To market, to market to buy a fat pig. Globally markets were flirting again with multi half decade highs, as I suspect a lack of bad news starts to fill the average joe with confidence again. A crisis of confidence can almost certainly lead to an economic downturn and that can either be a financial event, or a political event. And in this case, the period of great pity, sometimes referred to as the great financial crisis (I guess of our time), saw a marked pull back of business spend and firing of workers was the order of the day. That has turned somewhat, albeit at a much slower rate. Austerity in Europe sucks, and that has also led to political upheavals and the fall of the old guard. And in with the old, that is now new.
Earnings season has been OK, Caterpillar beat the street in some metrics, even though there were some once offs stinking up the joint for a little. Yahoo! beat the street after hours, I suspect that it might be too soon to call Marissa Meyer the saviour, but she is certainly making progress. I suspect that Macallister is making progress there too. Macaalister is her kid. And fear not, if Marissa or her husband (Zack Bogue) decided to take a sabbatical for ten years or so, they collectively have a net worth of 600 million Dollars. There will undoubtedly be some knock on effects of the severe flooding once again in Queensland. On the local front here Anglo has written down 4 billion (after tax) of their Minas-Rio project, thanks so much to Cynthia Carroll. Cynthia and Tom (Albanese of Rio Tinto) should go and lick their wounds and discuss ways to have blasted through billions in shareholder value.
Jozi, Jozi 26o 12' 16" S, 28o 2' 44" E From a corporate point of view we might have seen the two top listed miners here having presented production reports, but the company results cupboard for the year is basically empty. One company has reported numbers for this whole year. Yes, you heard me right, one company. And that is because it has a strange year end, April, and these were their interim results from October. That single company is Ellies. What we have seen however is a whole lot of trading updates from many different retail companies. And most of which have been poorly received, resulting in a sell off across the retail sector. It didn't matter if you were in food, or clothing, or furniture, groceries, you were not spared from a spanking. So far this year the food segment is down nearly ten percent whilst the pure retail sector is down just over seven percent. Financials are up nearly five percent year to date, and were at the front of the pack again with banks yesterday, steering us to yet another record closing high. Thanks for that. If you were keeping count then 40618 is the new record.
Lending a big hand were the Rand hedge stocks. The unintended consequences of much higher inflation are looming. Perhaps someone should tell Minister Davies that his trip to Davos next year is going to cost him more the tax payer more money as well. I always say that it must be very easy to spend someone else's money. But your own. I wonder how many folks would have really gone to Davos if they were forced to pay their own way. Perhaps the 90 billionaires would have hung out with Klaus Schwab and come up with ways to solve pressing agendas. Tsk, tsk, I shouldn't be such a cynic.
Something interesting has happened over the last three to four weeks since the beginning of the year. And I am talking at a global level. There have been more people talking about the economic recovery and a whole lot less people talking about the end of the world trade. Even the Nouriel was battling to be bearish. Now all this talk of enthusiasm smacks of Johnny-come-lately. But, as we say around here, not everybody thinks the same as ourselves. And that ultimately makes a market for everybody.
We continue to see the Rand taking heat, which does to some extent impact on all of us. Yet, we are not too aware until it arrives in the form of higher energy prices and higher food prices. In the last two years, the Rand has weakened by twenty percent. So, if you think about it in simple terms, the Dollar value of your South African assets have lost 20 percent of its value. One fifth. Over ten years however, that is 43 percent. Over a year we have lost nearly 19.5 percent to the Euro. Over ten years the Euro has appreciated by 56 percent. One Euro used to be 7.6 Rands, ten years ago. Today? Well, 12.25 Rands gets you one Euro. The Rand has weakened by over 60 percent to the Euro in ten years. Wow.
And now we are starting to see strong reversals, which are probably two fold. One, there are small moves afoot out of fixed income globally towards riskier assets as perhaps the search for yield at all costs starts to slow a little. As those well paid people who manage a whole lot of money are starting to follow the herd and allocate more money to equities in the developed world, that does not bode too well for us.
So that is clearly the one reason, perhaps the lesser reason being touted around. The main reason is the ratings downgrades, the yawning current account deficit (record imports in October last year), lower growth rates locally, government's combative approach to business (at least from where I sit) and that translates to less appetite for South African assets. Should we be worried? Well, the short answer is yes. If you break down imports, they are as much as one quarter oil. And because that is priced in Dollars, that does not exactly bode well in the short term. Because for the same barrel of oil (if the price remained the same) we have to pay a good 20 percent more. Start fracking chaps. I know that those folks down in the Karoo might disagree with me, but I have seen what the benefits for the US have been.
