To market, to market to buy a fat pig. Sigh. Sometimes the volatility can get you down. I mean, how can big companies have that wild a swing, from one day to the next? After all, their business did not change that significantly, why should their share prices? But that is the world we live in, with a whole lot of market participants with greatly varying objectives ranging from milli seconds to many decades, and owning the securities instruments that are associated with the companies. For some people the security might only mean a number, or part of a chart, but for the company it is access to capital markets. For longer term investors it is the ability to own quality businesses at the right price. A company is not a number. A business is made up of a multitude of individuals who form a team, or many teams to become a collective who try and offer the most compelling product offering or service in their respective market.
You cannot fight the liquidity and other peoples usage of the same thing, it is not just a case of whether you prefer Test cricket to T20, they are both cricket and I guess that the ultimate goal for all people participating in capital markets are exactly the same, to make money. I have yet to meet anyone with any intention to lose either themselves or their clients money on purpose. Everyone risks their capital in the markets in order to grow it. Different strategies from High Frequency Trading to deep value investing operate side by side, again all with the same intention, making money. And the edge that each and every participant has over one another is only evident over time. Skill, luck, patience, quality, these are all characteristics that you are looking for. For some people the allure of trading, be it forex or using leverage in the equities market is not to dissimilar to viewing being a pilot as a romantic vocation. But pilots spend a lot of time away from home, operating under some tough conditions.
Trading is hard, there are few who are wildly successful and have made a runaway success. We have a forex trading crowd opposite us offering courses on how to trade. My first question (that I have never asked them) is if the course and the software are so successful, why teach someone to do it when you could be doing it full time yourself? It makes sense that if all the triggers and signals were bulletproof, it would be easier to do than to teach, plus it would be more lucrative, right? OK, I am getting way off the topic here, the reason is that we sit at the end of the market that is patient, happy to own quality businesses, accumulate wealth over time and roll with the many punches. Stay out of trouble. But. After all is said and done, the many market participants who have the same objectives by different methodologies provide ourselves with the necessary liquidity to be able to execute inside of a tight range. So we should be grateful for the liquidity, I think that is what I am trying to say!!!
Markets locally sold off from their best levels, where the ALSI reached an intraday record of just over 48500 points for the first time. And all of this was against a backdrop of a currency that continues to strengthen up, the Rand has now gained over 90 cents to the US Dollar in 10 weeks, roughly 70 days. That must have improved the inflationary outlook. The Brazilian Real however has been on an absolute tear, strengthening by over ten percent to the US dollar since the troughs of emerging markets on the 29th of January this year. Currencies!!! Trying to actually predict with accuracy and with a straight face whether or not any particular currency is over or under valued, hard work that. Year to date we are about flat, the Rand to the US Dollar. To the Pound the Rand is 1.48 percent stronger. To the Euro, the Rand is still weaker year to date by one quarter of a percent. So all things considered this year, which includes some wild swings backwards and forwards, has been relatively uneventful.
US markets were on an absolute tear last evening, post the Fed minutes release from their prior meeting. If you are in the interest of reading the minutes and want to absorb all of the information, then here is the document you must download: Minutes of the Federal Open Market Committee March 18–19, 2014. I might have double counted, but I don't think so, there were 61 people at this meeting. Either it is an exceptionally large boardroom, or it is an actual small room designed for such meetings. Not everybody gets a chance to talk, obviously, but their input is made in the run up to the meeting. The main paragraph that attracted attention, was at the bottom of page 6 of that PDF document:
"Inflation continued to run below the Committee's 2 percent longer-run objective over the intermeeting period. A couple of participants expressed concern that inflation might not return to 2 percent in the next few years and suggested that a protracted period of inflation below 2 percent raised questions about whether the Committee was providing an appropriate degree of monetary accommodation."
All and sundry are petrified of deflation. Why? Deflation is a bad, bad cycle. Deflation is defined at Investopedia as :"A general decline in prices, often caused by a reduction in the supply of money or credit. Deflation can be caused also by a decrease in government, personal or investment spending. The opposite of inflation, deflation has the side effect of increased unemployment since there is a lower level of demand in the economy, which can lead to an economic depression. Central banks attempt to stop severe deflation, along with severe inflation, in an attempt to keep the excessive drop in prices to a minimum."
