Money with a dash of Funny: December 2014

Saturday 20 December 2014

Still doing it

"As you can see, phenomenal growth regardless of macro trends. And that second image which shows the dominance in women runners is very interesting and encouraging. Whether it be indoor soccer, running, touch rugby, cross fit or pushing weights, people are getting more active and Nike are the brand leaders."

To market, to market to buy a fat pig. Saying that yesterday was huge doesn't quite capture how big it was, the All share was up 4.25% and the Top 40 was up 4.79%!!! The media tells me that the Top 40's gain is the biggest since 2009, on a points basis it was the biggest day ever! The All Share is now up 6.56% for the year so the market is now just beating inflation, if you assume that there are no costs involved. On a value basis I found this image on twitter; thank you Independent securities. "Yesterday most monumental day ever on JSE in terms of value traded & was 41% higher than previous Sep '12 record". So yesterday was huge from any angle that you look at it.

I watched an interview with Warren Buffett yesterday, he had a number of things to say but the big thing that stood out to me was the incredible wealth created in the US. In the interview Buffett said that real GDP per capita in the US has gone up by a factor of six since he was born! Breaking down the jargon, it basically means that it is the GDP number for the US, taking out inflation and then divided by the population number of that year. I went out and found a graph of the real GDP per capita growth:

Now most people might think, well that is normal. Aren't all good graphs meant to start in the bottom left and end on the top right? Going back into history, I would say that the average over the last couple thousand years has been for it to take a generation just for the wealth meter to move let alone quadruple in a generation. I think that this highlights the golden age that we are living in and the power that a free country and market has. I'm not quite sure what my conclusion is from this information but I do know that it is a very impressive stat.

Another thing that the oracle of Omaha had to say was that he didn't think stocks were overvalued. He said in his life time stocks have not been fairly valued about 5 or 6 times and the last time that was the case was at the end of 2008 when they were severely undervalued. So all in all, stocks are not over valued and the US is blazing a trail in creating wealth for its citizens, which creates wealth for other countries all over the world.

Byron beats the streets, Nike still doing it

Last night after the close we received second quarter results from Nike. An odd time to release results but it certainly kept us busy and excited in the quiet office. Lets delve into the numbers straight away.

Revenues increased 15 percent to $7.4bn while headline earnings increased 25 percent. This was thanks to increasing margins (they pushed their high margin products successfully) and share buy backs. The group was very proud to announce solid growth in all geographic regions while Converse grew sales 24% to $434 million (6.2% of sales). The only disappointment was golf where sales were flat. This has been an ongoing trend for a while now, Golf has slowed down in general. It is not a Nike issue.

Below I have hacked a divisional break up of their revenues to paint a better picture of where Nike sell their goods and what they are selling. As you can see, very solid growth in the developed markets, no wonder we have seen money shifting back in that direction. Footwear is still dominant whether it be for fashion or sport. Their are Nike fashion shoes which sell for over 1 thousand British Pounds!

But the sporting aspect excites me the most. Being a recent runner myself I now read and follow running media. I came across this article in the RunnersWorld titled The Half Marathon's amazing growth in 3 charts. I am going to hack a couple of images from the article.

As you can see, phenomenal growth regardless of macro trends. And that second image which shows the dominance in women runners is very interesting and encouraging. Whether it be indoor soccer, running, touch rugby, cross fit or pushing weights, people are getting more active and Nike are the brand leaders.

The market of course knows this. The share trades at $94.27 (it's down 2.5% on the back of lower than expected future orders) and is expected to make $3.61 this year and $4.16 next year. Year end is May. Trading at 23 times next years earnings the stock is priced for growth. But if a company is growing earnings between 15 and 20 percent then that is to be expected.

We are of the opinion that sales will exceed high expectations. The take up of sport and activity is contagious and if your peers are all doing it, its very hard to not get involved. The Nike brand has never been stronger and the shift in Nike apparel as a fashion statement is also very exciting. We are adding to this stock.

Company corner snippets

British American Tobacco announced that it Reached Agreement on an issue that goes back to 1986. Wow, that is a long time for something to be unresolved.

Ellies had their Unaudited Interim Results For The Six Months Ended 31 October 2014 come out late yesterday afternoon. They were not pretty looking numbers but the market is of the view that they could have been worse, the stock is up 5% today on low volume.

Things we are reading, we think that you should read them too

The future of medicine and an inspirational storey at the same time - Beyond blood: Theranos' billionaire founder talks growth. The technology developed by Theranos will make it more mainstream to wear a patch and have real time data sent to your phone and then onto your doctor, allowing for early detection of disease and probably the more basic function, to monitor your diet.

Activist investors see ways that companies can make better returns for their shareholders, they swoop in and try influence management to do things better - The Activist Investor Scorecard. I suppose that you can look at them as a mechanism that makes markets/ companies more efficient.

Having a look at how technology has changed the market - Is Technology Speeding Up Market Cycles?.

The power of economic freedom, a liquid capital market and a world changing technology - Google Is Now Worth More Than the Entire Russian Stock Market. The irony is that Google has closed its Russian office due to increased restrictions imposed on it from the authorities.

What we search for on the internet gives some insight into who we are - Google top searches for 2014. Change the country and the year to see how the trends change. Then to finish off - Google video of top searches for 2014

Home again, home again, jiggety-jog. From another strong start this morning, up around 1%, we are now sitting in the red. The Rand has also started weakening again and is sitting around the R11.60 level. The last few days have highlighted how emotional markets can be and why it is important to ignore short term moves, focus on the fundamentals and batten down the hatches for the long term. Today is the last message for the year, so the team here wishes everyone a relaxing festive season and hopefully a christmas rally to end the year off. If you need to contact us, give us a call on our cells or via email, we will be back with your daily dose of markets on the 5th Jan.

Sasha Naryshkine, Byron Lotter and Michael Treherne

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Thursday 18 December 2014

Interest in interest rates

"An interesting view that is gaining some traction is that the low oil prices will keep inflation at bay and may even cause deflation. Prices in the US during November did fall by 0.3% compared to October and if you take food and energy prices out of the mix they only rose by 0.1%. Due to the lack of increased prices the argument goes that the FED will struggle to raise rates because of the danger that it will cause the US economy to fall into a potential deflationary spiral. Also with no inflation, businesses would like to see low interest rates for longer. "

To market, to market to buy a fat pig. A solid green day from the US yesterday, up 2%, which has lead to markets all over the world being up today as well. The reason for all the green? A small lady in size and salary (She earned less than Gill Marcus last year), Janet Yellen who comes in at a height of 1.6 meters. The FED ended their two day meeting yesterday and reaffirmed the markets views that interest rates will probably only rise in the middle of next year. I suppose the market feared that the good labour data that has been coming out recently might prompt the FED to raise interest rates sooner than the market expects. The basic message then from the FED was that the economy is on track and the FED are still on track to raise interest rates, good data dependant. There hasn't been a rate hike since 2006, which is a very long time ago in market terms and longer than the memories of most market participants, will be interesting times when interest rates move in another direction.

