globally. I often say that we are lucky to have access to a company of such quality.

But what is that about, the two share prices roughly the same? As at close of business, BHP Billiton had closed up just over two percent at 242.90 ZAR, whilst Anglo American added 1.3 percent to end at 246.54 ZAR. I then thought, let us separate the currency translation, and because Google Finance deals with the majors, it is easier to compare the two. So let us start with a five year view of the two entities. BHP Billiton is up 38 percent, whilst Anglo American is down nearly 30 percent. Over ten years Anglo American is up 101 percent (these are all prices in London, the currency translation is irrelevant here, I am guessing for the purposes of this exercise), whilst the BHP Billiton is up an astonishing 548 percent. Over the last year things are not so pretty, Anglo is down nearly 34 percent and BHP Billiton are off an equally yucky, but less noticeable 17.3 percent. Less noticeable in the current environment, because the currency has buoyed our price locally, over one year the GBP has strengthened by nearly 17 percent to the ZAR. So I guess it should come as no surprise that BHP Billiton in Rands is off three percent over the last year, and Anglo American is down nearly 23 percent. Ouch. That has to hurt.

What has the market told you however? In my view it all goes back to the graphs on slide 18 of the presentation Interim results - Half year ended 31 December 2011. I have incorporated it here in this newsletter for you to see.

Look at the slide carefully, first the top graph shows you that the margins are more stable than their peer group, which are Rio Tinto, Anglo American and Xstrata, the only noticeable missing major is Vale. But that is the point that I am trying to make, BHP Billiton has the least volatile earnings of the lot. And we like the energy cluster. Anglo on the other hand continue to have issues in their platinum business, regarding costs, but then again, everyone has that in South Africa. I think in the end it does come down to the quality of your portfolio, and for the time being BHP Billiton has that well sewn up. For longer dated commodity holdings we continue to prefer BHP Billiton.

Byron's beats looks at some under the radar "stuff" from the most misunderstood big cap in our market. In my humble opinion.

Naspers, our favoured local technology stock has been fairly active of late. Because the company is so big, when it makes an acquisition below a certain size it doesn't have to report it so sometimes it seems like the company is not acquiring assets like it used to in the past. Of course this is not the case. Recently they took over 70% in the largest online retailer in Romania called eMAG. The value was not announced but the media reckon around 100 million Euro's was paid by Naspers. The retailer which was launched 11 years ago plans to expand further into Eastern Europe using the financial backing of the multinational giant.

This is one of many as Naspers attempts to become the Amazon of the developing market. This article from Moneyweb quotes Koos Bekker, the CEO, saying that they look to make 10 to 20 acquisitions in the year to March 2013 and that they see lots of opportunities in the e-commerce space.

According to the article a few acquisitions have already been made. "This year, Naspers has purchased majority stakes in Netretail SRO, an online retail business in central Europe, and Internet Mall AS, a Prague-based website selling household goods such as washing machines. It also invested in Resolva.me, a Brazilian site that offers ratings of dentists, lawyers and other professionals."

I checked the company's financial statements for the year ended 31 March and it states that the company is sitting on R9.8bn in cash so there is definitely room for a few more acquisitions. We really like this company and the way they go about their business. Their track record for finding little diamonds in the rough has been brilliant and the next Tencent could be just around the corner.

We also really like the e-commerce sector which has huge potential. I am sure you have all bought stuff online by now and the easier it gets and the more reliable it becomes, the demand will only increase. Yesterday I wrote about Amazon and how well their e-commerce division was doing. We are still very happy to be adding to this company and are not deterred by its high valuation in terms of earnings. This is a sum of the parts company and when you look at that way, like Sasha has broken down for you on a number of occasions, it looks cheap.

New York, New York. 40^o 43' 0" N, 74^o 0' 0" W. Although stocks closed lower on the session it was in a way comforting (for the bulls at least) that after such a strong rally that stocks consolidated. It is after all another big week of earnings, and more so for the stimulus junkies, who are awaiting imminent action form the Federal Reserve. Perhaps the weak-ish (spell check said weakfish, I had to change to weak-ish, not even sure what a weakfish is) GDP read on Friday was the tipping point for the Fed. That number is too weak was the shouting from the gallery, the Fed are going to have to announce something more. More quantitative easing, more bond purchasing, more something else, because the spill over from Europe is causing a great deal of anxiety. Of course at the same time Treasury Secretary Tim Geithner is visiting his European counterparts, he met German Finance minister, Wolfgang Schauble, yesterday. Excuse me for leaving the umlauts off, my HTML skills are limited. If you ever wondered why Schauble is in a wheel chair it is because he was shot. In 1990 someone tried to assassinate him, and Schauble was shot in the face and spine, according to Wiki. Strong man mentally and obviously tough physically to carry on. And of course he carries higher political spirations, he was ever so close 14 years ago, but it was not to be.

Geithner is looking to the Germans to buy bonds of peripheral states, seemingly not too outlandish a request, but politically Angela Merkel has been weakened by this crisis. Rephrase, when the next elections in Germany come along, do not be surprised to see someone new. Because all across Europe this has been the case, recent elections have seen the incumbents voted out. Tim Geithner does not want to be that guy, although the job itself is a stressful one, I am not too sure if he wants to stay on. In an American context the FOMC meets Wednesday and Thursday to discuss the state of the US economy and might well present other options at their Thursday announcement, which will be around a quarter past eight in the evening here in Jozi. That announcement will come after the monthly ADP jobs report on Wednesday (the consensus number is around 120,000 jobs added) and of course before the big one. The whale of all economic reports, because the market says that is what it must be. The monthly non-farm payrolls number, and consensus is for around 100 thousand additions for the month of July. Remember that the three months prior to this have been stodgy at best. And if those two numbers are not enough for you, then the monthly ISM manufacturing number is released tomorrow. Big end to the week here.

Currencies and commodities corner. Dr. Copper is last trading at 344 US cents per pound, higher on the session, the gold price is also a little higher, last at 1627 Dollars per fine ounce. The platinum price is last trading at 1419 Dollars per fine ounce, I am willing the auto recovery in Europe higher. The oil price is last at 90.16 Dollars per barrel. The Rand is steady to weaker, last at 8.18 to the US dollar, 12.83 to the Pound Sterling and 10.10 to the Euro. We are lower on the session here to start with.

Parting shot. A crisis is only a crisis when it affects you. I was struck that perhaps this is the case through a tweet from an Italian fellow, Alberto Nardeli, who did the calcs on the European youth unemployment rate, with the release of the data this morning: "EU youth unemployment: 22.6% - Greece 52.8%, Spain 52.7%, Portugal 36.4%, Italy 34.3%, Ireland 29.2%, France 22.8%, UK 22%, Germany 7.9%". So perhaps in the words of former president Thabo Mbeki, you could well say if you were German, crisis, what crisis? Although the serious rockers amongst you will recognise that phrase as a title to a Supertramp album released years ago. Not just our former president who has used this famous line, there seem to have been many politicians over the years. But you get my point, it only feels really bad if you are in the middle of the crisis. Like the political problems going on in Romania right now. I am sure that unless you were paying attention, you have not seen too many references to that!

Sasha Naryshkine and Byron Lotter

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Greece still in the Eurozone?

"I thought that Niall Ferguson said that a Grexit was probably going to be announced last night. Still nothing, we still keep asking, is Greece still in the Eurozone and the answer is still yes. Are Spain going to be helped out by their peers? Yes. Is all this uncertainty holding the US market ransom? Yes."

Jozi, Jozi. 26^o 12' 16" S, 28^o 2' 44" E. Targeting the all time highs is where we were on Friday, the super Mario (without a brother) rally continued through the day, even though we were held back somewhat by a big move down by Anglo American. Anglo ended the day down nearly five percent, and this was the worst price level since the beginning of October of 2009. As far as I understand it, Cynthia Carroll met the Brazilian President over the weekend to discuss the issues of mining in her country. Also having a tough time on Friday was Telkom, the stock was down nearly three and one third of a percent, not on something that they had done, but rather on the news that MWeb had slashed their ADSL pricing. And this was in stark contrast to what Telkom have just done, the government controlled entity had increased their ADSL pricing. I use MWeb at home, I can say that I am very pleased with this outcome, they are responsive, answer a call quickly and are quick to call at specific times, if they say that they will. And all you have to do is call them, to migrate the line. How it works, because they piggy back off the Telkom infrastructure is a little beyond me, but they get it right. Telkom. Time for another rethink there.

The Jozi all share index closed up 1.11 percent, or 382 points to end at 34671. 34809 is the intraday all time high, reached 5 weeks ago. The closing high is 34788. We are just over 100 points away from that. If all goes according to plan this morning, and if we stay that way into the close, we could be setting two more records today. Like Cameron van der Burgh, new records all around. Paul was asking the real question, surely the strong rallies around the world were not because the ECB and Fed are planning to stabilize the global economy, surely that was not the reason that people rushed back? Are they not smarter than that, was Paul's real question? How is it possible for people to think that the ECB will do nothing and stand by whilst the 40 year project went down the tubes.

