"An uncomfortable conversation for many people to have, poverty, specifically when we talk a lot about companies, their progress and profits most of the time. It is encouraging that we are making progress, by we, I refer to the royal we, humanity. If you are feeling down on yourself about the progress of the national football team, or the attacks on foreign shop owners in and around Joburg, then lift your spirits with the 2015 GATES ANNUAL LETTER. Their big bet segment suggests: "The lives of people in poor countries will improve faster in the next 15 years than at any other time in history. And their lives will improve more than anyone else's.""
To market, to market to buy a fat pig. Another good day for the equities market as a whole, it certainly was not the case across the board. Resource stocks took some pain, industrials were much better. In terms of on the box excitement, it was off to Athens to see what gives with the victors, what they are saying and most importantly, how they intend to pay back the money. We can leave that for another day, in solidarity for all things Greek I decided to have something close to a Greek lunch, there was however no three hour nap in the afternoon and definitely no mastika or tsikoudia! Help me out my Greek friends!
I have heard several folks talk about poverty in Eastern Europe and specifically in Greece, Portugal and Spain, from what I have read an income (still working in many cases) of 60 percent of the national median income. When you think of extreme poverty you do not think of Europe, it is all relative I guess. As standards of living rise, so do costs, one Dollar can buy a lot less in Germany than it can in say, Gabon. In some places, on a relative basis it is easier to be poor, for instance, in Portugal rather than in Spain, they are next door to one another. It is not unsurprising that the Nordic states, the Scandinavians have the lowest levels of poverty, the cradle to grave socialism seems to work really well. Smart and rich and educated with compassion seemingly all go together. Depending on where you are in society, you either think that the government should do more, or should do less, there is no one complete right answer, just the right answer for you. I think that the long and short of it, is notwithstanding the improvements in the developing world, it is still "better" to be poor in Europe, if there was a place to be poverty stricken.
An uncomfortable conversation for many people to have, poverty, specifically when we talk a lot about companies, their progress and profits most of the time. It is encouraging that we are making progress, by we, I refer to the royal we, humanity. If you are feeling down on yourself about the progress of the national football team, or the attacks on foreign shop owners in and around Joburg, then lift your spirits with the 2015 GATES ANNUAL LETTER. Their big bet segment suggests: "The lives of people in poor countries will improve faster in the next 15 years than at any other time in history. And their lives will improve more than anyone else's." Whilst Gates may have taken a sideswipe at Zuckerberg (of Facebook) for wanting everyone to have the internet, Bill and Melinda Gates are trying to solve the problems of the world in other ways, by being on the ground. In order to achieve their goals they had to be rich. They have to have the support of their rich friends, Buffett et al. Read it, you will feel a whole lot better.
And on that specific score of inequalities and what you can do as an investor, if you think about it, when you invest in a company and take ownership, you have an obligation to society. If for instance I choose to fund a company that is searching for a cure for cancer, that is better than for instance funding a company that makes tobacco products. I am just saying, you can choose where to allocate your capital, investing money should be no different. The ethics of investing are an area that I think is growing, in the direction of being more, rather than less. Bill Gates and his pals would not have gotten rich and then embarked on this project equally if the enablers were not in place. i.e. If Bill Gates had been born in the USSR under communism, could he have changed the landscape of desktop computing as we know it? The short answer is no, when you enable people and unleash the human spirit, it ends up being good for society. Whilst it is sad for folks potentially to be losing tens of thousands of jobs at IBM (see story below) the fact that 100 years ago the company only employed around 3 percent of their current workforce. I wonder how many people have worked at IBM over time? Millions. Without innovation and without the ability to innovate (too much intervention) Bill Gates would not have got rich and would not have been able to help society.
Drawn away a little from discussing the market, enablers and companies finding better destinations to invest are in our interests of course, let us wrap up and take a look. The local equities market as we said was good, the all share index topped 50 thousand for the first time in a while, in the US stocks rose ever so slightly, it was however blue chips that were the laggards. Meanwhile, if you have not noticed, there will definitely be lower volumes today as Snowmageddon/Snowpocalypse strikes the North East of North America. Polar air and all with a monster winter storm that is set to dump as much as 3 feet of snow, around one metre. Wow, that is a LOT of snow. Once in a lifetime? Surely not. I can see some friends who live in the region posting pictures to Facebook, hopefully their heating stays on for as long as possible. Talking of power, if you think we have problems here, I feel for Pakistan which had an 80 percent outage on Sunday.
Company corner snippets
Did you see the news that IBM (might be) will be laying off around 111000 people, in other words, one in five of their staffers are set to go. Most of it in the US. It begs the question however, if you cut your workforce by 20 percent, do you a) enjoy significantly higher productivity from your existing workforce to offset the drop in resources and b) the cost savings benefit of letting that many people go, offsets a drop in resources. i.e. it makes IBM more flexible. It is pretty astonishing that a company that large can chop that many people, the official line from the company is that they are not chopping that many people. The company denies it for now, we shall have to wait and see what transpires, it is hard to see a great company in a slump. It is another reminder that great companies can lose their mojo and that the landscape can change dramatically. Evolve or be eaten, the same applies to companies.
PPC stuck out a trading update that the market liked like a hole in the head. The stock sank to the lowest price since the middle of 2005, ending the day at 2220, down 6.29 percent. No really, the price was nearly lower in both 2011 and 2012, not this low however. This is the very worst price for the stock since back then. Why? What did the trading update (along with the results of the AGM and the election of directors) say? Here goes: "headline earnings per share for the six months ended 31 March 2015 is expected to be between 25% and 45% lower compared to the headline earnings as reported for the comparable period ended 31 March 2014, which translates to expected headline earnings of between 72 cents and 53 cents." The release fleshes it out a little more as to why earnings are expected to be that much lower: "the main contributors to the decline were a once off tax credit in the prior reporting year and an increase in finance costs in the current year." I guess the reason for the very wide range is that we are only in January and results themselves are expected to be released around 19 May this year, that is around four months away.
Things we are reading, we think that you should read them too
The disruptive power of the internet, has long had an impact on television - The future of TV is coming into focus, and looks pretty great.
This article highlights the power of the internet and how people make a way in spite of governments best efforts - CUBAN YOUTH BUILD SECRET COMPUTER NETWORK DESPITE WI-FI BAN
QE was the word of last week, here is one of our favourite market bloggers giving more insight into QE - INITIAL THOUGHTS ON EUROPEAN QE
Home again, home again, jiggety-jog. The follow through from a late surge on Wall Street saw us trend higher at the beginning, the Greeks have their new finance minister, looks like a well educated lefty, what do you expect. With the financial capital of the world being snowed under today, expect lighter than usual volumes. With a heavy fall of snow, of course.
Sasha Naryshkine, Byron Lotter and Michael Treherne
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