An interesting view that is gaining some traction is that the low oil prices will keep inflation at bay and may even cause deflation. Prices in the US during November did fall by 0.3% compared to October and if you take food and energy prices out of the mix they only rose by 0.1%. Due to the lack of increased prices the argument goes that the FED will struggle to raise rates because of the danger that it will cause the US economy to fall into a potential deflationary spiral. Also with no inflation, businesses would like to see low interest rates for longer.

The biggest news from yesterday, in my opinion is that the US and Cuba are working toward normalising relations. Well that is the intention at least, Obama is facing opposition from Congress and others at home. My default is to have more trade freedoms instead of less and by normalising relations with Cuba, the US lead trade embargo on Cuba should be lifted. Being isolated from the world is not great for economic growth or progress, which can be clearly seen by the 1970's cars still driven around Havana. The embargo has been in place since 1961, the same year that the embarrassing "Bay of Pigs" invitation failed. Then the following year there was the Cuba missile crisis. The US actually had administrative control of Cuba for a couple of years, from 1898 to 1902, which is when Cuba then gained independence. Fidel Castro came into power in 1952 and stayed in power until 2008, not a bad innings.

I think that Cuba will flourish with the embargo lifted, that is just the concern from people in the US. The argument is that normalising relations with a dictator and helping his country flourish just enhances his power. "Relations with the Castro regime should not be revisited, let alone normalised, until the Cuban people enjoy freedom - and not one second sooner," said House Speaker John Boehner. Congress are the ones that need to lift the embargo and considering that the Republicans have control and are opposed to it, it will probably be a while until things become normal. I think that the Republicans have it wrong though; how well has the embargo worked? A thriving economy leads to more freedoms as people become more informed and more ingrained in the "global way of doing things". For interest, here are a bunch of facts about Cuba - The World Fact Book: Cuba. Interesting that they have one of the highest literacy rates in the world of 99.8% and a life expectancy of 78.

Company corner snippets

Super Group have given an Update On The Acquisition Of Allen Ford, Allen Ford is a car dealership chain in the UK. Super Group can be considered an investment company for the "industrial transportation" sector and have been a great turn around storey up 4819% in 5 years!

Things we are reading, we think that you should read them too

Environmental issues and health concerns could be the saviour of OPEC - New York State Is Going To Ban Fracking. I doubt that the major fracking states will stop fracking though, it provides too many jobs and tax revenue.

Getting a foothold in China is a huge step forward for Uber - When It Comes to Speaking Mandarin, Uber's CEO Is No Zuckerberg. Having Baidu as an investor has given Uber access to their 500 million users, great way to get access to a potential customer base. I think Uber will survive due to all their big name investors, who bring big balance sheets, technology and customers.

In the not too distant future our home internet speeds will be as quick as these countries public WiFi speeds - The Fastest Public Wi-Fi In The World Can Be Found In These 20 Countries

Falling markets can still fall further - A Lesson in Market Crashes. It takes a brave man to buy stocks when they are down 80% and then still stay in them when they drop another 40%.

Wealth creates an environment where we are less willing to take risk - The golden quarter. The article looks at how most of our modern marvels have their roots in the "Golden Quarter" of 1945 - 1970. I don't agree with all the conclusions of the author, thought provoking none the less.

Home again, home again, jiggety-jog. Green! Green everywhere! Our local market is following the trend set from global markets overnight. Some of the stocks soaring today are Naspers which is up 8.5% as I write this and Sasol up 6.3%. The Rand has been strengthening from the lows of R11.70, back now to the R 11.50 mark. The FED seems to have reminded everyone that things are not so bad, maybe this is the start of the Christmas rally that everyone has been waiting for.

Sasha Naryshkine, Byron Lotter and Michael Treherne

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Wednesday 17 December 2014

Ruble on the wrong end of the fundamental stick

"The flip side of the coin is that the currency is not over sold, rather it is correctly valued and all the central bank is doing is wasting money and delaying the inevitable. South Africa learnt the hard way, when we intervened in the currency market and ran out of reserves because we were standing in front of huge head funds that had fundamentals on their side. I found a piece on the IMF website on the reasons learned by the SARB, The Rand Crises of 1998 and 2001: What Have We Learned?."

To market, to market to buy a fat pig. The big news from yesterday was the Russian Ruble which hit a record low against the dollar. Due to the sliding Ruble, from lower oil prices and sanctions, the Russian central bank hiked rates by 6.5% to a painful 17%! The result? The Ruble weakened further! As a reaction ordinary Russians are buying as many dollars as they can get their hands on, if they can't get dollars they are buying physical things like electronics which go up in price as the currency slides, Apple Curbs Russian Sales as McDonald's to Renault Raise Prices. For Apple, they sold less than 1% of their iPhones in Russia last year, so closing off the official selling route is not a disaster. I am sure that you will be able to buy an iPhone on the black market, so it isn't a case of closing Russia out totally.

Another big concern for the Russians would be the billions that their central bank is spending on trying to stabilise the currency, Russia Seen Spending Further $70 Billion to Fight Ruble Rout. From a Russian point of view, they feel that the currency is over sold, so spending the money now to stabilise the currency is justifiable because the currency will revert to its "real" value over the long run. A stable currency is vital to an economy because volatility creates uncertainty which then leads to lower investment. For example what Apple have just done, stopped selling the iPhone.

The flip side of the coin is that the currency is not over sold, rather it is correctly valued and all the central bank is doing is wasting money and delaying the inevitable. South Africa learnt the hard way, when we intervened in the currency market and ran out of reserves because we were standing in front of huge head funds that had fundamentals on their side. I found a piece on the IMF website on the reasons learned by the SARB, The Rand Crises of 1998 and 2001: What Have We Learned?. In 1998 we had the Asian banking crisis which resulted in a drop in commodity prices and a risk aversion to emerging markets. The result was a weakening Rand because we were getting less foreign currency from our commodity exports and at the same time, people were selling Rands as they moved their cash to the safe haven of dollars. "Between end-April and end-August in 1998, the rand depreciated by 28 percent in nominal terms against the U.S. dollar. This was accompanied by increases of around 700 basis points in short-term interest rates and longterm bond yields, while sovereign U.S. dollar-denominated bond spreads increased by about 400 basis points. At the same time share prices fell by 40 percent and output contracted during the third quarter of 1998 (quarteron-quarter)." OUCH!