The FT had a good article over the weekend on what the ECB could do, but whether or not the Germans would agree or not, that remains to be seen. The ECB could say, cap Spanish yields below 7 percent. And as the article suggested, just by being aggressive and talking (with enough firepower) they would scare yields down. And if anything, encourage buying of Spanish bonds, because those yields might well turn out to be too good to be true. And just this morning, the yields are crashing, markets are rallying and it is seemingly happy days. Almost anything could happen, we all know that, even Mitt Romney could be elected president of the USA, but I somehow doubt that. Check out the current odds, if you believe in that sort of thing, as a predictor: 2012 Presidential Election Winner (Individual). Oh, I am pretty sure the Sharks chances were bad on Saturday too. Byron does not want to talk about it. Equally my football team, the Bucs, overcame Paul and Byron's team, the almost mighty Amakhosi. If Byron did not have Cameron the swimmer, his weekend would have been awful.

New York, New York. 40^o 43' 0" N, 74^o 0' 0" W. The Dow rocketed through 13 thousand points, adding nearly a percent and a half on Friday, but it was the worst of the three majors, the nerds of NASDAQ added two and a quarter of a percent. The broader market S&P 500 closed 1.91 percent higher on a rocket session. In fact the S&P 500 is up just over 10 percent year to date. Err.... but the Euro is finished and we are all going down? I thought that Niall Ferguson said that a Grexit was probably going to be announced last night. Still nothing, we still keep asking, is Greece still in the Eurozone and the answer is still yes. Are Spain going to be helped out by their peers? Yes. Is all this uncertainty holding the US market ransom? Yes. I read an analysis piece in the Bloomberg opinions section, and it was about people ignoring the relative valuations of mega cap stocks. The opinion piece said that people could not get enough of mega caps in 2000 when the forward earnings multiples were 33, but now that they are 13 times forward, folks are reluctant to buy. Not us. We will carry on buying stocks at what we think are very juicy valuations. We are always urging our clients to buy stocks. Particularly the big caps, the ones that are the cheapest.

Not everything is cheap, Facebook got crushed on Friday, down nearly 12 percent and close to the all time lows. The problems that Facebook have is that they have many detractors, a very high valuation relative to the rest of the market, and are not quite growing fast enough to justify that lofty valuation. I am pretty sure that they will do whatever they need to, in order to drive new and more profitable revenue streams, think mobile ads. Another expensive company that many struggle with is up next in Byron's beats, which covers a company that we missed last week, we ran into a herd of earnings season and could not cover it all. So here goes, perhaps one of the companies that deserves a whole lot more airtime for changing the way we think about shopping and books.

On Thursday we had second quarter earnings from the lead online retailer in the world, Amazon. This is a very interesting company to analyze because it is embracing a huge expansion plan in order to produce big profits in the future. This is unusual for a company with a market cap of over $100bn yet is not actually making much money for the time being. Investors are putting a huge amount of faith into the future of this company. When you look at the fundamentals you can see why.

Earnings came in at 0.01c a share for the quarter. This came in below consensus because of some once off costs related to an acquisition. Analysts expect the company to make around 81c in 2012, $2.50 in 2013 and $5.35 in 2014. For a company trading at $237 you are paying 44 times 2014 earnings. Are investors crazy? The stock shot up 8% after this release indicating even more positive sentiment.

I think the best way to value this company until they make profits is via revenues. This Seeking Alpha article has done the hard yards for us already. "Based on Friday's market capitalization of $107 billion the company's operating assets trade around 1.7 times annual expected revenues. The valuation compares to an annual 2011 revenue multiple of 5.0 times for eBay and 3.0 times for Groupon. Currently Amazon.com does not pay a dividend."

Just to remind you, and we have written about this before, the Amazon share price went through quite a slump from about October last year to about March this year. During this period two quarterly reports came out which showed a big decrease in margins for the company on the back of big capex and of course the Kindle Fire which is so cheap the company almost loses money from this hardware device. During this time management kept reminding investors to be patient as the company was focusing on future growth at the sacrifice of current earnings.

Well in this latest report we have the first signs of this margin growth which explains why the share price has done so well in recent months. Thanks to some of their newer businesses such as 3rd party sales, gross margins reached 26.1% compared to consensus of 24.4%. 3rd party sales involves a 12%-15% cut which Amazon take from third party vendors who sell their products through the website. Their platform is amazing and has a huge following so this newish business is seen as one of the big profit drivers of the future. They are spending big money on their distribution capabilities which should put them first on the list for most retailers as delivery needs to be extremely efficient when it comes to internet orders.

Jeff Bezos, the founder and CEO is a Steve Jobs like character and we trust him and his management team to make the right decisions for a company at the forefront of what is quite clearly the future of global consumption. Although expensive we still like the stock.

Currencies and commodities corner. Dr. Copper is last 342 US cents per pound, lower on the session. The gold price has also drifted lower to 1618 Dollars per fine ounce, the platinum price is down at 1403 Dollars per fine ounce. The oil price is last at 90.21 Dollars per barrel, higher on the session. The Rand is also stronger, as a function of risk on, or anticipated central bank action or both. 8.19 to the US Dollar, 10.10 to the Euro and 12.87 to the Pound Sterling is where the Rand last crossed. We are higher, and have printed an all time high on the Jozi all share index.

Parting shot. Excuse me for a little vent here, but I thought that I needed to do this. On Saturday night I saw a re-tweet of a short piece from someone I follow. Of course it is a short piece, it is 140 characters. The tweet suggested that in a "few" years time Zimbabwe could overtake us (being South Africa), with political stability. I thought that was just plain strange. How? So I asked her, with an economy of 10 billion USD (Zimbabwe) and ours of 410 billion Dollars, how did she think that was possible? I should have, and could have said, Zimbabwe has an unemployment rate of 90 percent, a population of only 12.5 million and that estimate could be generous. All the people with skills and no money have left. And do you think they will all return? Not all of them, that is for sure. What do you think has become of the much vaunted education system over the last decade? It is not what it was, that is almost for certain..

The definition of few is a little, in this context a few short years. How is that at all possible that Zimbabwe in a few years will overtake us? Zimbabwe GDP in 1982 was 8.53 billion US Dollars. Using my online Inflation Calculator, I managed to find out that a 1982 8.53 billion Dollars is equal to 18.99 billion Dollars. Inflation adjusted of course. In fact, Paul said I should do a comparison. For all the evils that we had in the eighties, in 1982 our economy was a mere 8.4 times bigger than Zimbabwe. In 2012 it is 41 times bigger than Zimbabwe. Check out this hacked graph from Google Finance, follow this link for the full version - Zimbabwe vs. South Africa:

So I would say that first things first, if the Zimbabwe economy doubles, then they would have beaten their previous record GDP. Even that is going to be incredibly tough, and with elections closer than ever before, how does everyone envisage a peaceful and proper transition? For the record I wish Zimbabwe all the best, and hope that the land of my birth can be a prosperous and peaceful place for all who live inside of their borders. And all of those who live inside the border of South Africa too, it is not immediately clear what those folks will do when Zimbabwe "comes right". I have many Zimbabwean friends, I do not intend to write this piece in order to say anything about them or their country, I just intend to want to lay down the facts of economic strength. Are Zimbabwe going to overtake us anytime soon? No. Could it happen? Perhaps, but something extraordinarily good is going to have to happen in Zimbabwe or something extraordinarily bad here, perhaps both at the same time. For now, this is like comparing Luton Town FC to Tottenham Hotspur FC.

Sasha Naryshkine and Byron Lotter

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Anglo nose dives

"Draghi said that the ECB would do anything it takes, and do whatever it needs to in order to preserve the Euro. And whatever they would do, it will be enough. He was talking to a crowd at a conference in London. What happened thereafter was that the Euro rallied, Spanish and Italian bond yields fell sharply, indicating that folks were buying!"

Jozi, Jozi. 26^o 12' 16" S, 28^o 2' 44" E. Mario Draghi saves the day. Sort of. Globally stocks were looking a little weak, after some iffy housing data in the US saw folks questioning the housing recovery, and the same old problems persisting around the borrowing costs of Spain. And Italy. I think the single thing that confuses/frustrates/concerns all market participants is the slow pace at which the respective bodies/governments/central bank seem to be acting. Everyone wants a grand plan, a solution to the current crisis and they want it yesterday. Give us that credible plan yesterday! And that is the problem with market participants, all hyped up on thirteen espressos before breakfast and then another dozen thereafter, Mr. Market wants to see a plan. Give it to us! Now! So when we have periods that seemingly nothing is being done, then the same old anxiety sets in, Spain can't afford to borrow at these levels, unsustainable they say. This is probably true.

But what happened yesterday? Why did the market from just after midday move higher and end two thirds of a percent better, the Jozi all share index poked its head back over 34 thousand? What did Mario Draghi say? Well, I sort of ended off in our message yesterday suggesting that the short and sweet speech, in that Draghi said that the ECB would do anything it takes, and do whatever it needs to in order to preserve the Euro. And whatever they would do, it will be enough. He was talking to a crowd at a conference in London. What happened thereafter was that the Euro rallied, Spanish and Italian bond yields fell sharply, indicating that folks were buying! From what I had heard earlier from those in the know, the Spanish bond market sounds were a few crickets chirping, not much action. Because people were cautious, not willing to commit. If you want more insight, follow the Bloomberg link here: Draghi Says ECB Will Do What's Needed To Preserve Euro: Economy.

