To market, to market to buy a fat pig. Friday the 13th was for the birds! At least the last one that just passed. On Friday we saw markets globally sink off their best levels in a while, part US consumer confidence that was not up to scratch and perhaps a patchier than anticipated retail report. They all looked like they were pointing in the right direction to me. What was quite pleasing of course was that the US and Russia reached an agreement on the Syrian weapons stockpile, some would say that they thought Syria did not have any. So it turns out that information in the era of Colin Powell was worse than it is now. Thanks to YouTube and the internet. And that in itself is a double edged sword, because of course you should not believe everything you see on the internet. Apart from PSY and Gangnam Style. Which is now up to 1.768 billion hits on Youtube. Eat your heart out Miley Cyrus!
OK, back to matters more pressing. The local market sank around one third of a percent off record levels, over in the US a late flurry in the equity markets saw the Dow Jones add half a percent, whilst the broader market S&P 500 only managed a little more than one quarter of a percent. The nerds of NASDAQ managed to only add 6 odd points, but is still the outperforming market in the US year to date, up 23 percent plus. And without the help of Apple inc. which is nearly 13 percent lower on the year. Apple has a market cap of 422 billion Dollars, twice the size of food giant Nestle. Wow, that is sizeable. On the list of global businesses listed in the US, Google is in third place and within a whisker of 300 billion Dollars in market capitalisation.
No wonder that "investors" only want to pay less than a 8 times multiple for Apple inc. on a less cash basis. That certainly sounds too cheap, even if the Apple 5C (is C for cheap?) does not to the same very clever analysts. They are clever, I do not mean that facetiously and would hate to suggest that the collective have got this one wrong. But the point that I made last week about the newer entrants to the emerging markets is important. And even in the US, the original market for Apple, they are not the dominant force. There was an interesting article in the Business Insider (Apple Made One Thing Clear: It Doesn't Care At All About Winning Smartphone Market Share) that suggested that Tim Cook was either greedy or shrewd. He is greedy because Apple has so much cash, why should he (and by extension the company and their shareholders) care so much about the margins now. Should they not be chasing market share?
The one thing that Apple has that is very different from all of the other phone manufacturers is that they own the whole lot, from the start all the way through to the end. And they (Apple) lock you as the user into their ecosystem. Once you enter those credit card details, you are on a one way track to enjoying some fabulous applications and songs, and sharing (across your devices of course). Not to say that the Android user experience isn't great, but the truth is that Google doesn't own all of it. I would prefer Google to own it all, but for the time being their beautiful phones are are coming. I am not too sure what a Google branded beautiful device would do to Samsung, or Apple for that matter. For the time the smartphone devices (profits) is a two horse affair. Of course we will wait and see what transpires, I suspect consumers will adopt the lower and higher end products. You cannot lie about the quality of the product to the customers.
Summers is out! Larry Summers dropped out of the race for the next Federal Reserve chair this weekend, in what was perhaps a surprise for many. Summers is still young, he is 58, turning 59 in November. Remember that he was Secretary of the Treasury under Bill Clinton back in the period of 1999 to early 2001. Perhaps Elise New (who is his second wife, her second marriage too) suggested that the profile and the job itself is not really worth it, it must be very personally taxing. Summers Pulls Name From Consideration for Fed Chief, is the NY Times heading, and the article indicates that Obama and his insiders do not know Janet Yellen well. Janet Yellen is now considered the top candidate. I have heard of a few folks suggest that Ben Bernanke might be pressed again for the job.
At times like this I normally turn my reading on the matter of the next Fed chair to Bob McTeer, who actually knows both Ben Bernanke and Janet Yellen. He has written a good piece this morning. No, great piece in which he has a look at Bernanke, Yellen and Summers as people, sometimes we lose sight of that part: The Summers/Yellen Shoot-Out.
His opinion about Janet Yellen first: "Janet always appeared studious, having always done her homework. She always had her remarks written out with the wording very precise and she sounded somewhat pedantic if the truth be told. Wherever she was shooting from, it was not from the hip. One could imagine her burning the midnight oil getting it just right."
And then Larry Summers: "I know Larry even less well, and he probably knows me not at all. My first exposure to Larry was at a breakfast table at the Jackson Hole symposium in the early 1990s. There had been some sort of scandal at Solomon Brothers and an economist-possibly the chief economist-from Solomon Brothers was at the table. While he presumably had absolutely nothing to do with the scandal, or related issues, Larry bore into him relentlessly. It was the worst case of intellectual bullying that I had witnessed, before or since.
At that and subsequent conferences, Larry came across to me as a brilliant economist who couldn't keep his shirt-tail tucked in and who was in grave danger of spilling his Diet Coke on himself or others. I'm not saying that's a bad thing. I have those latter characteristics without the former."
All this is fascinating! Real insight from someone who has met them. The very weak reason why the markets are up this morning, because Summers is no longer in contention is all rather puzzling. Paul said that he is known for being a volatile personality, so in a sense that is a positive that folks around him won't have to deal with that. Yellen sounds like the real deal. I suspect that whomever it will be, there will be no doubting the quality.
Famous Brands have released an important announcement this morning in which they will be acquiring 49 percent of UAC restaurants Limited from parent group, UAC of Nigeria Plc. Primarily for the Mr. Bigg's opportunity. Who? Mr. Bigg's, which is Nigeria's first franchise chain and has been around since the 1960's, according to their Wikipedia entry. The logo colours are Red and Yellow, yes, I have seen that before! Mr. Bigg's Wiki entry, which references UAC's website (which in turn references the Mr. Biggs website) has this to say about the menu: "Mr. Bigg's specialty is the meat pie. A common lunch might also include scotch eggs, a sugared donut, chicken, and a soft drink. While western fare such as hamburgers is served, Nigerian delicacies such as jollof rice and moin moin are more popular. Birthday cakes are also a popular product, and Mr. Bigg's bakery offers cakes and pastries."
I had a look myself at what a moin mois is. According to Wiki (the authority on all things): "Nigerian steamed bean pudding made from a mixture of washed and peeled black-eyed peas, onions and fresh ground peppers" Perhaps not everybody's cup of tea. As luck would have it, I actually chatted to a chap at a birthday get together this weekend, and he travels to Nigeria a lot. He says he does not like their food at all, but I guess he originates from Bloem, perhaps not as adventurous on the food front as someone from ... I don't know, Cape Town?
The price of the transaction does not necessitate that the company releases the actual number. The price. I think that the rule suggests that if it is less than 3 percent of the market capitalisation of the business, then the price paid need not be revealed. The market cap as of last close was 9.775 billion ZAR. Three percent of that is less than 300 million ZAR. Which I guess is right, Famous Brands are buying less than half of what is a fairly old, but only 165 footprint across Nigeria. The most exciting country in Africa from an investment point of view, the country is not only the most populous but arguably the most entrepreneurial driven crowd across the continent. Good, this is a good business that commands a premium to the market for a reason.
Home again, home again, jiggety-jog. The lack of Summers rally. Markets are way higher. That must be a downer of sorts if you are Larry Summers. Or perhaps he is flattered. Either way I think it is just dumb that the market THINKS that Janet Yellen is too dovish and Summers is too hawkish. We will take it in a week that the FOMC will probably announce the start to the tapering of their bond buying program.
Sasha Naryshkine
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