The conclusion from the report was that doing nothing worked out better over the long term. "These differences in macroeconomic developments during the two currency depreciations can in part be explained by the different economic policy responses. In 1998, the South African Reserve Bank's (SARB) intervention policy - both via official reserves and short-term interest rates - exacerbated the crisis and deepened its macroeconomic impact. In 2001, however, the authorities abstained from intervention and the crisis receded faster, without severe macroeconomic consequences.” My two observations are that the Russians over the long run are probably shooting themselves in the foot. The second observation is that, why is the SARB raising interest rates based on what our currency is doing? Raising interest rates is a long term policy move, currency swings are short term in nature. Long term GDP growth ultimately determines where your currency will be down the road and raising interest rates hurts growth big time!

Company corner snippets

Coal of Africa gave an update in two SENS announcements this morning about how their turn around strategy is going, Capital Raising Update and Mooiplaats Disposal. The share price is down 96% over 5 years, so it hasn't been pretty for investors and will be an uphill battle for management, even more so now considering commodity prices.

Purple Group are adding to their investment in East Africa, Category 2 Transaction Announcement. Purple Group are a small company having a market cap of under R 300 million, they own GT247.com which is the main sponsor of Paul's show Hot Stoxx.

Advtech have received Approval From The Competition Commission For The Centurus Acquisition. They have been on an acquisition spree recently to try catch up to Curro. The market has given a premium to both stocks, Advtech is up 59% for the year and is trading on a PE of 64. Curro is flat for the year and still trades at the lofty price of 167 times earnings. Education is a great sector to be in because a stumbling government are your competition and you have the growth in population numbers.

Things we are reading, we think that you should read them too

Having a look at the investment trends of private companies, healthcare seems to be at the top of the list for most companies - Google's Investment Arm Spent A Ton Of Money On Healthcare This Year. Technology is making healthcare more and more effective and efficient, add to that an ageing and growing middle class, healthcare seems to be where the big growth will come from.

Google's investment in Uber is something that I was reminded of when I read the above article - As Google Ventures Invests $250 Million In Uber, What's Next? Driverless Cars On Demand?. Google invested $ 257.8 million in August last year, which valued Uber at $3.76 billion. Earlier this month Uber broke the $50 billion mark in its valuation, making Googles investment of a quarter billion now worth around $3.4 billion, not a bad return for a year!

More on Uber - Washington DC is making a taxi app to take on Uber. I think that this is the best way to combat the "threat" of Uber. Capitalism hinges on less regulation and more competition. By trying to regulate Uber out of existence you are creating a skewed environment and just delaying the inevitable.

New years resolutions are almost on the cards - How to Save Money & Increase Your Happiness. Becoming wealthy is probably more about managing your expenses than the income side - "This all-in cost includes gas, maintenance, plate fees and insurance costs. Because of these costs, the average household spends almost 20% of income on driving expenses. For low-income families it can be as high as 40% of income."

Home again, home again, jiggety-jog. Things have been ugly on the markets over the last month. Currently the TOP 40 is flat for the year and the All Share is only up 2%. The Rand has dropped to the R11.75 level! The silver lining is that our exporters, the commodity companies, are getting some reprieve from the lower commodity prices. The reasons for the weakness will be a combination of factors but mostly because investors are steering their capital towards developed markets. Market and Rand weakness is not great news but it reminds you how important it is to be diversified amongst sectors and currencies. After having read how bad things were in 1998, the current weakness is a walk in the park. Remember that from next week the office number will just go to voice mail, but the team is reachable on our cells and we will all be monitoring our emails.

Sasha Naryshkine, Byron Lotter and Michael Treherne

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Friday 12 December 2014

A broken window is still broken

"Back to the tariffs conversation, it works on the "broken window fallacy". The broken window fallacy is where a teenager in a small backwards town, throws a stone through the window of the baker. The baker then has to call the glass guy to fix the window. The glass guy now because he has business goes to the taylor to get a new suite, the taylor then hires an assistant who happens to be the mayor's son. The mayor sits down, looks at the situation and decides that the rebellious teenager is now a hero because he created all these jobs and economic activity. ViVa breaking windows! ViVa!"

To market, to market to buy a fat pig. Another day and markets are still taking a beating. I think it would be safe to say that there is plenty blood of the resource bulls in the streets? It was Baron Rothschild who said "The time to buy is when there's blood in the streets.". Over the last 3 months, BHP Billiton is down 25%, Anglo is down 20%, Harmony is down 32% and Impala Plat is down 23%. Looking at a year to date number Kumba is down a whopping 46%! Not all of these companies are down because they are poor operators but mostly because they do not have control over the price of the product that they sell. I think it was Bill Miller who wouldn't invest in resource stocks because they were too cyclical. From where I sit at the moment his reasoning seems sound. If I had said not to buy resources a year ago when they were moving higher, you might have struggled to see the reasoning.

Not all stocks have done badly this year, two of our favourite stocks Aspen and Naspers are up 44% and 25% respectfully. Buying expensive, quality companies seems to have worked well this year but we are not in it for the short run. Where will these companies be in 5 to 10 years is the real question? So far the market as a whole is only up 4%, which is not even beating inflation! The forecasts for this year was for high single digit growth or a little over the 10% mark. New Year is a little under 3 weeks away so we still have time to get there!

An article in the Business Day caught my eye this morning, Exporters fear poultry duty may threaten US trade deal. The basics of the article are that South African exporters may stop receiving preferential rates of their goods exported to the US because the US don't like the "anti-dumping" tariffs imposed on their chicken exporters. For non-economic speakers, the term dumping is where a company/country sells goods at a loss, as to drive the competition out of the market and once they have no competition they sell their products at exorbitant prices. There are milder forms of dumping, if you have excess stock you then sell it for a loss on the logic that something is better than nothing.

I am not a fan of tariffs because it then forces us to pay more for something, then that extra money that we are spending on chicken could be spent on something else like clothes. I heard a "buy proudly South African" ad on the radio the other day, saying that we must buy locally produced goods because it is good for jobs. It sounds great in theory but misses the point that if we spend more on South African made goods we are spending less elsewhere. So basically spend more on this good to save jobs but then spend less elsewhere and cost jobs there. Don't mess with prices and we will spend money on the more efficient products by maximising what we produce as a country and maximise the number of jobs created. Look at the proudly South African campaign as a brand building campaign, a brand that you are now willing to pay more for, like Nike or Apple.

Back to the tariffs conversation, it works on the "broken window fallacy". The broken window fallacy is where a teenager in a small backwards town, throws a stone through the window of the baker. The baker then has to call the glass guy to fix the window. The glass guy now because he has business goes to the taylor to get a new suite, the taylor then hires an assistant who happens to be the mayor's son. The mayor sits down, looks at the situation and decides that the rebellious teenager is now a hero because he created all these jobs and economic activity. ViVa breaking windows! ViVa!