Anglo American have released their interim results this morning, and it looks like an earnings miss, the stock has sold off in a market that is moderately higher at the get go. I saw a brief interview with Cynthia Carroll on CNBC this morning, she was getting excited about controlling costs. But the facts are, as per the release, HALF YEAR FINANCIAL REPORT for the six months ended 30 June 2012: "Anglo American reported an operating profit of $3.7 billion, a 38% decrease. EBITDA decreased by 31% to $4.9 billion and underlying earnings decreased by 46% to $1.7 billion." Of course, because Anglo American has all the listed parts, we get to see quite a few of them over the last couple of weeks, before the actual number. And in fact, the biggest surprise for me (other than the delays at Minas-Rio and miss in earnings) is that Anglo have UPPED their stake in Kumba Iron Ore by 4.5 percent to 69.7 percent!

Anglo has a very well known portfolio, but this newsletter is intended for a very broad audience, so we need to tell you what the company does. You might well say, oh, it is a diversified miner, but in our world, a diversified miner is not just a diversified miner. Your underlying portfolio can look very different from your market peers. As per Anglo's website, the "portfolio of mining businesses spans bulk commodities - iron ore and manganese, metallurgical coal and thermal coal; base metals - copper and nickel; and precious metals and minerals - in which it is a global leader in both platinum and diamonds." There are some of those bulk commodities that we like a lot, iron ore, coal and copper, but diamonds not so much and "things" look a little tougher for the platinum industry than five years ago. A whole lot tougher, read David McKay's article in MiningMx: SA platinum sweats amid cash-flow crunch. We like the energy part of the business that is in BHP Billiton, you know that already, we have been buyers of that one over Anglo for the better part of half a decade.

The parting outlook, which we will deal with now, almost confirms what a lot of people have been starting to say, that the current quarter perhaps represents a bottoming of sorts. I think that it needs a copy paste in whole: "The short term outlook for the world economy has deteriorated in recent months. The Eurozone crisis has intensified, adding to economic uncertainty both inside and outside the euro zone. After a promising start to the year, the US economy has weakened in response to greater fiscal uncertainty. The major emerging economies - notably China, India and Brazil - have also slowed. Significant policy easing, however, should underpin a recovery."

Well, that does sound somewhat reasonable, but the question remains, if you are to buy this business today, at the current share price of around 250 Rands a share, what are you getting? Forget the past. The current share price represents the outlook and prospects. We might not all agree that the rapid urbanisation in emerging markets is an enduring theme, that is set to continue to dominate over the next decade, or more, but that is still our base case. I have no doubt that lower middle class people want to work their way up the chain of wealth, work harder, have access to more "things" and improve the lives of the next generation. In his own dry way Milton Friedman wondered why that was, parents creating a much better life for their children whilst compromising their own, cost savings and the like. But that is the human element that economics tries to understand, the behaviour of the current generation and the repercussions for their offspring.

Anglo has a nice slide that shows all that still needs to be done. According to McKinsey, that is. That would mean a lot of resources would still be required and as such, Anglo and many others in the sector, BHP Billiton, Rio Tinto, Xstrata and Glencore would all be in the sweet spot. I left Vale out, that wasn't nice.

But in the end it all comes down to valuations. If you wanted to know why the stocks in the resource space were starting to look so cheap, then look no further than this slide in their presentation:

So that is why the stock and the sector looks cheaper before today, the earnings just had to catch up. Cheap yesterday, today, well not so much and often cheap for a reason. Bill Miller, the iconic Legg Mason fund manager avoided the sector, because the earnings were not reliable enough. The only positive that I can take away from these results is that the dividend has been upped to 32 US cents, from 28 cents last time. And the Kumba purchase, adding to that position. In the end it does depend on whether you think that this time is different or not. Are we in the middle of a commodities super cycle, rather than a commodities boom? I believe the answer to that is yes. But whether or not Anglo can execute properly, well, we answer that question for our clients by buying them what we think is the superior of the two (or more) choices in our market, BHP Billiton.

Byron's beats talks about one of the most astonishing South African success stories, no matter which way you look at it. Their product, well, folks are more excited about their product than their business. Not us.

Yesterday afternoon we had an interim management statement from SABMiller for the first quarter ended 30 June 2012. Just to get a perspective of how well this company has done let's look at its share price. It is now trading at R354, it bottomed at R130 at the height of the crisis but proved very defensive even during the big fall. It has doubled from July 2007 when it traded at R183.

And on top of what seems to be a higher base all the time, these numbers came through.

"On an organic basis lager volumes were 5% ahead of the prior year for the quarter. Soft drinks volumes were 6% higher than the prior year for the quarter on an organic basis. Organic, constant currency group revenue grew by 8% for the quarter, with group revenue per hectolitre up by 3% on the same basis reflecting selective price increases and improved mix in most regions. Including the effect of acquisitions and disposals, total volumes were up 10% compared with the corresponding quarter of the prior year. The group's financial performance for the quarter was in line with our expectations.".

From a geographic view Latin America grew volumes 6%. Europe grew 7% which includes Eastern Europe who just hosted the Euro 2012. Poland, the host nation increased volumes by 11%. Volumes were still depressed in Western Europe. The US also had a tough quarter, down 1.4% on their MillerCoors brand while Africa again grew nicely at 9%. Lager volumes grew 7% in the Asia Pacific region which included a 5% increase from China, a 24% increase from India and a 8% decrease in Australia. Locally volumes grew 1% on the back of a slowing consumer despite Easter falling into the quarter.

See a trend here? SABMiller have been one of those companies who have successfully targeted the developing market consumer. Expansions into South America, Africa and Asia have all been successful. But what does the future hold? In the medium term I still think they will do well but I am concerned about their long term trends. The social impacts of alcohol are drastic and you will never see legislation loosening towards the industry. A Higher drinking age and ever increasing taxes on the product is taking place here in South Africa and even more so in Developed nations. That doesn't mean we have missed the boat or cannot jump right onto it. We are big favourites of Coca-Cola in our New York portfolios who target the same sort of market but with less social implications. So whether you like an ice cold Coca-Cola or like to slip a little brandy into it, you always win with Coke.

London Bridge is not falling down. At all, just in the nursery rhyme. But perhaps their finances will have a serious problem in the years post the 2012 Olympics. The issue is not so much the what you thought it might cost at the beginning, when you bid, but rather what it ends up costing you. AND, is it then worth it? Montreal took 30 years to pay back the debt of the 1976 Summer Olympics, but I guess at least they paid it back. Anyone remember those? I remember Athens in 2004, it cost the Greeks 10 times more than they budgeted, topping out above 16 billion Dollars. Oh well, at least someone in this office got good use out of that new airport, when Byron was a travelling student he slept under the escalators. Two nights, one on the way in and one on the way out. He says that it was very cosy, he showed us a picture in the office yesterday.

For the purpose of this fun piece I will use three articles as a reference point (not all new ones), first an NY Times one titled Cost Complaints, an Olympic Rite, Voiced in Britain and then a Forbes article, titled How Much Will The London Olympics Cost? Too Much. And then lastly, a much more recent one titled The Olympics - The London model. It seems that whilst London has under-budgeted initially, they have managed to use existing infrastructure for specific parts of the game, they have still overspent.

Not all Olympics are economic disasters, but some are, recently Barcelona and Athens have not covered themselves in glory in those departments. I suspect that in the future the IOC old boys club will have their work cut out, they will have to also make the decision based on time zones, stronger emerging market buying power and viewership, and where the best place is to host. I would think that we would be silly to bid inside of the next two decades for the Olympics. And as much as the Durban people might tell me that their weather is better, Cape Town is more appealing as a host city.

New York, New York. 40^o 43' 0" N, 74^o 0' 0" W. Stocks ratcheted up some serious gains as many believed that the ECB announcement, plus imminent Fed action squeezed some of the shorts out in a hurry and forced the watchers off the sidelines to a call to arms to buy stocks. That may, or may not look cheap depending on which way you look at it. Earnings expectations have been ratcheted down, that is true, and so I guess the beats are off a lower base. Not everyone says things look fabulous and there have been many conflicting views. But that is what makes a market. Last evening all the major indices gained, the Dow and the S&P 500 added a percent and two thirds, whilst the nerds of NASDAQ added just a little over a percent and one third.

Facebook. Something that did not exist when we started this business, Vestact. The markets gave the very first results as a listed company a big thumbs down. Unlike. The share price in after market trade sank nearly 11 percent, in normal trade the stock dropped 8.5 percent. Since listing the stock has lost nearly one third of their value. All looking rather patchy and the reason for the fall off prior to the results were weaker results and a patchier outlook from Zynga. The listing of Zynga has been, well, pretty darn awful. Zynga has lost two thirds of its value since listing in December last year. Print (a virtual print) an upside down smiley face for both, but a complete washout for Zynga.

Here we go, a first for the company: Facebook Reports Second Quarter 2012 Results. The opening statement from the chap who runs the business, rock star (in a nerdy way) and hoodie wearing CEO Mark Zuckerberg is quoted as saying: "Our goal is to help every person stay connected and every product they use be a great social experience". First question that anyone asks about this statement is that this is very nice, but how do you actually monetize that? Well, Zuckerberg continues: "That's why we're so focused on investing in our priorities of mobile, platform and social ads to help people have these experiences with their friends."

