To market, to market to buy a fat pig. Mr. Market here locally was pulled lower by the telecommunication stocks, Vodacom slumped over 6 percent, MTN sank 3 percent and a bit, whilst "competitor" (and that is being generous) Telkom was lifted 5 percent on the day. I listened to a local TV station which suggested that "investors" had pulled their money out of the mobile companies in favour of Telkom. Hmmmm... obviously the reporter was not paying attention to abnormal volumes on all of them, Telkom traded 89 million Rand, but Vodacom alone traded a whopping 454 million Rand and MTN traded a massive 2.132 billion ZAR. So no, that is wrong.
"Investors" did not take the proceeds of their sales (and there are buyers too of course) from Vodacom and MTN and invest it into Telkom. Besides, the fellow is missing something here. For each and every share sold, there is a buyer. And for every share bought, there has to be a seller. Simple, right? Well, some people just don't get that. The price of course is where the balance of buyers and sellers meet in the middle, there can never be more sellers than buyers, even though in this industry we love to use that term.
After the dust had settled the ALSI had sunk nearly half a percent, with pretty much all sectors selling off. On a lack of a resolution in Washington DC, and seemingly no end in sight? For now that is, of course. There are of course two separate issues here, one the budget being approved and two, the debt ceiling being raised (it has happened 104 times before, so why not now?), but the two are somehow linked in a way. You need to borrow money in order to fund your shortfalls, and the US government has picked up the slack over the last five years whilst business has pulled away and back their spending. More on that below.
I liked this: What is the Debt Ceiling and Why Does it Matter? Cullen is clever, and he has a way of putting things into real English that is understandable. Not gobbledygook. What is key here to this shutdown is that there is a small subset of Republicans who are Tea Party types, as much as 25-50 out of the 232 seats that they have in the House. So that does not sound like enough to actually sway things, but it is enough to hold progress on a vote up. Why must us market types try and understand what politics is doing in the US and why it impacts us here? All this is short term posturing to gain leverage over the others, Americans will decide who gets to fill the seats of the house and one third of the senate next year. I am sure that they will be heavily opinionated this time around!
It suddenly occurred to me however that the default, if it were to happen, would it be significant? I mean, what are the pending interest payments that the US Treasury needs to make? Luckily there are people with loads of resources who have worked this out already, this chart is courtesy of the BusinessInsider's chart of the day, which comes from a Goldman Sachs research team.
The first interest payment is due on the 31st of October. Halloween. The next big interest payment (in yellow) is due on the 15th of November, over five weeks away from now, and that is a big one, 30 billion Dollars. But before that is something even more important. A whopping 70 billion Dollars needs to be paid out on the 1st of November for Social Security, Medicare/Medicaid, Federal salaries and "other". If that is missed, then it impacts on all Americans. According to the Social Security Administration website, 58 million people receive Social benefits in America. 39 percent of the income of elderly Americans is derived from the program. Nearly half (46 percent) of unmarried persons rely on Social Security for 90% or more of their income. Wow. And I am pretty sure that many of them vote for the conservative party in the US. Those folks are NOT going to be impressed if the money doesn't flow. Even if (as Wall Streeters have suggested) that the Treasury prioritises interest ahead of other expenses. Yes, I am sure that the person on Main Street will be thrilled with that! But not really.
Who really owns US debt though? We are almost always led to believe that it is the Chinese, that is what the politicians would like the general public to believe that the US is indebted to China, and yes, they are to some extent. South Africa actually owns (owned at the end of July 2013) 13.8 billion Dollars worth of US Treasuries, that is worth a pretty penny in Rands. China however is the biggest foreign holder of US Treasuries, as at the end of July it was 1,277 trillion Dollars. Japan lagged at 1,135 trillion Dollars, all total foreign ownership was 5,590 trillion Dollars. Sizeable. BUT, only around one third of all US debt. Yes. The rest (around two thirds) is owned internally by US pension funds, government pensions, ordinary Americans using it as a savings mechanism. So this is definitely a case of cutting off your nose to spite your face.
But everyone is expecting cracks to appear. And also looking for a grand solution at the same time, to resolve the two issues, approve the budget and more importantly in the long run to raise the debt ceiling. But Cullen makes the point about the debt ceiling in that first article that I pointed you to, why should you have to come back every second year and deal with this fractious issue. Boring. I suppose that there is another election in-between now and then, that could help! Keep calm and carry on!
Michael's musings! Saving the world one kindle at a time
Yesterday, I got delivery of my new kindle and I didn’t even have to leave my desk, from ordering to signing for the delivery. I was expecting it to make my life a bit easier, because I am normally reading a couple of books at a time, and to have them all in my laptop bag is cumbersome. The true impact of it has been much more than that, on me and the economy.
So how does a Kindle push our economy forward? By using a Kindle; which is the most efficient way to read; saves resources that can then be used in other areas of our economy. The first saving from the Kindle comes when ordering, it took me about 30min online to do research and to order, which saved me time because I didn’t have to drive (saving petrol) to a shop, and money because I could compare prices (using Naspers' Price Check website) to find the cheapest supplier.
The next saving comes from using the device itself because I can buy the books online, which also has a time saving, has a quality impact because I can read many reviews about the book and then only buy the best, an environmental saving due to not needing paper and a monetary saving because most kindle books are cheaper (40% in my case) than normal books.
Technology allows us to do more with less, which is good for humanity and by extension the economy. For investing it means that your money needs to be in companies that are run efficiently and are in industries that 'efficient' for society because if they are not, it is a matter of time until they are left behind and relegated to the pages (electronic pages) of history.
Home again, home again, jiggety-jog. Markets are marginally lower here, as you may have come to expect. There comes a moment in the coming days that if you have extra funds that you must start to commit them. This budget impasse will be resolved. The debt ceiling will be raised. And then we can focus on the "stuff" that really matters. Earnings. Of which we have started, Alcoa reports next week, but nobody cares anymore. Because that company is no longer in the Dow. I mean that in a *nice* way, nobody cares. Of course they care.
Sasha Naryshkine and Michael Treherne
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