Wait! This situation does not sound right? The part of the storey that the mayor didn't take into account, mostly because he couldn't see it happen, was that the baker was going to call a builder to expand his bakery but couldn't because he had to replace the glass. The builder was then going to buy a suite from the Taylor and the Taylor would have hired the mayors son. The outcomes of both stories are similar, but the big difference is that in the first storey the world is poorer because it has one less pain of glass and it still has the smaller bakery. Im not a fan of tariffs and I am not a fan of getting preferential export treatments, a very black and white view for a complex colourful world.

Company corner snippets

Omnia have announced that they are buying back some of managements shares at a price of R210.69. The share price today is around R168 a share, so they are taking advantage of the 30 day VWAP. Management have created a great amount of share holder value over the last couple of years and the SENS announcement stresses this fact but I can't help feeling that management are getting one up on shareholders. It also looks like a clear sign from management that they don't think the share price is going anywhere for the next year!

An update from Gold Fields on one of their Australian mines, Appeal Lodged By Gold Fields Subsidiary In Native Title Proceedings. This will probably drag on for a while but I am not familiar with the Australian legal system and not sure how long appeal processes take. Gold Fields are in the green this morning, compared to the other gold miners who are down, so the market seems to be liking the news.

Things we are reading, we think that you should read them too

Big news from our favourite social media stock - Instagram is now bigger than Twitter. Add these 300 million Instagram users to the 600 million WhatsApp users and then the 1.3 billion Facebook users and you get to over 2 billion eyeballs that advertisers are willing to pay money to access. Many of the users probably double up across platforms, but each app has a different use, so more opportunities for advertisers.

Looking back at the year that was - 22 Pictures That Prove That 2014 Is The Future. The rapid growth in computer processing power is something that I struggle to rap my head around, without computers many of the other modern innovations would not be around yet.

The reason that we don't like gold as an investment is because it doesn't innovate, create anything or take advantage of gaps in the market - Apple Co-Founder Traded His Shares for Gold. Why That Was a Horrible Investment, in 1 Chart

Some good news out of the parastatals stable - SAA launches Project Solaris

Knowledge is power, here are some big and free data bases that will allow you to gain knowledge - The free big data sources you should know. It is scary how much data we each put out there on a daily basis that people then analyse.

Then a controversial subject to end off - 2014 was a breakthrough year for marijuana. Regardless of where you sit on the debate, it looks like legal weed is here to stay and will probably be legal in more and more places. I don't see any investment grade companies in the sector yet.

Home again, home again, jiggety-jog. Mixed markets again today, with more stocks down than up so far. The Rand broke through the R11.60 level to the dollar for the first time since 2008 according to my graph. In other news the Ruble has fallen to all time lows. The low oil price at least offsets the weaker Rand, that is not the case for Russia. I suppose that this highlights the need to make hay while the sun is shining and to diversify your economy as much as possible. Enjoy the long weekend if you are taking Monday off!

Sasha Naryshkine, Byron Lotter and Michael Treherne

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Thursday 11 December 2014

Oil, racing to the bottom of a well

"The low oil price is also putting pressure on the cartel of OPEC. I have seen reports that many of the countries are selling more oil than their quota, I see that Kuwait are offering a discount on their oil and add to that conflicting views on whether they should cut their production or not. Cutting production will boost the price of oil but then makes the more marginal shale oil operations profitable again, which means that OPEC will just lose market share and not boost their revenue by much, if at all."

To market, to market to buy a fat pig. OUCH! The S&P was down 1.5% to a 5 week low yesterday. The reason given for all the red (blood of the bulls) is the drop in the oil price, which is now sitting at 5 year lows at around the $63 level. OPEC have said that the demand for their oil is forecast to be the lowest since 2003 and the US said that they had an unexpected increase in the supply of oil. On the open this morning Sasol in now solidly below the R400 mark, which is a very far way from the R640 level they were trading at in September (down 36% in the last 3 months!). The saving grace so to speak for Sasol is the weak Rand which is around R11.55 as I write this. The more that the US economy grows and goes from strength to strength, the sooner a rate hike is expected which translates into more money flowing into the US. The result is a stronger dollar and a weaker Rand.

The low oil price is also putting pressure on the cartel of OPEC. I have seen reports that many of the countries are selling more oil than their quota, I see that Kuwait are offering a discount on their oil and add to that conflicting views on whether they should cut their production or not. Cutting production will boost the price of oil but then makes the more marginal shale oil operations profitable again, which means that OPEC will just lose market share and not boost their revenue by much, if at all. There may now be an energy OPEC meeting in the new year. The cartel pushed oil prices to levels higher than they should have been and the response was to attract new participants into the market, I would say that this is capitalism at work. It may take a while for things to right themselves but they do in the long run. What did Keynes say? "In the long run we are all dead". Considering that life expectancy is now around 20 years longer than the start of the 20th century, the words "long run" mean more.

An interesting scenario that could come about due to low oil prices is lower commodity prices for longer. The theory that I heard is that the lower oil price means that commodity producers now love lower production costs which means that the marginal players can now afford to stay in the market, which means that supply does not drop off. With supply not dropping off prices will go sideways until demand gets to a point where it is greater than supply, which is most likely a couple of years away. The market will normalise so to speak, volatility will drop off and the "true" value of commodities and the companies that produce them will become "clearer".

From dirty oil to the glitz of Hong Kong and Richemont. Police began clearing the main protest site today, where they have had little resistance, the crowds thinned before police moved in. This is good news for the shopping in Hong Kong and by extension Richemont. Just in time for the Christmas shopping rush and would be part of the reason for the strong run in the Richemont share price recently.

Company corner snippets

Considering that it is December, the last 24 hours have been busy. I thought things were meant to be quiet on the corporate action side of things? Maybe the last push to get things done before the weekend when even more people will be heading to the coast, bush and mountains.

Ellies have announced that they are expected to make a loss this period of between 10 and 15 cents, compared to the corresponding periods profit of 25.27 cents. They have also given further details of their proposed rights issue which they were talking about in October. I suppose they are striking while the iron is hot, load shedding is the new normal and people are buying more generators, good for Ellies. The stock is up around 30% over the last week, down 6% today though. Ellies will be raising R 115 million by issuing 30 shares for every 100 owned at a price of 110. At current share price level of 140 the discount on the rights works out to around 20% but given the volatility there may not be a discount at the take up day. The last day to trade to be eligible for rights is the 23 December and the last day to trade the rights is the 9 January. Management have said they will follow all their rights and will underwrite further shares, which is them saying that they have faith in the company. Putting their money where their mouth is!

PPC issued a Cautionary Announcement yesterday saying that AfriSam have proposed a merger between the two companies. I wonder if this proposed merger was know to management and had some influence in the fight between Ketso Gordhan or maybe AfriSam have seen an opportunity now that PPC is weak so to speak. The big hurdle to the merger will be from the competition authorities, two heavy weights in the industry merging won't be something they want to see.