That still does not answer the question for anyone who is asking the serious questions, how does Facebook plan to make more money over the coming years? Serious money. More than they are making now of course. Because at current valuations (around 100 times earnings) it seems too much to pay for pedestrian (relative to earlier in their business cycle) growth at this stage, revenue growth of just 32 percent year on year is not enough. Advertising revenue, what I truly believe is the future of the business, represents 84 percent of the total, but there was quite a big jump in quarter on quarter advertising revenue growth, 28 percent. Phew. Without having done too much homework, the Zynga guidance then comes as no surprise. But their advertising revenue as a percentage of total sales is actually as low as it has ever been (to contradict myself a bit), as a direct result of an increasing cut of payments done of their website revenue.

It was a meet in earnings, but the lack of guidance was clearly a disappointment for investors. Even though the company tells us that daily and monthly user trends were sharply higher year on year and that mobile users were exploding. Which brings one to the future, the need for the company to increase advertising revenue on their mobile platform. This is something that Facebook have been struggling with, and the people who cover the stock even more so.

There are new methods of monetizing their product that have come out of these results, sponsored stories. Now if you are a user and a real junkie, you know what I am talking about. I try and use the platform, but it is tough to keep up to date, but exceedingly easy to use. My conclusion is going to be lame again. I back the team, I back the product, I believe that they will monetize the base in ways yet known to us. They will become apparent. The risks you face being a shareholder in this business is that someone else invents something more amazing, and then you have the problems that Microsoft have now. Although Facebook are still in their toddler stage, in terms of their business life relative to the grown up but still young Microsoft. Either you have a genius here, or you have a child that might just blend in. And nobody likes ordinary. I think that profiling of 20 to 25 year olds patterns on Facebook will be key to future revenues. I shall do my own homework.

Currencies and commodities corner. Dr. Copper is last trading at 342 US cents per pound, higher on the session, the gold price is higher at 1623 Dollars per fine ounce. The platinum is also higher at 1415 Dollars per fine ounce. The oil price, well, that had a ripper yesterday, so it is up a more modest 20 cents per barrel, NYMEX was last quoted at 89.59 Dollars per barrel. The Rand is stronger, 8.23 to the US Dollar, 12.96 to the Pound Sterling and 10.12 to the Euro. We are stronger out the blocks on a day that the Olympics officially start. And we are near our all time highs, around a percent away. And everyone tells me that "things" feel so bad.

Sasha Naryshkine and Byron Lotter

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Visa. No borders.

"Many governments around the world know that there are more benefits in getting paid electronically, than by any other traditional method. Checks are being phased out. In the United Kingdom the UK Payments board has suggested that by Halloween 2018, the system that processes checks (or cheques, whichever you prefer) be terminated."

Jozi, Jozi. 26^o 12' 16" S, 28^o 2' 44" E. I suppose in the context of the European flipping and flopping (seemingly) a trading day ending with green on the screen was all we needed. Well, the bulls at least. There were several stocks that surged, MTN jumped out of the (virtual) page at me, the stock closed at 15103 on the day, at what I called a 'normalised' high. Why I say normalised is because back in May of 2008 there was deal related activity taking place from Indian suitors, but that fell away, and then the period of great pity passed, and MTN fell to less than half of where they are now. What I am trying to say is that if that deal related activity had not been present, the stock would not have traded north of 160 Rand a share, back then. So, in the absence of news, this is what I call a normalised high. In fact there is news, and in this case it might actually be that the Turkcell claim could be dismissed, this is something that we are lead to believe that should happen by year end. That is all that I have to say about that. I am guessing (from last year's timing and SENS) that we should see results mid August, or early in the second half of August.

New York, New York. 40^o 43' 0" N, 74^o 0' 0" W. It was a gentle roller coaster ride through the session, culminating in tech stocks being dragged lower by a selloff in Apple shares (down 4.32 percent) but a big session for some Dow Jones majors buoyed blue chips. Both Caterpillar (which Byron takes a look at) and Boeing had strong sessions, sending blue chips more than half a percent higher. It was one of those rare days when the constituents of the respective indices actually held sway over the others. Both Boeing and Caterpillar have higher prices than the bottom two thirds of the Dow Jones Industrials constituents. And because the Dow Jones Industrial average is a price weighted index, the companies with the larger stock prices make up most of the moves. In fact the top 9 shares (one below Boeing is United Technologies in 9th place overall) are more than half of the weighting of the overall index. Such is the insignificance of the bottom two, Alcoa and Bank of America, they form only one percent of the overall weighting, that if they both

Byron's beats gets dirty digging through the Caterpillar earnings release.

I love looking at Caterpillar results because not only are they a good indicator of the global mining and infrastructure sectors but they also put a lot of detail into their forward looking statements. I've said this before and I'll say it again, I will much rather listen to what Caterpillar have to have say about the state of the global economy then an academic or even an analyst.

It was a record quarter for the company (surprise surprise) managing to grow earnings by 67% compared to this time last year. This came in at $2.54, comfortably beating analyst expectations of $2.28. Sales and revenue also came in at an all time quarterly record, $17.4bn up 22%. Analysts expect the company to make around $9.75 for the full year. Trading at $83 they sure look cheap, trading on a forward PE of 8.5 times.

But why? This stock is very cyclical and current share prices are all about what is going to happen in the future. In their forward looking statements they have revised sales down due to economic uncertainty but profits up due to better efficiencies. Business Insider do a fantastic slide show summarising their predictions. It's called Caterpillar: This Is What The World Will Look Like For The Rest Of The Year. I strongly urge you to read it. Lots of pictures and well summarised.

At the end of the forward looking statement CEO Doug Oberhelman has the following to say. I like his ending.

"I am cautiously optimistic about the world economy in 2013, very positive on the long-term prospects for global growth and excited about the role Caterpillar will play in making that growth happen. After all, the road to progress begins with a road".

We continue to like the stock. We know it is cyclical but as patient investors we are willing to ride the wave. Especially if you are getting in at these prices where most of the downside is already factored in. As you already know we are also in agreement with the CEO. As governments around the world act towards stimulus and the global market slowly wriggles its way out of this mess, 2013 and beyond look good.

Visa takes you places. Good timing for the release of the Visa Q3 numbers, the Olympics start tomorrow and lest you forget, they are one of the sponsors. I hope that the event organisers don't confuse the priceless pay off line, with Visa, when in actual fact it belongs to MasterCard. Ouch, that was a sideswipe at the organisers of the football last evening who confused North Korea (the people's democratic republic) and the South Korean flags. Well, at least the supreme leader/emperor seemingly got married. But we are getting off the topic here, we were talking about the Visa results. And I am pretty sure that one can't use a Visa card in North Korea, such is the "progress" there.

The full results press release is available here: Visa Inc. Posts Strong Fiscal Third Quarter 2012 Earnings Results and Authorizes New $1 Billion Share Repurchase Program. And as you can see, excluding the provisions made for the recent settlement (remember the piece Byron wrote a mere 9 days ago: Visa settles lower) the company reported net income of 1.1 billion Dollars, which translates to 1.56 Dollars a share. That is a whopping 25 percent increase on the corresponding period last year. Volumes (all payments processed) grew only one percent to 13.1 billion for the quarter. Or, 14.55 billion payments a day, roughly 606 thousand an hour. 10 thousand a minute. That is how many payments Visa processed through VisaNet in the last quarter. Now that might sound a lot, but Visa is able to process 20 thousand transactions a second.

The company bought back 4 million shares at an average price of 115.51 Dollars a share. Good job, seems like about half a percent of shares in issue, so whilst this is not a big deal, shareholders should be happy with that. Better than being diluted by big stock awards. The outlook is pretty upbeat, the company expects revenue to grow, but not by much, but I guess low double digit increases in this environment is good. And they expect the class A stock (that is the one available to you and I) to record EPS growth of 20-22 percent, somewhere in that region. The stock was up afterhours, around one and a half percent better. The forward earnings estimates that I have seen put Visa on a rather demanding twenty times forward multiple, but the expectation is that the business can grow earnings by high teen to low twenty percent numbers for the next three financial years. So, at current levels a couple of years out you are paying less than 15 times earnings. We continue to rate the stock a buy.

This is an easy mistake to make, to confuse what the company actually does, I am serious, people often make this mistake. Visa are not a bank, not an issuer of credit cards, but rather a technology company that processes payments on behalf of customers who are happier to pay electronically, rather than using some of the good old fashioned payment methods, cash and checks. Who still owns and USES their checkbook? Anyone? So basically Visa processes electronic payments and makes their money by taking a handling fee. In fact it is spelt out pretty well if you look on their about us page: "Visa Inc. derives revenue primarily from fees paid by our financial institution clients based on payments volume, transactions that we process and other related services we provide. Visa's innovations enable its financial institution clients to offer consumers more choices: pay ahead of time with prepaid, pay now with debit or later with credit products."

This is the main reason that we like the company. Many governments around the world know that there are more benefits in getting paid electronically, than by any other traditional method. I am still pleasantly surprised that no retailer (that I am aware of) has taken it upon themselves from a security point of view to give shoppers a discount when they pay with a card. Half a percent is better than a kick in the pants. Checks are being phased out. In the United Kingdom the UK Payments board has suggested that by Halloween 2018, the system that processes checks (or cheques, whichever you prefer) be terminated. Small businesses are going to have to change. And Visa is in the middle of that, benefitting as hundreds of millions of check payments become online payments. Visa could still surprise to the upside over the coming years.

