To market, to market to buy a fat pig. Whoa, what is that about? Mr. Market across the Atlantic last evening picked up after market participants across the globe had continued to juggle the topic de jour (rather semaine or mois). Personally I paid attention in French class, loads of naughty people I remember who used to sneak a peek at their textbooks during the verb conjugation tests. Wow. Those were the days my friends, French class, I wish I remember something......
Lucky for us, market participants have the memory of a gold fish, or perhaps that is generous. Or downright nasty, you choose. Syria and a potential strike by the US is a serious issue. President Obama was in Sweden yesterday saying that the world must do something about Syria, and that we could not just stand idly by. Russian President Vladimir Putin (I have it on good authority that he is as close to Superman as you can get, at least from his point of view) did not rule out military action. But he has suggested that US secretary of state, John Kerry, is lying. Perhaps the Syrians have not paid him for the weapons supplied. Or perhaps he is just toning it down (and up) a bit ahead of the G20 meeting in Saint Petersburg.
I will let you in on a secret, Peter the Great captured the city and renamed it strangely after him. His mother, Peter's mother? This lady -> Natalya Naryshkina. Yes, an ancestor of my family. My dad's name is Peter and a complete coincidence (my wife and I just chose the name), my eldest daughter is Natalya. But that all counts for naught you see, my ancestors failed to evolve with the times, instead the new elite in Russia have mineral wealth and influence, not too dissimilar to back then I guess. But instead the people of Russia are free and now have democracy......... errr, yes?
Away from the important gold fish issues and back to the ones that change the course of the markets, because that is where last evening the focused shifted. The Fed Beige book, which is not a tic-tac-toe filled scribbled book rivalled to compete with John McCain's smartphone (see article -> Busted on iPhone) but rather an assessment of the situation inside of each territory.
On the page titled Summary of Commentary on Current Economic Conditions by Federal Reserve District the Beige Book is described as: "Each Federal Reserve Bank gather(ing) anecdotal information on current economic conditions in its District through reports from Bank and Branch directors and interviews with key business contacts, economists, market experts, and other sources. The Beige Book summarizes this information by District and sector." OK, good, that is an assessment on the ground, which puts the US economy under a microscope from region to region.
What is the assessment then? You can download the SUMMARY OF COMMENTARY ON CURRENT ECONOMIC CONDITIONS for AUGUST 2013. And read it yourself, if you have the time or energy to get through 48 pages. Or. You could read this assessment from the BusinessInsider: The Economy Is Growing, But Lending Has Weakened 'A Bit'.
What does "a bit" mean? And more importantly, why? Well, as you know too well, rates have been ticking higher in anticipation that the Fed will end their extraordinary bond buying programs and start hiking rates. Perhaps towards the end of next year, the rate cycle will turn. Markets foresee that. And as such the cost for consumers to finance is that much higher. But forget that for a second. Because..... as per this WSJ article: Car Sales Show U.S. Shifting Gear. The best month for US motor vehicle sales (annualized at 16.1 million) since October 2007.
So let me get this right. The best levels for motor vehicle sales since late 2007. Weekly jobless claims are also at levels last seen back then. The 2014 earnings consensus on the S&P 500, we are jumping around a little here, (as per this Yardeni Research) suggest 123 Dollars for the collective. And at current levels of 1653 on the S&P, it is trading on a 13.4 times 2014 multiple. Cheap by historical standards. Bearing in mind that the stock market in October 2007 was trading on a 18 multiple and in March of 2000 (at the other high) the market was trading at 33 times earnings. If the S&P was trading at the same multiple at the height of the go-go times in 2007, you would see a level of 2200 points.
The only thing that I am trying to illustrate here is that whilst the levels of the data coming in are reaching multi year highs, the actual valuations of the overall market is not as stretched as before. So, if you hear people suggest as much, that the data is the same as back then and that is something to be anxious about, someone is not connecting the dots here. Or seemingly that is the case to me. Anyhows, keep calm and stay long for the time being.
Michael's musings takes a look at the current strike season, it is so poor, the relations between all stakeholders that this becomes the norm, and not the last resort. Titled Strike three.
It is that time of year again, where labour approaches management for raises, which normally results in a very wide gap between what labour think they are worth and what management think. This then leads to a slowing in essential service sectors or strikes in others.
Since the night shift on Tuesday we have seen gold miners on strike, with gold producers reporting that less than 20% of the workforce has arrived for shifts.
I am not going to rant about how bad I think strikes are for our country as a whole (including the strikers themselves), because I think many people share my views. Instead I am going to give you a bunch of numbers and let them do the talking for me, I found them via this website STRIKE INFOMATION: Lost revenue R 349,465,652, lost sales to suppliers of the mine R 43,157,372, lost taxes R 9,352,273 and finally lost wages and salaries R 100,205,304 (all these figures are the per day aggregate losses of all mines involved in the strike). With unions saying that they will strike until Christmas if they need to, what would the total cost be to miners, supporting industries and the broader economy?
There is some light at the end of the tunnel however with two companies reaching settlements. This news is awesome for everyone, because the strike hasn’t even been going for 24 hours. Gold producers Evander Gold and Village Main Reef agreed to raises of between 7.5% - 8% for the majority of workers. The only problem is that these operations are small in the grand scheme of things and the agreed upon increases are a far cry from the 'at least a double-digit raise' that is being demanded by the other workers.
To give a comparison to the developed world, where the American fast food sector is currently striking over the minimum wage of $7.25 an hour (about R11 600 a month for a 20 day work week at 8 hours a day), with the majority of strikers/ protesters not even being part of the fast food sector (their strikers have it easy compared to ours). The reality is that wages are ultimately determined by supply and demand, and if supply far outstrips demand, the wage isn't going to be very high.
Home again, home again, jiggety-jog. Markets here have started better than where we left off yesterday, thanks to an improving US economy. And signs of course that across the globe, the worry points are emerging to less worrisome. Greece might be an absolute disaster and might not belong inside of the Eurozone or European Union (if you are German) but the fact is that even there "things" are starting to improve. Hang tight everyone, stay long.
Sasha Naryshkine and Michael Treherne
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