African Bank issued a Renewal Of Cautionary Announcement, Further Update On The Curatorship Of African Bank And Proposed Restructuring. The main points of the SENS are that they will not be splitting off the "bad bank" to the SARB and will just wind down the bad book in the current company. The "HoldCo" will not be listed as soon as originally proposed and will only be listed when "New Co" gets traction and all the listing requirements have been met. The curators didn't want the listing process to delay the process of getting the bank back on its feet. Our feel in the office is that if you own ABIL shares at the moment, you won't receive anything for them, you will just get a discount on the purchase of "HoldCo" when it lists. So you will have to put money in to realise any benefit from your current shares, and that would be assuming that the share price does not drop on listing day.

Things we are reading, we think that you should read them too

These technology industries form part of the high growth sectors of the future - Clean tech industries. With the drop in commodity prices, adoption of cleaner technology will be a bit slow as 'dirty' energy is now cheaper again. One company that has seen its share price nocked by the drop in oil is Tesla, down 25% over the last 6 months.

Having a look at the year gone by - TIME Picks the Top 10 Photos of 2014. Its a reflection of how society is changing but also jogging our memories of the things that markets were worried about and then promptly forgot about a few days later.

Sharing ideas and information one of the most efficient ways of solving/ curing complex problems - Google's putting autism genome research in the cloud. The advantage of being a highly profitable company is that you get to do side projects like this; they probably wont be very profitable but will make a huge impact on humanity. Capitalism at its best?

The next step in security - Google-backed password-killer crosses major milestone. Passwords can be hacked and are a mission to remember, this technology will solve those two problems.

The end of the year always makes people think about the past and then what the future holds - 10 Astonishing Technologies On The Horizon. Most of these things people have spoken about before and are still mostly in the sci-fi realm. The last one though, "Electronic tattoos" is very exciting. The tattoos will monitor your health and connect to your smart phone so that you can analyse the data, this is where companies like Apple and Cerner will come to the fore.

Home again, home again, jiggety-jog. Looking at the markets today, on the open I only saw red with the gold stocks being worst hit. An hour in and now coinciding with the UK markets I am seeing a bit of green. Aspen and Mediclinic two of our healthcare stocks are up today. Sasha is away from today and Paul from next week, leaving Byron and myself (Michael) to hold down the fort. If you need to contact us, we are reachable on our cellphones and will be on top of our emails all through the festive season. Money never sleeps and nor will we.

Sasha Naryshkine, Byron Lotter and Michael Treherne

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Wednesday 10 December 2014

Grow your problems away

"Remember when we had impending doom as a result of too much US government debt. Strangely as it happens, when you get economic growth, you get higher tax collections that deal with the problem of government debt. And whilst the US is hardly expected to report a surplus any time soon, the size and scale of the debt, relative to the size and scale of the economy is under control."

To market, to market to buy a fat pig. Definitely not the best of days for the local bourse, again some stroppy looking Chinese numbers, a snap election in Greece pending as the presidential appointment is likely to get to a stalemate situation (What, Greece again?) and another energy sell off. The good news, there is always enough of that to go around, is that US stocks bounced off their worst levels last evening, the mood on American companies and by extension stocks is still positive. Any opportunity to get the companies with better prospects at a cheaper price was lapped up by Mr. Market. Oh, and Chinese stocks after having been on an absolute tear (I see many pieces about margin trading having exploded), plunged over five percent on the day, it could have been worse. For Dilma Rousseff, Neymar Jnr. the day was awful, Brazilian stocks as a collective have now sunk more than 20 percent from their recent peak. That represents what the chartists call a bear market, that smells like somewhat of an opportunity to me, without knowing anything specific of course. In other words, more homework is required.

Locally it was pretty much a 2 percent across the board drawdown, all the heavyweight stocks sold off, perhaps with the exception of retailers, the falling oil price is going to have some positives for consumers. And costs for companies with lower fuel bills is going to be good news for shareholders too, everyone needs to move goods around in order for folks in all areas to consume. One thing we are good at, as humans, is knowing what to consume and how to do it, that is for sure. The gold stocks did buck the trend, the yellow metal has moved higher in recent days, after all and sundry having called the price lower to somewhere around 1000 Dollars a fine ounce (the most aggressive I saw) to stabilising at current levels. Show me somebody who can predict the commodities market with great accuracy and I will have to tell you that I am deeply impressed with their wicked skills.

The Impala platinum trading update was poorly received initially, the stock was down only half a percent from where they started by the end. Obviously the currency is of some major concern here in South Africa, the weaker the local currency relative to the majors, the less spending power that we have relative to our emerging market peers. Although, my go to graph on this matter almost always spits out a more sensible option. I map the Indian Rupee, the South African Rand, the Russian Rouble and the Brazilian Real (no point on the Chinese Renminbi, that has a Dollar peg of sorts) against the Dollar over a period of 1 year, just to be certain that we are not completely out there, as far as underperformance goes. The results are what you would expect, after a monster slide in the Indian currency to the Dollar, things have stabilised and in fact flat over the last year. The Brazilian Real and South African Rand weakness to the Dollar is about exactly the same. Spare a thought (or perhaps they deserve it) for the Russian Rouble, which has lost nearly 40 percent of their value to the Dollar over the last year, most of that in the last six months. Hey, good luck with that expansion and tough stance, well done on the oil price too. Pffff.....

Well done to the lawmakers on Capitol Hill, extending spending through to September next year. They averted a shutdown, shaving it close again, this time the funding would have run out on Thursday at midnight. If you are interested in politics and money, then read the WSJ piece U.S. Lawmakers Agree on $1.1 Trillion Spending Bill. I wonder where the debt hawks vanished to? Remember when we had impending doom as a result of too much US government debt. Strangely as it happens, when you get economic growth, you get higher tax collections that deal with the problem of government debt. And whilst the US is hardly expected to report a surplus any time soon, the size and scale of the debt, relative to the size and scale of the economy is under control. Would it be better in an ideal world if there was no debt whatsoever? Think about how most folks would go about saving for a house, which would probably make various asset prices cheaper. Lazy balance sheets all around (personal, government and company) does little for growth prospects, yowsers, I am going to get into a whole lot of trouble with that one!

To finish off the segment, I was interested with the Barron's article titled Might Vanguard Founder Jack Bogle Be Wrong for a Change? Not because Jack Bogle might be wrong or not, rather the way that people still think about investing as being purely confined to borders. Thank goodness companies do not think like that, they would miss many opportunities for their shareholders in engaging with new customers. After all, we are all consumers in nature, regardless of our backgrounds. What is still amazing however is that the US accounts for 48 percent of the total global stock market capitalisation. Of course that might be owned by many, it still is a gentle reminder (if you needed one) that when the stock market roars, soars or enters a funk in the US, it predictably impacts on valuations and value levels across the globe.

