"Markets are cooking. Absolutely cooking, the Japanese have "unexpectedly" announced more stimulus measures, Japanese inflation is taking hold and the Yen is weakening significantly. The only scares today are for the bears."
To market, to market to buy a fat pig. Resource stock prices swooned again, dragging the rest of the market along, that was not the case globally where indices are less reliant on big mining companies. Although as we pointed out yesterday, Anglo American had slipped quietly to 9th place on the overall ranking places here in the index. AngloGold Ashanti plunged yesterday, it was on the biggest losers list and in fact is trading at lows last seen, well, since forever. It is not the worst performer of the gold majors, no, Harmony Gold is down an incredible 74 percent in ten years. On an inflation adjusted basis it is a whole lot more, the losses that is.
And if you needed reminding, gold is supposed to hedge you against inflation. Ah well, try not focus on the business that you do not know, leave that for other segments of the market. The might have certainly fallen this year, as a collective the entire gold index was lower in December. Over three years the index has given up all the gains, rising costs, lower production, uncertain environment and of course remember that the ore bodies that are being mined are not as easy as yesteryear. Sigh, it is sad and troubling, that simply is the way that it goes, economies evolve, resources are mined, usually the easiest parts first.
This draw down in gold stocks and the broader mining sector saw our market end down 0.93 percent. Sigh. Over the seas and far away Visa took the Dow Jones and the broader market places, US third quarter GDP also beat expectations registering 3.5 percent growth for the third quarter. We wish. Consumer spending in particular is strong, more dollars in the pockets of ordinary Americans, expect the gasoline bills to continue to tumble (for a little bit) and as a consequence be a reserve taxation. At the end of the session the Dow had added over 1.3 percent, the broader market S&P 500 up nearly two thirds of a percent after all was said and done.
Is that real a story? Tim Cook announcing that he is proud to be gay? I guess that is still the world we live in, where gender, sexual and racial bias are a reality, and perhaps the sheltered reality is that I have experienced little or no bigotry in my life, directed in my direction. I think that it is great that he can say and do whatever he wants, this is after all 2014. Long live human rights and expressions of personal freedoms, they allow people to get on with their lives, living them in the fullest manner possible. For the full story, which was published in Bloomberg Businessweek, read here: Tim Cook Speaks Up.
The point about being able to do the job that he does without any difference to the way that he is treated is the story. Not everybody is so lucky, whether you are discriminated against by the colour of your skin, your gender, your religion/creed, discrimination both in your own country or workplace as a result of these factors shows how we still need to evolve. Remember that your view is not the right view, it is just a view. I am glad for one that we live in a place that has more choices for individuals, even though we have to concede that many biases (open sadly) still exist on many fronts.
So yes. It is a step in the right direction. And yes, it is news. And most of all, yes, there is nothing you can do about it, so perhaps ones own prejudices should warrant a look in the mirror and see where the real problem lies, in all of our own personal biases. As Cook says in his piece:
"Being gay has given me a deeper understanding of what it means to be in the minority and provided a window into the challenges that people in other minority groups deal with every day. It's made me more empathetic, which has led to a richer life. It's been tough and uncomfortable at times, but it has given me the confidence to be myself, to follow my own path, and to rise above adversity and bigotry. It's also given me the skin of a rhinoceros, which comes in handy when you're the CEO of Apple."
What Cook does not say is that his birthplace determined where he works today. All the way on the other coast of the US, in the state of Alabama, Tim Cook was born on the first of November (it is his 54th birthday tomorrow) in a city called Mobile. If you look at a map of Alabama and turn it upside down, stingily it looks like the older mobile phones too, not so -> Alabama Map. Long live choices!!!
Visa. It is something that gets you into a country. The company however has its roots in a town by the name of Fresno (California), anyone who has watched the DreamWorks Animation animated movie Monsters versus Aliens will recall the place. Yes, it used to be my youngest daughters favourite movie that one. The annual report of Visa last year : Our business traces its roots to 1958, when an innovation center run by Bank of America began to mail cards to its customers ... where it did business with about 45 percent of the families living there. At the same time, the bank met with local retailers and explained that many local families would soon have these cards. In a short space of time, a network was created that would benefit both parties.
Fast forward to the last quarter, the fourth quarter of their financial year to end September 2014, which also means that the yearly numbers hit the screens too. The company can process an astonishing 56 thousand transactions a second and operates in over 200 countries around the world. There is of course the real time network too, VisaNet, which has processed over 12 thousand transactions a second during the peak season. What is most impressive about their network is that it is very hard to replicate, once built and trusted, it is hard to use something else that is unknown. Besides, as the Apple Pay platform and payment system is rolled out further, it is Visa and Mastercard (and others) that handle the payments, the existing infrastructure works.