Currencies and commodities corner. Dr. Copper is lower at 335 US cents per pound, lower on the session, the gold price is also lower, last at 1602 Dollars per fine ounce. Sadly the platinum price is also lower, last at 1397 Dollars per fine ounce. The oil price, as is the case as the rest of the commodities complex, is lower at 88.18 Dollars per barrel. The Rand is weaker this morning, the risk off trade is taking place again, after a decent enough start. The Rand is last quoted at 8.43 to the US Dollar, 13.07 to the Pound Sterling and 10.22 to the Euro.

Parting shot. Greece. Should we care? It seems to be off the main radar for now, but I have seen a few reports that suggest that the chances of them leaving the Euro zone are huge, Citi now says that there is a 90 percent chance, and Niall Fergusson is quoted as saying that the Greeks are going to announce this on Sunday evening. Huh? Have the Greeks said this? I have just heard ECB governor, Mario Draghi say that the Euro is irreversible, meaning to me anyhow that once you are in, you can't get out. And he has also said that the ECB will do anything to preserve the Euro. And he has also said that the Euro region has done an extraordinary amount over the last six months. So, whilst things are tough in the zone, I can promise that it is tougher in Albania.

Sasha Naryshkine and Byron Lotter

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Apple falls far from the tree of estimates

"International sales were 62 percent for the quarter. 17 million iPads sold in the quarter, which was a whopping 84 percent increase over the corresponding quarter last year, but phone sales missed ratcheted back expectations, clocking 26 million for the quarter."

Jozi, Jozi. 26^o 12' 16" S, 28^o 2' 44" E. We were definitely bucking the trend here in Jozi, our market was up quite nicely whilst over in Europe it was another day of reflection. Reflection on rising borrowing costs for Spain and also trying to figure out what is to become of all the regional governments that are staring defeat in the face right now. Time for the ugly truth I guess, too many social benefits, too many people employed by government, at least over there they have the benefit of being rich! Relative to here, where on balance we might have gotten richer since democracy, but there is the niggling feeling, tugging on everyone, that not enough in being done to treat inequality.

Because whilst rich folks had gotten richer, poor folks are running on the steeping incline on the treadmill, and are starting to slip off. And it is nice for the World Bank to warn on inequality, but still, I do not see our erstwhile leaders come up with credible plans. Well, at least to me, because the state, no matter where in the world, is the worst solution to solving problems. Give more incentives to business. They create longer dated employment. By creating more barriers, there is less chance of employment. Even the state owned electricity provider has warned government that the current proposal would lead to job losses. There is no perfect solution, because if there were a free for all on wages, that would set all of the bases so much lower. And I can see why the labour unions would not like that. I do not see real change in this regard, perhaps I am being too pessimistic, but no side wants to budge, at least from where I am sitting.

British American Tobacco reported half year numbers for the period to end 30 June 2012 this morning. Of course there were currency issues too, the GB Pound has held onto safe haven status. I am guessing the Guilder would have done well, and the Mark too, if they had been stand alone currencies. The Lira and the Peso, well not so much, I am guessing that they would have performed rather badly and the Drachma would be the laughing stock. The news release says as much in one of the headlines: GOOD RESULTS DESPITE CURRENCY HEADWINDS. Those currency headwinds are quantified, in GBP the company reported a three percent increase in profits, on a constant currency basis, it was six percent. Basic earnings per share rose 5 percent to clock 98.9 pence, an interim dividend of 42.2 pence was declared.

The average exchange rate for the period was 12.521 Rand to the GBP, the current rate is 13.21, the end of the period rate was 12.828. And you think that we have a tough job, the company has 9 major currencies to deal with. So, if we use the average and current rate for earnings, and the same for the dividend, we come to 12.38 ZAR worth of basic earnings for average rate, but perhaps a more realistic 13.06 ZAR worth of earnings for current exchange rate basic earnings per share.

And the dividend, an important factor for folks owning the stock? Well, let us assume that not much changes between now and the 13th of August, the date that the stock goes ex dividend, and the payment date, which is the 26th of September 2012. 42.2 pence at the current exchange rate of 13.21 to the GBP translates to roughly 558 ZA cents. If we simply annualise those numbers, you get to around 26 ZAR worth of earnings and an annual dividend of 11.2 ZAR. But wait, the normal split of the dividends is 30 percent in the first half and 70 percent in the second half. So, if I apply that ratio (of the last three financial years) the dividend for the full year is likely to be closer to 140 pence. That makes more sense. So at the current exchange rate, the full year dividend is likely to be closer to 18.50 ZAR.

So what is the market currently paying for the company, it trades at 430 ZAR a share? Well, 16.5 times earnings and at this price that means that the yield is 4.3 percent. Which is not just acceptable in a British context, it is nothing short of remarkable. I am guessing that many people pay up for the stock in order to get the wonderful yield! Because again, measure this against safer sovereign debt and it seems like a no brainer.

But this is the one thing that always worries me about this business. The stick volumes. And those are always decreasing, and have been for a long, long time. This is the last six and three month comparable periods:

Now these volumes have not changed that much over the last half a decade or so, there has been subtle changes, check out this volumes slide from the 2008 interim results presentation.

Not a complete comparison, because if I remember right Eastern Europe was moved to the Emerging Markets segment, so the big fall off in European sales is not as a result of austerity and higher excise duties but rather a splitting of the regions. Although you can see that there is an impact, with the like for like comparison. As you can no doubt see. And this is a problem. Stick volumes are not flying as they should be in the fast growing markets. Flat, for the whole group. I don't care how many units of anything you sell, you have to sell more, year after year, particularly in a consumer business like this. And there are only so many cost controls that you can implement. But then again, what do I know? The stock price has been on an absolute tear and is trading near all time highs. Over the last year in GB Pound terms the stock is up 15 percent, nearly 40 percent in Rand terms! Wow. See how much of the currency is at work here, for the locals it has been happy days.

My conclusion is the same every single time, the short term looks just fine with this business, but increased regulation and taxation and push back from authorities will make their product less affordable and less accessible. I am yet to be convinced that people will always smoke, as you can see, smaller volumes. I have yet to come across any other product where there are as big a social and government drive to end the usage, and limit the access points. There are even countries around the world who are looking to institute a total ban on the products, like Finland. Also, the whole debate around where healthcare funding is coming from is an important consideration. And, whilst upwardly mobile folks smoke in emerging markets, richer people stop smoking. We have been wrong on the price, but the industry itself, well, we suspect that it might be in decline. When that starts to hit the company, I am not sure, but the price will move long before the realisation. We continue to avoid the stock.

Byron's beats looks at one of South Africa's "diversified" miners trading update. The reason for the quotation marks becomes apparent later in the piece from Byron.

Yesterday afternoon we had a trading update from Exxaro for the 6 months ended June 2012. Now there were quite a few once off items from last year which includes the sale of their minerals sands subsidiaries for approximately R5 billion as well as an impairment reversal on KZN Sands property, plant and equipment. Excluding these once offs, earnings are expected to come in between 1093c and 1186c per share. If you include the once off items earnings per share will come in at 2479c to 2581c per share.

We will look at headline earnings which exclude once offs to determine valuations. These will be up 5%-13% compared with the corresponding period. The coal business is expected to report lower operating profits due to price decreases and lower volumes to Eskom. Either Eskom are getting their coal elsewhere or they are using less, if you have any input here feel free to let us know. The mineral sands business will report higher operating profits due to a general increase in selling prices.

It still fascinates me how they never mention that 19.98% Sishen stake. I understand that it does not fall within their operations but it still contributed over 60% to earnings as of last year. So that part we will have to guess. According to the Kumba results Sishen production was down 4% and Iron ore prices were also down. This resulted in their earnings to decrease by 15%. This is why it baffles me that Exxaro will still able to grow earnings for the 6 months. Again, if you have any input here it would be much appreciated otherwise we will just have to wait for the full results release which normally comes out in August.

The share trades at R160, earnings are expected to come in at R25 for the year. If you annualise this trading update number you get R22. That puts the company on a forward PE of 6.4 (using expected earnings). Wow that is extremely cheap. Maybe the full impact of Sishen is not yet reflected in these numbers and expectations should be revised down. This is why the market is giving it such a low valuation.

Shareholders shouldn't expect a special dividend from the asset sale. They are spending R2.5bn on that African Iron ore asset and will use the rest to further their ambitions to become a diversified miner. This update has been confusing, the market has sold the stock down 1.4% while the rest of the commodity stocks are up. Maybe the market is also confused. I hope so for my own ego's sake. We will wait for the full year results

New York, New York. 40^o 43' 0" N, 74^o 0' 0" W. Stocks bounced off their worst levels last evening, but again it was another day where the anxiety levels were too high based on the news in front of us. The Spanish Yield fever of 2012. Financing at these prices is unsustainable, many people have continually said that and I am guessing that in the current environment this is probably right. Global equity markets shoot first and ask questions later, in particular when they see their favourite companies back home, like UPS, guiding lower on global concerns. The market did not take kindly to that, sending the stock lower by 4.6 percent. Yech. But, the losses were pretty much across the board, so my sense is that the selling was broad based, no specific sectors feeling the heat more than another.

A rare miss is what the Apple earnings, posted afterhours yesterday, is being called by the boxes in front of me, and the online publications that I read. I do not think that I have bought a newspaper this year, the physical stuff I mean. I pay for subscriptions, sure, but only the online ones, and the ones that I think are worth paying for. For instance, I will not pay for a New York Times subscription, but the FT, happy to pay for that. Off the topic, apologies, back to the Apple numbers. The results are on their investor relations portion of their website and for reference sake I will be quoting from here: Apple Reports Third Quarter Results. Both the top and bottom line miss estimates, and that was a rarity for the street, it is usually the street that misses by a country mile. Notwithstanding that, these numbers are impressive if you take a few steps back, sales for the quarter clocked 35 billion Dollars, and the company reported a net profit of 8.8 billion Dollars, or 9.32 Dollars per diluted share.

