"The platinum index was at these levels in October of 2005. You are getting the same Rand prices, less on an inflation adjusted basis. In the last inflation read the August one, the CPI index number was 111.0, with December 2012 rebased to 100. October 2005 was at 64.2, you get the idea, you are getting half price, if you are willing to take the risks associated with South African platinum miners. I am afraid for us this is still case of steer clear of the industry, Bill Miller was on to a thing or two there in his avoidance of all things in the commodity cycle. At times you look silly with this approach, at other times you look clever, in the end it is all about investment styles."
To market, to market to buy a fat pig. Another day of selling across the globe, the S&P 500 is around 113 points off the all time highs, not really that bad in percentage terms and similar to the sell off earlier in the year. This time I guess anxieties over global growth, so it is pleasing that companies are starting to report in earnest this week. We have many of the banking companies, JP Morgan, Bank of America, Wells Fargo as well as General Electric reporting numbers at the back end of the week, these are all Q3 numbers, it is fairly sobering to think that there are only 72 days until Christmas, some sort of milestone that is closely guarded in the Western World.
So far this year for equity markets the recent slump has meant that the Dow Jones Industrial average is back in the red, down 0.2 percent for the year. The S&P 500 is up 3.13 percent, the nerds of NASDAQ up 2.39 percent year to date. Where is that Santa Claus rally? Our local market is showing a mere 1.81 percent gain, less than two percent. Platinum stocks have been the hardest hit of the majors, having lost over one quarter of their collective value this year, that followed three years of losses in a row, in their share prices that is.
Amplats stock is down 48.4 percent over five years (roughly ten percent more shares in issue), the Impala share price is down 50.8 over five years, Lonmin is down 70.26 percent over that time. Shares in issue at Lonmin went from 193 million in 2009 to 532 million as of the last year end. Aquarius Platinum is down an astonishing 89.68 percent, the share price that is of course. And the company embarked on a huge deep discounted rights issue earlier this year, adding nearly one billion new shares to take the total number of shares to 1.464 billion. Yowsers.
The reason why I emphasise the share price is that the real story lies in the escalating costs and falling production, how you arrest that now is going to take monumental powers. I often curse that Citigroup report from 2010 in which the research arm of the bank suggested that we, South Africa, were the richest country in the world ex energy. Ex energy of course means no oil, coal, uranium, any energy of any sort. And what was it made up of? 91 percent PGM's, 6 percent gold, 2 percent nickel and 1 percent iron ore. Years of production back then, 184 years, I guess that is marginally less now.
The point I always make is simple, what happens if a large component of usage, auto-catalytic convertors are redundant. How would that happen? If Tesla wins, that is how. Even if Tesla doesn't "win" the amount of platinum being used is less and less, more importantly, there is more stock above ground in older autocats than ever before. I have no idea of knowing what the eventual outcome is for the platinum miners as a whole, it looks more and more precarious with lower metal prices. The weaker platinum price in the face of a more constrained supply environment certainly tells some story and not necessarily a pretty one.
The platinum index was at these levels in October of 2005. You are getting the same Rand prices, less on an inflation adjusted basis. In the last inflation read the August one, the CPI index number was 111.0, with December 2012 rebased to 100. October 2005 was at 64.2, you get the idea, you are getting half price, if you are willing to take the risks associated with South African platinum miners. I am afraid for us this is still case of steer clear of the industry, Bill Miller was on to a thing or two there in his avoidance of all things in the commodity cycle. At times you look silly with this approach, at other times you look clever, in the end it is all about investment styles.
Byron beats the street
This is a piece that Byron wrote to a friend of his, property versus equities.
The fundamentals of property are easier to understand. Simple supply and demand. Of course land in London is finite and as more people are attracted to the city (which they will) demand will increase and relative to the finite supply the prices will increase. Lets not consider currency movements here because you can invest in both equities and property in foreign currencies with the same benefits.
Because these fundamentals of the property market, it is more predictable. You experience a solid yield and good price increases. Also note that a property's price is determined by its yield so if prices are expected to rise so much you'll probably find that rents have already increased as people are willing to pay a premium. What I'm trying to say is that these price increases will already be factored in (as with the stock market). I'd be careful of articles that say "will rise 30%" because these markets are so sophisticated that there are no secrets. Why would someone sell you a property if they knew the property (value) would increase so strongly? Regardless it is certainly a good investment category and a must have in anyones portfolio.
The difference in equity for me is the human element and the potential for innovation as well as the ability to maneauver across geographies. When you get a company like Aspen that goes from R30 to R350 in 6 years because the management team are revolutionising the way generic drugs are being sold amongst developing markets. Or a company like Discovery who are changing the way insurance is viewed globally by aligning all their interests with their clients (making clients healthy benefits both). These are profit driven businesses that plan to outpace property returns (otherwise they'd just invest in property) (many have huge proper portfolios as well) using innovation and are incentivised accordingly with big stakes in the businesses themselves.
Unfortunately and fortunately for equities, because they are so liquid traders play games with the markets, not even knowing what the underlying businesses get up to. That is why we see the volatile swings we are seeing at the moment. I say fortunately because it's moments like these, when the market seems to be irrational, when the big buying opportunities arrive.
Things that we are reading, that we think you should be too
A great article showing how much we have progressed over the last century - 23 Charts That Show Why This Is The Best Moment In History To Be Born.
Another bit of information on the debate of executive remuneration - What if we could confiscate 100% of CEO compensation for all S&P 500 companies and redistribute to average workers?. So a lower executive salary will do very little for the average worker; does that mean the market has correctly priced the value of executives or is their pay still excessive?
One of the many ways that we are finding to make better use of our resources - The sharing economy, Schumpeterian gales of creative destruction, and my top 10 interesting facts about Airbnb. I used Uber for the first time this weekend, similar idea to Airbnb, great experience!
Home again, home again, jiggety-jog. Resources are lending a helping hand here today, I see that the price of some of the metals have bounced after being routed recently. Ouch. A couple of downgrades for France and Finland by Standard & Poors (ratings downgrades) is hardly helping the mood. Earnings season couldn't start sooner!
Sasha Naryshkine, Byron Lotter and Michael Treherne
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