Company corner snippets

Anglo American had their investor day presentation release yesterday, the actual presentation can be downloaded. So, now what? I mean, Minas-Rio is on track, 400 million Dollars lower than the revised plans, and is relatively low cost 33-35 Dollars per wet metric tonne. The wet has to do with the transportation method, a slurry pipeline 525 kilometres long. That is just a little shorter than the distance from Jozi to Maputo, imagine that sports lovers! Capex has been cut for next year, and the year thereafter. The dividend is expected to be funded from cashflows generated during 2016, just around when debt peaks. The company identified 10 projects (see the statement) and you can see which ones are going to be key in the coming years. As much as Mark Cutifani can do at the company in terms of operational brilliance and deep mining insight (I do not mean deep as in the sense of shaft deep), the tough operating conditions, the patchy power supply and unhelpful government (in some instances) against the backdrop of weakening metal prices hardly makes the company any more appealing now. We continue to avoid, in spite of all the best intentions and cost cutting in the world.

Not much by way of news announcements from companies, so we do need to scratch like a chicken (two left right feet drags, followed by a left foot drag, all at high speed) in order to find stories that are relevant. I guess that this one does, Hulamin announced a clear trading statement for their year ending December (we still have three weeks left of this month), suggested that normalised earnings per share were expected to be as much as 73 to 90 percent better than the prior financial year. The stock jumped three percent on the day, that was the good news, the bad news is that since they have unbundled from Tongaat Hulett/Anglo American, the share price is down a whopping 77 percent. In 7 and a half years. At the time, the pre-listing prospectus said that the combined board believes that the unbundling and listing of Hulamin on the JSE will unlock value for shareholders and provide investors with a unique investment opportunity in a focused aluminium semi-fabricator company. No. I guess if you had held both assets, you would have been OK, the timing on the part of the folks from the sugar business was pretty good. Aluminium is a tough business, definitely not for sissies. I did notice that the IDC is nearly a 30 percent shareholder, the PIC owns 5 percent (and a bit more) and Coronation owns 10 percent, I wonder what their view is on this business. Anglo used to own 20 percent, the IDC stake dates back to 1996. Tough man, tough.

Things we are reading, we think that you should read them too

An interesting look at the role that psychology plays in saving and investing - Should Millennials Pay Off Student Loans or Save For Retirement?. This is the most basic way of showing that people are not rational and by extension the world is not efficient (So much for all those economic models which all assume the world is efficient!)

The last word on oil - Oil Price Winners and Losers Around the Globe. The countries that have not diversified their economies away from the single export of oil, the picture looks very ugly. Here is the map used in the article:

Warren Buffett, mention his name and people listen - Warren Buffett's 6 best investments of all time. The interesting thing about this list is that it seems all so easy. I think the hardest part for all of us is ignoring the short term moves of the market and to wait for the long term, which is ultimately where fundamentals rule and not emotions, which is the case over the short run.

Home again, home again, jiggety-jog. A mixed bag over in Asia this morning, whilst US futures are marginally lower at this stage. Where is my Santa Claus rally? Did I get too much in November? Possibly. Righto, the news might wear a little thin from here, we will try and keep you going with as much as possible from here on out. I am away shortly, I shall try and get a little in here and there when I can, just to keep the home fires burning. As ever we are all reachable on our cell numbers (if you do not have them, please email us) and of course email.

Sasha Naryshkine, Byron Lotter and Michael Treherne

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Tuesday 9 December 2014

FED whisper, moving markets

"K, the only reason I could find as to why the market sold off heavily in the US session was the news that the Fed could change their language. True story. And just a specific phrase. Yes. There are obviously many market participants who place a great deal of emphasis on trying to decipher Fedspeak. Fedspeak is not like doublethink or doublespeak, that is the language of communists, this Fedspeak is the language of highly skilled and great scholars of economics. The Federal Reserve has some of the soundest and finest economists on the planet, although if you read Twitter you would question that. There is a chance that the Fed could change their "considerable length of time" of keeping rates lower for longer to just "for some time", suggesting that rates will rise around the third quarter next year. Rates, should that change the way you invest, whether they go up or down? No, not here, we would want to own quality businesses long through the cycles. It should not matter at all what rates do whilst you are in the process of owning quality assets."

To market, to market to buy a fat pig. The oil price continues to fall, the local currency fell to the US Dollar, in part due to the stronger Dollar, that was cemented by another cracking employment number on Friday. Weaker Chinese numbers at face value looked to pull back the broader commodities complex, I have a "soft" subscription to a steel publication, Kallanish Steel (headlines only) which said that China was on track to export more steel this year than ever before after a record November. Yes, you read that right, China exported more steel products in November this year (9.72 million tons) than any other month. Ever. Should the country export 6.39 million tons in December, they will cross 90 million tons of steel exported for the first time.

Don't freak out, ok, the Rand is seemingly in free fall, it is not just the Rand to the US Dollar. This was a tweet from a FT chap that I follow, Robin Wigglesworth.

EM currencies slide to lowest since at least 2000 http://t.co/KAD4YCsbS9 pic.twitter.com/032qnOUw3Y
— Robin Wigglesworth (@RobinWigg) December 8, 2014

Here is the associated graph:

Since 2000, you heard right, an FT article, subscription only (there is a free subscription to view a couple articles a month), sorry -> Oil and dollar hammer emerging markets. I said to a new client yesterday after she had met Paul that this feels a little like the end of 2001, or the end of 2007, she affirmed that it had the same mood, perhaps different reasons. The currency is vulnerable, our debt levels are higher, the electricity situation is at best dodgy. Currently. Memo from Eskom, all go on holiday, sit on the beach and use less electricity please, ok? One thing I am starting to see more of is how government employees of various parastatal companies are paid X or Y, the outrage of it all.

So what do you do about all of this? Lower oil prices are great for the general consumer across the globe, the Chinese market is up around 30 percent from early October, the oil price is down around 40 percent over the last 12 months. That must be good for everyone? South Africa imports a large portion of their energy needs, luckily we have some here too, so that we do not have to import everything. That is the good news. Cheaper fuel translates to more money for consumers, the weakening currency that you need to pay for that oil is not altogether a positive. Yowsers. Lower oil prices however are bad news for the oil producers. Sasol and BHP Billiton included. Sasol are down more than a percent a day over the last two weeks and the pain is set to continue today. Do you sell on the basis that no person is ever going to use another drop of oil, ever again? No, Sasol are committed to maintaining their dividend, so you should get before tax next year, 2150 cents. There are concerns of course that the lower oil price has issues with Sasol to raise the money necessary for their next big project. We will see.