But I am sorry. If Japan are the example of deflation that everyone is using, are they not way off? That was a crazy event, not dissimilar to the tech bubble. How can the after effect be the same deflationary environment. Anyhows, the best read with regards to these deflationary versus the right amount of inflation I thought was nailed yesterday by Bob McTeer: Two Percent Inflation: A Good Thing Or A Bad Thing? Bob, an ex FOMC member has some great points, he talks about one percent perhaps being a better target rate.
Anyhow, all that I have learnt from this is that it is easy to be an armchair Fed critic and expert, but the job itself is hard. Making forecasts is a hard job, and somehow everyone thinks of the Fed as the "comfort blankey" that they are looking for. "Investors" (and I use the inverted commas cynically) are always looking at the Fed. If you are following the Fed and looking for direction to make an informed investment decision, then you are doing it all wrong.
This is big. Well done to the fellows over at Taste for having secured the exclusive Master Franchise rights (30 years) for Domino's Pizza for seven Southern African countries, obviously including South Africa. Domino's, for those of you who do not know are the biggest pizza outlet in the world and are synonymous with the food that is right up there with the comfort food of choice. Cheese, melted on a crispy base, with your favourite other foods. Piping hot.
So what happens from here? The existing Scooters Pizza and St. Elmo's stores will be converted to Domino's stores. Those chaps must be excited beyond words, I am not sure whether or not the franchise owners will have to pay more for the better known franchise, perhaps we can explore that later. According to the Taste release, there are 125 plus outlets of theirs currently, that will be rebranded. I had read however in the annual report that there were 136 Maxi's and 26 St. Elmo's, as at the last annual report. The goal is to become the leading pizza delivery brand across Southern Africa over the next five years. As per the February 2013 Annual report, there are 344 Debonairs inside South Africa and 60 outside, so these plans of Taste (for Domino's) are huge, if you think about it. That would make it bigger than Fish and Chips (good timing and purchase there), which as per the annual report had 312 outlets, which is more than half of all stores.
What is more huge, for me, is the entrepreneurial spirit. In 2001, system wide sales (store to customer) across the business was a mere 4.3 million Rand. You read right. By 2011, it had grown to 752 million Rand. For 2013, their system wide sales, from stores to customers had grown to 1.38 billion Rand. I've known these guys since they listed, I know Carlo Gonzaga, the CEO. He is energetic, he remains entrepreneurial, he is still young, I think he turns 40 this year (39 in the last annual report). And he ignores the noise around him. And I am even going to throw this one in, I remember being stuck in a room full of know it alls who were suggesting that the only person buying the shares post the Taste IPO were the directors, and indeed Carlo himself. Perhaps they were sellers below the IPO price because they didn't see a pop. Ha-ha, and what now guys? The share price since 2006 is up around ten fold.
The business is now worth 750 million Rand, and is certainly going places, the stock is up around seven an a half percent today. We should celebrate entrepreneurs like this, people who despite everything thrown at them continue to persevere, notwithstanding the combative approach from government to businesses. Without small businesses that become medium sized businesses and ultimately big businesses, there would be no creation of any jobs. Truth.
Lynx, I'm reading this, you should too
This is simply astonishing, via AEI.org and in particular, our old pal Prof. Mark Perry. The service is called Amazon dash. Check it out: Amazon Dash - Shopping made simple. The future is going to be here sooner, for now Amazon are building the most amazing ecommerce platforms. No wonder Mr. Market is so in awe that the stock trades on a 500 odd multiple.
Remember when Greece was finished? Two Citi guys made up the cute blended word -> Grexit. Well, that might have been two years ago, but Greece have returned to capital markets. Paul re-tweeted in his usual forthright way:
Splendid. Where are the baboons who expected 'Grexit' now?? RT @Hugodixon Greece's astonishing financial turnaround. http://t.co/33FdCvAmu3
— Paul Theron (@paul_vestact) April 10, 2014
Ah yes, Facebook were buying Instagram for so much, what a laugh, so funny. But wait..... it turns out that they are cleverer than you and I around there, check this out: STUDY: Instagram Is Most Important To Teens. This is all via an informative report titled Taking stock with teens. Nike is the number one clothing brand for the spring quarter, and has been that way since Spring of 2011. Footwear, Nike, hands down. Starbucks, favourite place for teens. Nice. Sounds good to us!
Home again, home again, jiggety-jog. Stocks were up, now they are down. Futures were up, now they are down. Worries, persistent ones about the slowing Chinese economy. It is being cooled, no doubt about that, and I would think that is a good thing in the long run. For now, "investors" (being generous again) are being cautious.
Sasha Naryshkine, Byron Lotter and Michael Treherne
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