Perhaps the selling in the short term has been overdone. Perhaps the political stability in South Africa is what it is. I can think of twenty such periods in our time when we were more unstable. We have had the same government for nearly two decades. Who am I to suggest that the ruling party did not deserve to get those votes or not, it would be like you know what into the wind. South Africa is what it is, and we should make the most of it.
New York, New York. 40o 43' 0" N, 74o 0' 0" W Stocks didn't manage to hold a nine day winning streak last evening on Wall Street, basic materials and consumer cyclical stocks weighed on the broader market and blue chips. Tech caught a bid, and in particular the selling in Apple seems to have abated. The stock added two and one quarter of a percent to end at nearly 450 bucks. 28 million shares traded, around three percent of their market cap. In a single day. I am still at a loss for words at seeing this kind of crazy trade in what is again the worlds biggest company by market cap. Apple was after the close on Friday worth less than Exxon Mobil, in terms of market value. That changed again, but I failed to get an alert on the other way around. I guess it is not news when it is going up.
Another stock that caught a serious bid was Facebook. Up nearly 3 percent on the session as another analyst upgraded the stock to buy. Shouldn't that analyst have done it at 20 or 25 Dollars, not over 30? And these people get paid real money to do this. And the reasons are the same old ones that we have heard already, Facebook's ability to monetize mobile is ever increasing. What? The anxiety over that was palpable. Mobile phone killed the book of faces, remember? Pff.... Oh, and to put it into perspective, the average volume in Facebook is nearly 66 million shares. And there are 2.17 billion in issue. That is roughly 3 percent of the market cap of the company. And that is average trade. Last thing, now that the stock is down only 14 and a half percent from the IPO, it becomes a non story. And that was only on May the 18th last year, the stock has been listed for just a little over eight months. Wow, and it has been an incredible ride.
- Byron beats the streets, today covering durable goods orders, which were a huge beat.. Yesterday we had Durable goods numbers from the US which comfortably beat expectations. Before we look at the numbers lets define what exactly this number means. The durable goods number is gathered from manufacturers who produce items which are designed to last longer than three years. The number for December 2012 whereby orders rose by 4.6% comfortably beat expectations of 2%. These expectations were probably factoring in lack of business confidence due to the fiscal cliff but I guess, just like the collective market, businesses always expected a short term solution.
It is a number which can be volatile. Spending on aircraft and defence can obscure the overall environment. These two sectors did show strong growth which pushed the number higher but there was still good growth from cars and machinery even though it was slightly slower. When you exclude transport all together orders increased 1.3%. When you exclude defence spending and aircraft the number only climbed 0.2% but this was off the back of two good months in November and October and during a period which was thought to be very slow due to policy concerns.
This is certainly good news for the global economy. Businesses, especially in the US, are sitting on massive piles of cash. Any indication that they are starting to spend means that they are growing in confidence. It also means that the actual spending will have huge positive affects for the economy. Since people started to realise that China was not going to experience a hard landing and that Europe was not going to collapse we have seen economic data starting to shift positively.
Another massive catalyst is the US housing market. If people are building and buying houses they are also furnishing those houses with washing machines and couches. In fact, the message from Anchor Capital today included a quote from Joe Lavorgna, the chief economist at Deutsche Bank. He said that they are projecting housing prices to increase 5%-10% for the year. That has the potential to create wealth between $860 billion and $1.7 trillion. $1.7 trillion is the same size as the Indian economy.
He also mentions that this kind of wealth has a massive knock on effect. This is known as the wealth effect. It is simple, if your house is worth 10% more than it was a year ago, you are going to feel more confident to spend on consumer goods because effectively you are richer. The wealth effect of $1.7 trillion can be massive. All in all a good durable goods number as the US looks poised to have a strong year.
Crow's nest. Our market here is slightly higher. Which I guess means another record high if we stay this way. The fun part is that we are not even one third of the way through earnings season in the US. And so far, earnings have beaten by around 67 percent, with downside surprises lower at 20 percent. Snooze....
Sasha Naryshkine and Byron Lotter
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