OK, the only reason I could find as to why the market sold off heavily in the US session was the news that the Fed could change their language. True story. And just a specific phrase. Yes. There are obviously many market participants who place a great deal of emphasis on trying to decipher Fedspeak. Fedspeak is not like doublethink or doublespeak, that is the language of communists, this Fedspeak is the language of highly skilled and great scholars of economics. The Federal Reserve has some of the soundest and finest economists on the planet, although if you read Twitter you would question that. There is a chance that the Fed could change their "considerable length of time" of keeping rates lower for longer to just "for some time", suggesting that rates will rise around the third quarter next year. Rates, should that change the way you invest, whether they go up or down? No, not here, we would want to own quality businesses long through the cycles. It should not matter at all what rates do whilst you are in the process of owning quality assets.

Company corner snippets

Another note on that Famous Brands acquisition that was announced yesterday. I was asked a bunch of questions by a delightful journalist from Moneyweb, Sungula Nkabinde. It became clear to him that this business was all about logistics. Group revenue was 2.83 billion Rand. The supply chain segment accounts for 2.15 billion Rand. The rest of the business, the parts that you know better has the front end store presence, the royalties earned from the franchise owners sales. If they, being Famous Brands, can squeeze more out of the production and storage process, that has a huge impact on margins. The money is made in making the products that are then sold onwards to the franchise owners, making it clear that quality will be controlled. No matter where you eat that meat product, you can taste the "sameness" each and every time. That is what people want, the same taste across the country and in this case, across the world.

Whilst we are talking about convenience dining, I saw my first Domino's Pizza this weekend, it was going up and looks about ready for opening during the quiet season here, gearing up for the year. There are 382 Debonairs Pizza stores in South Africa, as of last February. The holding company for the Domino's franchise licence in South Africa is Taste Holdings, in their last annual report (also to February 2014) there were 120 Scooters Pizza stores and 25 St. Elmo's. 145 in total. If I add Famous Brands and Taste's pizza stores together, that equals 527 stores, as at February this year. There are lots of restaurants who sell Pizza, including Primi, around 30 stores here in South Africa, that is sit down and not convenience dining, in other words, take out. 13 Andiccio stores. 30 Mimmos. 28 Col'Cacchio stores, all as per their websites. I counted (at high speed) around 99 Pizza Perfect stores. 6 Pizza huts. You get the picture, whilst there are seemingly a lot of Pizza stores around, I am of the opinion that there is huge room for expansion here in South Africa. Kevin Hedderwick always said they did not need chicken, as Famous Brands sells lots of chicken on their pizza. My only point is that there are 52 million South Africans and less than 750 (my best guess) formal pizza stores (possibly many more than formal) translates to 1 store per 35 thousand people in South Africa.

My word it is tough out there. Impala Platinum share price is plumbing new lows, well, multiyear lows at least, this year marks the fourth consecutive year of losses for the overall platinum index. Impala was last at this share price in the middle of 2005. Holy smokes. Back then, things were easier. Or so it seemed. The company released a trading update this morning, suggesting that earnings were (wait for it): expected to be more than 20% lower than the comparable figures of 142 and 145 cents per share respectively for the half year ended 31 December 2013. The best that they can do for the half is 110 to 115 cents worth of earnings per share. Whilst the perception may be that these companies "make billions" amongst the working classes in South Africa, that amount (for the first half) suggests that headline earnings in aggregate (with 632 million shares in issue) will be millions, not billions. Results at EOY 2005, platinum mined 1.848 million ounces, price achieved 840 Dollars per fine ounce, cost per platinum ounce refined 735 Dollars, 26.9 thousand people employed. Same metrics at the end of June 2014 - 1.178 million platinum ounces mined, price achieved 1487 Dollars per fine ounce, group unit cost per platinum ounce 1874 Dollars, employees including contractors - 55 thousand. Wow. Employing many more people, costs are higher and production is lower. Avoid.

Things we are reading, we think that you should read them too

Our favourite online retailer is trying something new - Amazon to use bike messengers for one-hour delivery in New York City-WSJ. If they can get this right they will put some distance between them and their rivals and eat more into the brick and mortar sales.

Given the very strong jobs data over the last few months the "when will the FED raise rates" question has been coming up more frequently - What Happens to Stocks and Bonds When the Fed Raises Rates?. "But so many investors are absolutely certain stocks and bonds are both going to get killed once the Fed finally does decide to raise rates. The historical record doesn't clearly back up that argument."

The wonders of modern medicine - Drugs can repair spinal cord injuries, study shows.

Following on from yesterdays graph of mobile phone usage - CHART OF THE DAY: YouTube's Revenue Is Catching Up With TV Networks. Remember when Google bought them in 2006 for $1.6 billion and not many people could understand why?

More on the media front - Ofcom outlines challenges for UK's communications networks. The two figures that stood out to me were: "The use of 'voice over IP' services, such as Skype or Apple Facetime, has risen from 22% of adults in 2012 to 35% this year."; which is a bit of a concern for the likes of MTN but then they say this "The average mobile owner's data usage has increased by 55% since last year, to around 1.5 GB per month.. It is forecast to increase four-fold between 2013 and 2018, driven by consumers using devices such as tablets, e-readers and mobile phones on developing 4G networks.".

Home again, home again, jiggety-jog. Phew. It has been a really tough year for local equity markets, resources down around 18 and quarter percent year to date, following two years of flat, that has been harder. Construction shares too have lost more than one fifth. Platinum down one third year to date. No seat, the market is up, as a result of retail stocks, financials, banks and industrials. That would have been a better place to have been invested this year, after a really tough four years for resource stocks.

Sasha Naryshkine, Byron Lotter and Michael Treherne

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Monday 8 December 2014

Famous Brands beefing up supply chain

"The SENS release says slightly different things, it says 900 tons of beef, lamb, mutton, chicken, bacon and ham. This is where you make the money, the storage space for burger patties, you can take a turn again on the same cheaper burger. Provided of course that the same burger is sold at the same price, to the end consumer. Great move, the market approves"

To market, to market to buy a fat pig. Friday was a special day for markets, there were two milestones that emerged from the non-farm payrolls number. Why it is still called non-farm is a mystery to me, I know that the seasonality of crops in a vast country with a big population to feed would make the workforce measurements more volatile, there is now around two percent of the US population employed in agricultural activity. At this time of the year as you can expect, there would be a whole lot more people employed in retail activities, as we head into the holiday season. Shop, shop and gift giving is the order of the day. For this last particular report on Friday, Employment Situation Summary, not only did the number top 300 thousand and blow away expectations (321 thousand in the end), it was the 50th consecutive month of job growth in the US. Uninterrupted. And the prior two months saw an additional 44 thousand jobs added in upward revisions.

These numbers are volatile, much hyped, the trend however is the most important thing. It is all very well to know what happened in months prior, the trick as ever is to establish whether or not you think that this will continue. The fact of the matter and you cannot dispute it, is that under this current administration there have been 57 straight months of private sector job growth (50 months in total, including the public sector), a better record even than Reagan, who was considered a person who was all for the economy. 10.9 million jobs have been added in that time. There were days when we sat here in late 2008 and early 2009 where the jobs lost were exceeding half a million, for 6 straight months (3 Bush and 3 Obama). Those were dark days.