Margins were better than the prior quarter too, an astonishing 42.8 percent. And, there must have been a negative currency translation in there somewhere, international sales were 62 percent for the quarter. 17 million iPads sold in the quarter, which was a whopping 84 percent increase over the corresponding quarter last year, but phone sales missed ratcheted back expectations, clocking 26 million for the quarter. Hey, don't be sad or blue, that is an annual run rate of comfortably over 100 million and remember the margins! That is an increase of 28 percent on the corresponding quarter last year. Mac sales were flat when compared to the corresponding quarter, but still managed to clock 4 million units.

And iPods? Remember those? Well, I have an older generation one, it is 6 years old or so, but still works well enough. Apple sold 6.8 million iPods, and that was a ten percent decrease over the course of a year! 10 percent? But this is the nature of the beast, if you can afford to get the phone, over the iPod, then you get both. A victim of their own success, that is how one person put it, folks are so keen on the rumours of an iPhone 5, that they are delaying their purchase of the current model. Which is awesome, because that means that there are genuine fans, if you did not know that already.

I saw a survey that suggested that 94 percent of iPhone users saying that they would get the next one, when the opportunity arose. That is why I think that the carriers are so important to the success of locking the users in. Although, the RIM and Nokia crumble proves that fans are only fans when the product is awesome. And on that score, you must either read this (unusual source I know) now or later, it doesn't matter: Microsoft's Lost Decade.

The BusinessInsider had a nice daily chart, which you can subscribe to, this one is called, CHART OF THE DAY: Where Apple's Revenue Comes From.

Do you see how iPod's used to be half of revenues, but is a whole lot less important nowadays. That was of course in the era pre the phone and tablet. This is why I think that people apply a discount, partly the size, but also the need for Apple to invent that next amazing product. I am sure that the new phone, when it comes, and TV, when it comes, will be really amazing. But what will that constitute of overall sales? And will an awesome TV have an impact on iPad sales? Unanswered questions.

Also, the company declared a quarterly dividend of 2.65 Dollars per share, annualise that, you get to 10.6, the pre market price is indicated 567.8 Dollars (5.51 percent lower than the last close) and the yield is a sort of OK 1.86 percent. Not the most incredible yield, but when you factor in that this company is in the most amazing financial shape. Not like Muhammad Ali at the absolute top, but pretty close. Check it out, if you add up cash and cash equivalents, short-term marketable securities and Long-term marketable securities you get to 117.221 billion Dollars. That is more than the market cap of Visa.

What do you do with that amount of money? 117 billion Dollars? Well, return some to shareholders and buy stock back, but not forever. The R&D bill quarterly is around 870 million Dollars. Roughly 21 percent of the share price at market close last evening is cash. More when the market opens today, because the price is indicated lower, like I mentioned earlier in this piece. The analyst notes that I have seen suggest around 44 Dollars worth of earnings this year (around 12X forward earnings ex the cash) and over 52 Dollars worth of earnings next year, 2013. Ex the cash portion you are buying Apple at less than 10 times next years earnings. We continue to rate the stock a strong buy on that basis, watching keenly for the product pipeline and of course to see if the competition can release a new hit.

Currencies and commodities corner. Dr. Copper last traded at 336 US cents per pound, a little higher on the session. The gold price is higher at 1589 Dollars per fine ounce, the platinum price is not yet high enough, 1391 Dollars per fine ounce at last check. Why I say not yet high enough, is because of this Mineweb article titled South Africa's platinum pain deepens, which shows that many a South African mine is unprofitable. Not good. The oil price is last at 88.61 Dollars per barrel. The Rand is firmer, 8.43 to the US Dollar, 13.08 to the Pound Sterling (adjust your BATS calcs) and 10.24 to the Euro. We have started higher here again, hopefully we can hang onto these gains through the day.

Parting shot. You have heard the phrase, never give up, because at least if you give it your all and try as hard as you possibly can, you can never feel cheated. Why I am talking about this is of course the greatest show starts this Friday, earlier for some, the Olympics. My eldest daughter is covering this at school and asked me last evening to show her an inspirational video about the Olympics that she had seen at school. I thought that I should share it with you: 1992 DEREK REDMOND AND THE OLYMPIC SPIRIT. Amazing little piece, enough to make you weep for joy, and with sadness too I guess. This one is also awesome, check it out: Finish the Race - personal story of courage - John Stephen Akhwari. And perhaps closer to home, because he is an African. So, never give up.

Sasha Naryshkine and Byron Lotter

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Spain. Not so curvy.

"I agree with the reasons that Moody's have put forward, but what almost nobody has seen, is the ability for governments to enact real change on the current situation. Either way the Euro exercise turns out, someone is going to have to pay for the situation, and that somebody is Germany and France, well at least they have the greatest resources to deal with the situation. The German and Spanish finance ministers are going to meet today. What do you think that they are going to say?"

Jozi, Jozi. 26^o 12' 16" S, 28^o 2' 44" E. Someone backed up the truck and rode over our feet. It still amazes me that the European situation grips us the same way every time it rears its ugly head, like the threat of six of the best from the housemaster if you don't go to bed on time. I understand that the sovereign debt problems are grave in Europe, but surely not enough to sink us every single time? Sadly yes, the same old fear and the same old ending, stocks sold off 1.2 percent (411 points), with the Jozi all share index closing at 33814 points. Platinum stocks got sold off heavily, Amplats falling three and three quarters of a percent and Implats two and two thirds of a percent as the industry continues to be plagued by the same old issues. Costs rising, productivity might be improving, but it still looks not so good, trickier regulatory environment and labour relations are not that great either. Platinum stocks collectively are down 54 percent over the last five years exactly. Brendan Venter would say, not good, we will have to try harder.

Beijing central. 39^o 54' 50" N, 116^o 23' 30" E Is it working? I mean, the easing that has been done from the central authorities in China, is it working for the Chinese economy? Well, that is what folks on the box are starting to say this morning. If you have never visited us and you wonder what my view looks like, well here it is below:

That is a fellow from Kenya on the right, Aly-Khan Satchu, who I met once and the woman on the left, Linda Yueh, is a former bank employee who now works as chief economist for Bloomberg in London. Byron is on the right in front of me and Paul is to the left of me. The TV's are in front of me and the gardens behind the Melrose Arch hotel are behind me. A beautiful little patch of lawn and peace and quiet, that you would struggle to find elsewhere I guess. So, the folks on those boxes in front of me are starting to say that that latest HSBC flash PMI release, which was this morning, indicates that "things" are improving. The number came in at 49.5 for the month of July, and is the best since February. So perhaps things are improving out there, we will wait until next week. My feelings on these PMI numbers however is that I never step away convinced one way or another. Darn, I must be getting old, because I am starting to get more sceptical.

Brussels sprouting ideas. 50^o 51' 0" N, 4^o 21' 0" E This will be the new heading for anything Europe related. After all, if they want the project to work, it will have to work from European headquarters, not so? I am guessing in the affirmative. The single place that I can think would suffer more than any other in Europe, at a city level, if there was a disintegration of the zone, would have to be Brussels. Think of all the hotels and B&B's and conference caterers and facilitators, taxi drivers, big city over-employment relative, that would all vanish overnight. For the record, you have heard us say this many times over, we expect the zone to stay intact and ultimately add more members in the coming years.

Moody's swung to the conclusion that it was time to change their credit rating outlook on Germany, the Netherlands and Luxembourg. And at the same time, the credit ratings agency reaffirmed their rating on Finland. You can read all about it (extra, extra!) right here, from their press release: Global Credit Research - 23 Jul 2012. Huh? Just two major points made, that you could have some fun picking holes in, but it seems like there is nothing new here.

Point 1: "The rising uncertainty regarding the outcome of the euro area debt crisis given the current policy framework, and the increased susceptibility to event risk stemming from the increased likelihood of Greece's exit from the euro area, including the broader impact that such an event would have on euro area members, particularly Spain and Italy." This is mostly I am guessing related to the commentary from the German finance minister over the weekend, and I paraphrase here, if a Greek Euro exit happened, it would not be the horror that it was before. Before you forget, the troika visits Greece with a long snag list that looks pretty much like the last snag list. Err.... guys, please get cracking. Moody's do say that Greece exiting the Euro zone is not their base case, but everyone covers themselves. Our industry talk is pretty much like that of politicians, cover all the bases you know.

Point 2 from in a very bad Moody's press release: "Even if such an event is avoided, there is an increasing likelihood that greater collective support for other euro area sovereigns, most notably Spain and Italy, will be required. Given the greater ability to absorb the costs associated with this support, this burden will likely fall most heavily on more highly rated member states if the euro area is to be preserved in its current form." Now this does make sense again and is nothing new. If further funding is needed, which at the moment it looks like it might be, it would impact the financial well being of both Germany and the Netherlands. Luxembourg, well that is just a place to trade options and currencies with all the gearing in the world. You know the old saying, that is like giving monkeys whiskey and shot guns. Some people are good at trading, but the vast majority, well it is hard for them. It is kind of like trying to be a municipality in South Africa and get a clean audit. Ouch, that was a low blow.