Straight into the numbers themselves for the full year. Adjusted full year earnings per share growth of 19 percent (9.07 Dollars per share) on net income of 5.7 billion Dollars (an increase of 15 percent) on total operating revenues of 12.7 billion Dollars. The margins are absolutely fabulous in this business, operating margins of 61 percent here. Yowsers, what most businesses would give for half of that!! Spend, well that was flat for the year, the only noticeable line was a 450 million Dollar deposit into a litigation escrow account, companies of this sort are prone to the prying eye of regulators looking to protect the "poor" consumer. The company also announced guidance that was ahead of the market consensus and then also announced that they would embark on another 5 billion Dollar repurchase, which is around three and a half percent of the share in issue, at current values.
In all their territories it was the US that experienced the strongest growth for the three months to end September, an extension of the strong US economy. What is interesting to note is that overall, the international segment of the Visa Debit programs is equal to that of the US, the US blows the international segment away in Visa Credit program growth.
Visa will continue to attract more and more swipes from many more customers across the world. There are whole programs to eliminate the use of cash, it is easy to see why, cash has no paper trail whatsoever. Plus, as a result of the anonymity of cash (making it more likely to be stolen) the holding costs are higher for the individuals involved. In other words, banks will charge you more and more for cash. I know for retailers this is a double edged sword, more cash has a holding cost, more electronic swipes equal more fees for them to pay. Governments and other institutions want a trail, regulation has to be balanced.
A ten percent move northwards in the share price last evening was nothing short of epic. That must have been scary for the geared shorts, yowsers. Whilst the upside for the full year looks rather muted, there is no doubting the quality of the company, a must own in any portfolio.
Byron beats the streets in search of the perfect cup of Joe
Last night we received fourth quarter and full year results from Starbucks. Lets analyse the full year numbers. Revenues increased 11% for the year to end at $16.4bn. Global comparable sales increased 6%. This equated to operating income of $3.1bn and an operating margin of 18.7%. Earnings per share came in at $2.71. The company opened 1599 store in the year.
Sounds like a good set of figures. Geographically the company is still very reliant on the Americas with 73% of sales. But they have strong aspirations to grow elsewhere which includes buying the remaining 60.5% stake in Starbucks Japan for nearly $1bn.
CEO Howard Schultz is certainly not standing still. They are leaders in mobile payments, processing nearly 7 million transactions a week through the Starbucks application. On top of that Starbucks want to implement both food and a delivery option through the app. Imagine being able to order your lunch and coffee via a couple of swipes on your phone only to arrive at your desk 15 minutes later.
Another innovation targets coffee connoisseurs. Starbucks are selling upscale bags of coffee in super markets which are segmented by origin. Apparently this is a big thing amongst the coffee experts, much like wine. Included in this genre are plans to open 100 speciality stores selling high end coffee. The hipsters will lap this up!
The share price has been under strain. Year to date the share price is down a few percent against the S&P which is up 8%. Brazil, the largest coffee producer in the world has experienced bad weather and coffee prices have nearly doubled since the end of 2013. Starbucks have had to push some of this onto the consumer. This is not a train smash though. Firstly Starbucks is a premium product and their clientele are willing to pay up. Secondly according to this WSJ article titled Starbucks's Cup is Half Full, Raw material prices only make up 15% of the price of a cup of coffee. Great margin business.
The stock looks like it will open at around $74.72, down 3.5% after these numbers came out. Guidance for next year was slightly less than expected, Earnings of $3.42-$3.52 for 2015 is what management thinks they will make. That includes the acquisition of the Japanese business. On a forward basis the stock trades at 21 times next years earnings. It's not cheap but this is a business growing fast.
We think this period of weakness creates a good buying opportunity. Coffee is an exciting business. A socially acceptable stimulant that according to recent studies is actually good for you. Most importantly the Starbucks experience is great. I wish they would come to South Africa in full force. I suspect it will come soon. Buy.
Things that we are reading, that we think you should be too
How out of touch with things the average person is, is quite scary - Everything you think you know about the news is probably wrong
Expectations form a big part in economic growth, as more people feel more positive about the future the more they spend and the better everyone does - Fundamental Financial Worries Exist for Many
Going opposite to everyone else has shown to give good results but buying momentum stocks has shown to do well as well, the key is to know your game plan and stick to it. In our case it is buying the quality and trusting the product and management to weather whatever storm comes their way - THE CONTRARIAN (SOCIOPATHIC?) MINDSET
US futures are set to open at an all time high, thanks to Japanese stimulus measures. So much for all the anxieties at the beginning of the month. As it is Halloween, we should point out a Business Insider article, the title says it all: Terrible Things Happen All Of The Time And The Stock Market Keeps Going Up.
Fire rates have declined dramatically in the USA, the question is, why? In this post titled So what do firefighters actually do?, you can see that safe cars and houses have meant fewer fires. Progress.
Home again, home again, jiggety-jog. Markets are cooking. Absolutely cooking, the Japanese have "unexpectedly" announced more stimulus measures, Japanese inflation is taking hold and the Yen is weakening significantly. The only scares today are for the bears. Scares for the bears, I like that.
Sasha Naryshkine, Byron Lotter and Michael Treherne
Follow Sasha, Byron and Michael on Twitter
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