Bill McBride wrote an interesting post over the weekend, titled Public and Private Sector Payroll Jobs: Carter, Reagan, Bush, Clinton, Bush, Obama. It is amazing to think, of all of those presidents, that Obama (considered the most socialist by the business community) has seen the public workforce decrease the most in his two terms thus far. Of course he still has two years left, that could change, I should not think too aggressively. McBride expects by the end of the term that public employment should have increased, but nowhere near Reagan's second term. The irony of it all! Looking back, there are many armchair critics of monetary policy and intervention over the last 7 odd years, the results do not lie, this was a far better outcome than 25 percent unemployment, soup kitchens, shuttered boards and general widespread dissatisfaction, spilling over to violence. Yes, we saw none of that, as a result of intervention. Astonishing how there are still many critics of this recovery, I have seen it referred to as the most hated recovery ever.

I have a theory on that, why this recovery is seen poorly. It is a common human mistake to make, to project your own experiences to the rest of the world. Imagine an under pressure financial and banking sector where more regulations, more scrutiny on bonuses, generally less risk taking and old style banking returning. I can imagine that with further higher capital requirements, perhaps the risk taking by financial institutions will have to trend to the conservative, as such less incentives afforded. I suspect that the general mood was deflated across the broader sector, I remember bumping into the German fellow, who was a mortgage manager in a regional bank in Germany, when he found out what it was that I did (a general conversation), he said "ah yes, you guys are to blame for the financial crisis". Really? Us? I think not, then I explained our model to him and that we were not selling packaged mortgage backed securities from Vegas to Scandinavian pension funds. It suddenly occurred to me that our industry is viewed negatively, and it seems like it does not matter where you work. People projecting forecasts tend to be more cautious when forced to be more conservative, that is my theory anyhow.

OK, let us finish off by taking a squiz at the scoreboard. The term squiz is apparently an Australian one. The Dow Jones industrial average nearly reached 18 thousand points, registering a closing high in the end at 17958 points. The S&P 500 closed at a record high too (2075 points, up 0.17 percent), hardly a runaway on such fabulous employment numbers. The concern I guess for the short term inclined folks is that stronger labour markets with higher hourly earnings (wage growth) would lead the Fed to hike rates earlier. Now that can be interpreted as good or bad. Good if you are an investor, the health of the labour markets is directly linked to the health of retail and associated businesses, with 70 percent of the US economy being directly linked to consumption, this is a good thing. However, if you believe (and you are short term in nature) that rates are going to rise earlier, higher rates for the same said consumers is not a good thing. Ah well, you can never please all of the people all of the time.

Company corner snippets

Almost every young reader would have come across Willy Wonka, the story involving the weird owner of a factory, penned by Roald Dahl and titled "Charlie and the Chocolate Factory". Howard Schultz is not Willy Wonka, rather the CEO of Starbucks, he did however speak like the legendary fictitious chocolate maker, when the company debuted the new flagship store known as the Roastery, check the story from Time: Go Inside Starbucks' Wild New 'Willy Wonka Factory of Coffee'. Check out the official release from the company: The First Customers (and First Orders) in Starbucks Reserve Roastery and Tasting Room. Explore the pictures, it looks awesome. In other news related to the coffee company, this is awesome: Starbucks to let you preorder from your iPhone next year. We continue to add to this fast growing and exciting company.

Wow. Here it is, TMG (Times Media Group) are being taken out by Blackstar, who currently are 32.5 percent shareholders, they want the rest, 67.5 percent. The price is different, if you take cash you get a lower price, if you take Blackstar shares you get the higher price (relative to the Blackstar share price). So, you can either continue to be part of this investment with Blackstar's main asset being this big stake in TMG, or you can exit slightly lower for cash. Blackstar expects to issue 90 to 123 million new shares for this purchase, at the bottom end (all shares) and top end (most cash out) of the transaction. If you remain invested, wait for it, there is more for you as a Blackstar shareholder. Tiso and TIH will sink their stake in the investment company KTH, Kagiso Tiso Holdings. Their 22.9 percent holding (and by their I mean Nkululeko Sowazi and David Adomakoh, they are the associated parties) will now be reversed into a bigger Blackstar for 485 million Rand in cash and 92.8 million new Blackstar shares. Around 35 percent shareholders, these specific new investments will be to the new Blackstar company, which will move their listing to the main board in London and here, a dual listed business. The most important question is (jump to Byron's chart on mobile below), can the new group monetise mobile effectively with these old media assets?

Last little bit of company news today, Famous Brands shares have rocketed to above 110 Rand a share again (more than that, as high as 115 ZAR), on the news that they are acquiring a stake (75 percent - controlling stake) in a business called Cater Chain Food Services, from a set of brothers John and Roy Tem-Tem. As per the Cater Chain website in the about us section, the company is a red meat production business, again as per their website capable of producing 400 tons of frozen, fresh and processed products each and every week. Wow. That is a lot of meat for the hungry. Latest technology, check it out -> Production plant. The SENS release says slightly different things, it says 900 tons of beef, lamb, mutton, chicken, bacon and ham. This is where you make the money, the storage space for burger patties, you can take a turn again on the same cheaper burger. Provided of course that the same burger is sold at the same price, to the end consumer. Great move, the market approves.

Things we are reading, we think that you should read them too

One of the reasons that Google, Apple and Facebook are the power houses that they are; mobile - There's A Reason It Seems Like Everyone Is Always Staring At Their Smartphones

As a South African the surveys momentum does not make for very pretty reading - SA Reconciliation Barometer 2014: The struggle against Apartheid amnesia. The conclusion that I draw from the stats are that as South Africa we need to grow the middle class as quickly as possible. The more people that are in the middle class, the more mixing of races and also there is more money there to spend on the next generation.

Emerging economies have done better this year than most people had forecast - Emerging Markets Mock the Pessimists. Two pertain facts about that you can not ignore: "that during the course of this year's slowdown, it added roughly $1 trillion to world output; and that slowing growth in China is still quite rapid by most countries' standards." and "it's adding more than twice as much to global output as the U.S."

It is scary to see the rapid growth in the operations and valuations of Uber - Uber Confirms New $1.2B Funding Round At $40B Valuation. This is the power of disruptive industries. Uber is by far a better business model than the traditional taxi service.

More on oil, this time having a look at it more from the demand side of things - A year out, expect oil back above $80 . As a Sasol shareholder you hope that the price does tick up 20%, as a consumer and holder of consumer stocks, you would not be as enthused.

Home again, home again, jiggety-jog. We've had a slow start today, resources dragging the All Share down. Not even a weaker Rand is helping following some negative current account data on the local front.

Sasha Naryshkine, Byron Lotter and Michael Treherne

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