I agree with the reasons that Moody's have put forward, but what almost nobody has seen, is the ability for governments to enact real change on the current situation. Either way the Euro exercise turns out, someone is going to have to pay for the situation, and that somebody is Germany and France, well at least they have the greatest resources to deal with the situation. The German and Spanish finance ministers are going to meet today. What do you think that they are going to say? We will have to wait and see a little later today. It just seems all too much over and over again, but that is just the uncertainty and resulting volatility that we are going to have to put up with. But inside of that is always an opportunity. The carnage across equity markets in Europe did little for confidence yesterday, the German Dax shed over three percent, the Spanish were getting a beating, down over five percent before the authorities decided to ban short selling for a while. It ended down just over a percent. Pity the Greeks though, the Athens bourse sank more than 7 percent. Time to call on Zeus and the gang to lend the mortals a hand.

Meanwhile the yield curve continues to flatten out, and just today the respective bonds (2 year, five year, ten year and 30 year) in Spain reached Euro level highs. And we are starting to get closer to a point where you see an inverted yield curve. The borrowing costs at the shorter end of the curve become more expensive, and this is happening. Right now, just moments ago, Spain raised money with both two and three year maturities, and paid more for the two year than the three year. Crazy! And inverted yield curves are sure signs of recessions, but we know that already. That meeting between the Spanish and Germans can't happen quicker.

Byron's beats was struggling to come up with a topic this morning, but then came up with this beauty.

There has been a lot of speculation about whether there is a micro-lending bubble in South Africa. Through the likes of African Bank, Capitec and the big four Banks, the rate of unsecured lending has increased far above the historical rate in the country. In fact according to the latest African Bank report who cite the Credit Bureau there are now 67.5 million credit accounts in SA. With a population of just over 50 million you can see that there is comfortably over 1 account per person. Of these, 75% are in good standing meaning that they have been financed within the last 3 months.

What spurred me to talk about this topic was the following article from the WSJ which looks at micro-lending in Africa. According to the article 80% (326 million) of Africa's adult population remain unbanked. This is because the majority of them fall within the informal sector. I'm sure you are well aware how difficult it could be to open a bank account without formal employment, a proof of address or legitimate identification. These people still have the capacity to lend money however and still receive an income be it from the informal sector.

The article goes on to talk about Equity Bank Group, a Kenyan bank which is taking advantage of this gap in the market. How's this for in interesting line from the article. "Godfrey Chege is one such customer: He received a loan for almost $1,200 from Equity to expand his chicken-selling business. He and his wife pledged their bed as collateral."

What I am trying to get at here is that there is still room for growth in South Africa. According to Adcorp the informal sector represents 32.8% of our workforce or 6.2 million people. Don't be fooled by the 67.5 million credit accounts in SA. That will include your Truworths account, and 3 credit cards. I know individuals who could contribute to at least 7 accounts so this number is inflated.

African Bank have a total of 2.6 million customers who of course are not all part of the informal sector. The industry is competitive but the margins are good and as I mentioned earlier many of these people only have micro-lending to turn to. People often think that micro-lenders are greedy institutions taking advantage of the poor but in reality they provide financing to people for education, small business start ups and home improvements when no one else will. We continue to invest in this theme via African Bank who look cheaper than Capitec and don't get involved in all the shenanigans that the big banks get up to.

New York, New York. 40^o 43' 0" N, 74^o 0' 0" W. Different time zone, different markets, same result. The anxiety around the Spanish bond yields and the regional governments in Spain running short of money meant that it was another case of selling first and asking questions later. It was rather a heroic come back from the bottom however, stocks rallied from 10am in New York all the way through to the close, but it still looked grubby at the end, the broader market S&P 500 closed off 0.9 percent to 1350. There were of course results streaming in, Halliburton as well as Eaton with a beat, Texas instruments with a low level beat, but the one that we were most focussed on was McDonald's, which reported decent enough numbers, but missed expectations.

The full release is available via this link, and the headline pretty much sums up a tough quarter: McDonald's Second Quarter Reflects Solid Top-Line Results, Economic Headwinds And Strategic Investments. There is clearly an impact from the stronger US Dollar, sales increased five percent in constant currency but was flat in their reporting currency, Dollars of course. You could not get more American than McDonald's and Coca-Cola. Maybe, but you know what I mean. The same happened of course with earnings, up 3 percent in constant currencies, but down 2 percent in Dollars to register 1.32 per share. Europe. Yip, whilst sales in Europe are strong in local currencies, suggesting that perhaps the trade down is taking place, this does not help when you translate back to Dollars.

"For the quarter, Europe delivered comparable sales growth of 3.8% while operating income decreased 3% (increased 8% in constant currencies). Ongoing strength in the U.K. and Russia led the segment's comparable sales and constant currency operating income growth, with France and Germany also contributing. Reinvigorated everyday affordability options, ongoing premium product innovation and restaurant reimaging were key sales drivers for the quarter." See, sales are good, they are more profitable than last year, you will see this hacked graph from Yahoo! Finance that will show what the problem has been over the last year. Yahoo finance? Well, the graph came out better, you can find it here: EUR/USD (EURUSD=X).

This means that whatever McDonald's (or any American company operating there) have been selling in Europe a year ago in Euros, versus today, you are getting nearly 16 percent less in Dollar terms. Our local exporters and importers know this currency volatility all too well. Around three eights of all McDonald's profits come from Europe. So, this is even worse for every big Mac, smoothie, coffee, muffin, a Salade Chèvre Croustillant in France or a Pannkakor (Pancake) in Sweden. Whatever the menu item, tweaked for the geography, it does not help McDonald's when the Dollar strengthens too much. What normally might help them would be that the soft commodity prices might decrease, as the Dollar strengthens, but if you have been paying attention you would have seen soft commodity prices like corn and soya beans going through the roof. All as a result of a bad drought in the USA.

But these fancy menu items tell me nothing about the immediate future or the long term profitability and continued success of the brand and the company. Personally I must eat at a McDonald's three to four times a year, which is just awful! I should, in the words of Brendan Venter, try harder. The reason for having being in the stock in the past is clear, the company, although in the restaurant industry (depends who you are, restaurant might be generous) is seen to be defensive in nature. The company has managed to grow earnings by 6 to 7 percent (in same currencies) year in and year out, but for the first time is reporting sales slowing across their geographies. If our thesis is right, the "situation" could be close to bottoming. And if the Europeans come up with a central plan, well that might be good for the Dollar sales of McDonald's. But the couple of analyst notes that I have seen so far are turning neutral on the stock.

The dividend payment ratio is always around half of earnings and one of the main attractions. Expectations this year are around 2.80 USD (Q2 of 70 cents was declared the other day), whilst next year the quarterly dividend is expected to ratchet up to 77 or 78 cents a quarter. The year after the expectations are for roughly 85 cents a quarter. So, if you were to hold the stock for the next three years (and buy it today at 89 Dollars a share) you average yield would be three and a half percent. And if you needed reminding US ten year debt yields less than one and a half percent currently. I know which one I would rather be owning. Expectations are for the company to make 6 Dollars worth of earnings per share next year, so at 15 times forward earnings for a company of this size and scale, I would hardly say expensive. But, as Byron pointed out to me this morning, it is possibly the Europe "thing" that is holding the stock back, because earnings are missing what have become very lofty expectations. We continue to buy the company on weakness.

There are of course anxieties about the service offering at McDonald's. In the same way that countries are starting to lean on the tobacco and liquor companies products, taxing it more just before it lands in the end users hands, McDonald's products could face the same pressures. There is increasingly the realisation in the developed world that you can't have the same health benefits and not have a say in what people consume. Over the last decade or so, McDonald's have tweaked their menu to offer folks what they want, balancing fast, affordable with healthy, being a relative term. The first salad was only introduced in late 1987. Tweaked en masse in 2003. The menu changes for each region and if people demand a specific menu item, I have no doubt that McDonald's will get that on the list. In their slow and laboured way. Check out the menu releases: McDonald's History. Nice. Byron and I are trying to become racing snakes, so perhaps we wont be eating any of these items any time soon.

Currencies and commodities corner. Dr. Copper is slightly higher at 335 US cents per pound, the gold price is flat at 1576 Dollars per fine ounce, whilst the platinum price is lower again, at 1389 Dollars per fine ounce. The oil price is last at 88.52 Dollars per barrel, that is for Nymex WTI. The Rand is steady, I guess, 8.47 to the US Dollar, 13.13 to the Pound Sterling and 10.30 to the Euro. We are catching up here this morning, and have started better notwithstanding news from Europe this morning. Apple reports afterhours tonight, that is possibly the single biggest company event on any earnings calendar.

Sasha Naryshkine and Byron Lotter

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This is a drain. Pain. Spain. Again.

"The Euro is taking another beating, nearly through the 1.20 mark to the US Dollar. Anxiety up, selling accelerated, nervousness higher and buyers are scarce. Adding to the anxiety in Spain this morning is quarter on quarter GDP reduction of 0.4 percent. Same old story, Monday again! Stock market in Spain has lost another 4.33 percent this morning. Yech again!"

Jozi, Jozi. 26^o 12' 16" S, 28^o 2' 44" E. Yech, we finished much lower than where we started, at one stage we were within touching distance of an all time high, but the Jozi all share slid 66 points, or 0.19 percent to close up shop at 33225 points. Banks and platinum stocks were hardest hit, the precious metal stocks are looking all beat up right now. We were discussing the future for the platinum companies here (well, we do that often) but we came to the conclusion that there is one big difference between these companies and the gold companies. Of course, most of it has to do with where most of the production comes from, South Africa of course. There would be some irony if Chris Griffith could take over at Amplats at the bottom of the market, and leaving Kumba Iron Ore near the top of the market. Some folks might attribute a turn around to him, even if it was just the market. Of course a very good manager can make an enormous difference.

And he (Griffith) will have this as a starting point: Anglo American Platinum Limited posts decreased headline earnings due to lower sales and weaker prices. That is just this morning, perhaps as I heard once, you can only go forward with your backs to the wall. But that obviously implies that you have hit the wall. Operationally "things" are looking tough. Gross sales fell 22 percent (5.4 billion Rand) to 19.53 billion Rands. Lower sales volumes accounted for the bulk of the revenue fall, whilst prices received accounted for 1.1 billion Rands less. Platinum sales fell 21 percent in the first half to 967,400 ounces, whilst equivalent refined platinum production (own mines and JV's) increased by 1.1 percent to 1.18 million ounces. Wow. In 2006, in the era before the iPhone, the company for the comparable half produced 1.34 million ounces. And back then the average platinum price received was 1104 Dollars per ounce. In 2006. And Amplats managed to earn 4.5 billion Rands. Right now, for the first half 2012, Amplats made 2.73 ZAR per share. Back then, in 2006, there was enough in the kitty to pay 14 Rands a share worth of dividends.

There is no mileage in comparing the past and now, other than to say that the well documented cost issues are known to the market. You can improve labour relations over time and as such improve productivity. Amplats said as much, in the release: "labour productivity improved by 11% to 6.54m2 over the same period." Excellent, whatever Amplats are doing at a productivity level, it is going in the right direction. Costs are a massive issue though with "Cash operating costs up 11% year-on-year to R14,478 per equivalent refined platinum ounce on above inflation increases in the cost of electricity, diesel, caustic soda, steel balls and reagents" Raw materials costs increasing, I suppose that goes both against and for you, depending where the cycle is.

So we know that they are struggling to keep pace with production targets, those are getting revised downwards almost every time that they report. The market is looking ropey for their product and the price has told you that, but that has been an opportunity for jewellery demand, although strong, was not able to offset weak autocat (Europe accounts for 47 percent of autocat platinum demand) and investment demand. Industrial demand is unchanged. I suspect that autocat demand will come back in the next 18 months, perhaps a little stronger than anticipated.

But buying single commodity stocks comes with a health warning, when the going is good, it is very good, when it is bad, well, it turns out like this. Badly. The stock is down 2.6 percent this morning, trading at the worst price in an absolute age. The dividend has been suspended again sadly. But this is a company that accounts for roughly 40 percent of all global production. They are the price maker. If there is a serious review of their operations (ongoing) then we could well see the platinum price rally into the close of the year, in anticipation of future projects being placed on hold. There is already some of that, spending has been ratcheted back and grand plans are not in place for now. Like I said in introducing this piece, this might well turn out to be another genius piece of timing.

So why did markets all fall down on Friday, we were spared from the worst of the selling, but in Europe they were not. Byron asked us here what a very bad or very good day was (a general question) and I tried to remember the indiscriminate selling in 2008 and early 2009. I picked up a specific date, the 29 of September 2008 where the all share lost nearly 1400 points on a single day! 1412 points to be exact. That was a drubbing. The 6th of October, a few days later saw the market sell off 1655 points. The 15th of October saw the market fall 1545 points. Phew. That was aggressive selling for you! But there was selling of another kind, in Europe and in Spain. Again.

The Spanish ten year bonds spiked again, but the equities market felt worse, down 5.8 percent. All this, as a result of the regional governments, Valencia being the trigger Friday, more over the weekend in the form of the region of Murcia, asking the national government for help. So, whilst the regions look for help, the parent is under pressure. Just this morning the ten year is yielding 7.5 percent. Not good. So expect a little bit of selling whilst the market is looking for answers. The Euro is taking another beating, nearly through the 1.20 mark to the US Dollar. Anxiety up, selling accelerated, nervousness higher and buyers are scarce. Adding to the anxiety in Spain this morning is quarter on quarter GDP reduction of 0.4 percent. Same old story, Monday again! Stock market in Spain has lost another 4.33 percent this morning. Yech again!

Byron's beats checks out two companies in two completely different sectors, one we like, the other, well..... not so much.

On Friday we had two trading updates which could give us some sort of indication of what's happening in their relevant sectors. Firstly we had one from Group Five who operate in the construction sector and then we had a voluntary one from Truworths, the biggest clothing retailer in the country. Let's look at the Group Five update first.

As expected things do not look good but there is a light at the end of the tunnel. Now to understand this update you need to understand the structure of the company. This is a short description as per their website.

"Group Five Ltd is an investment holding company with interests in construction, infrastructural development, manufacturing, and operations and maintenance industries. The company does not trade and all of its activities are undertaken through its subsidiaries, joint ventures and associates."

As a holding company in a struggling sector they have had to take lots operating losses, restructuring costs and impairments to the carrying value of assets. Exposure to the Middle East and the struggling steel manufacturing sector locally have been big loss makers. This has resulted in headline earnings per share to drop between 60%-70% while fully diluted earnings will come in at a loss of up to 300c per share. So where is the light? They do mention that excluding all the impairments from last year things are looking a lot better for 2013. This is another reminder of why we don't like the sector, especially exposure to the builders themselves.

On the other side of the spectrum we had a voluntary update from Truworths, a company that has been on a tear for the last few years. In June 2008 it reached as low as R21. Now, 4 years later it has more than quadrupled, trading at R97 after reaching an all time high on Friday.

According to the update earnings per share will grow between 14%-17% on the back of a 53 week period. Sales increased 12.7% while product inflation increased 8%. Gross trade receivables increases 14% to R3.8bn with credit sales now contributing 73% to retails sales. Good numbers for the company on what is already considered at a high base. Let's look at the valuations to get a perspective of the sector.

Last year headline earnings per share came in at 456c. This was up 21% on the previous period. According to this update, earnings should come in at 528c giving the stock a current PE of around 18.3. Sasha has covered this a lot recently and it is quite clear that foreign investors love our retailers awarding them a premium. And let's be honest, they have been right. We expect the retail sector to remain strong and we expect them to carry on trading with this premium.

New York, New York. 40^o 43' 0" N, 74^o 0' 0" W. Stocks sank on those Spanish anxiety’s again, influenza can be a bad thing. Spanish influenza is nothing to laugh at, the 1918/9 pandemic wiped out 3 percent of the world's population. Wow. On Friday, the sellers of equities, with Spanish anxiety, wiped out around a percent off the averages. There were very few bright spots, but the one that was perhaps the brightest were the results from General Electric.

It is difficult to figure out when the company was actually founded, but the General Electric timeline on Wiki suggests 1890. In 120 years the business has become perhaps one of the most iconic company names on the planet. These were results for the second quarter of 2012, and the media release is available here: GE Reports 2Q’12 Operating EPS $0.38 +12%. The heading is actually a great summary of how the business is looking:

If you look at the presentation, which is always a wealth of information, GE 2012 second quarter performance, scroll to slide number 3, which shows the massive backlog, which is now 204 billion Dollars. So, what does a backlog tell you? Well for one, notwithstanding all the flopping and falling around in Europe, the GE order book is the strongest ever. I guess that could change at any one given time, but it is what it is. Strong. Meaning that whilst we are anxious, or seemingly anxious, business is pushing ahead with new orders.

Whilst we like GE a lot as one of the starting points when building a diversified portfolio, the questions will always remain, is GE finance going to return to anything like it was half a decade ago? Perhaps not immediately, and that is not the reason that we own the business. We like the energy, oil and gas, healthcare and transportation parts of the business, not so much the real estate assets. But GE Capital represents over 30 percent of sales and as much in profits. And the success of these quarterly numbers could largely be attributed to GE Capital, the Industrial part of the business owed all of their headway to energy infrastructure. Expect that specific division of GE Industrials to continue to grow as America seeks internal energy solutions and less reliance on external oil supplies. Good for the Dollar, good for the US, not so good really for the Middle East. We continue to buy the stock at these levels, looking for a greater unlock of value in a business division split. Perhaps it won't happen immediately, or even in half a decade, but in the interim you own perhaps one of the bluest of blue chips anywhere in the world. And for the time being, the strategy over at GE is to make GE Capital smaller. I can think of a way to do that immediately!

Currencies and commodities corner. Dr. Copper is last at 334 US cents per pound, getting punched in the kidneys. The gold price is lower at 1572 Dollars per fine ounce, the platinum price is boxing out of the same corner as Dr. Copper, last at 1390 Dollars per fine ounce, down 20 odd Dollars an ounce on the session. The oil price is also taking a drubbing, down at 88.75 Dollars per barrel. Good news for the consumer, not so much for the producers of oil. The Rand is weaker at 8.40 to the US dollar, 13.04 to the Pound Sterling and 10.16 to the Euro. We are taking a hit here this morning, not as bad as markets across the globe, but that is because we are being helped out by a weaker currency. Which is bad for inflationary pressures, but the Reserve Bank for better or worse has cut rates.

Sasha Naryshkine and Byron Lotter

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