"The questions to ask are simple. How much muscling room does this newly found confidence have for less austerity at the negotiating tables and more importantly, as Tsipras, the head of Syriza has said, basically we will see another renegotiation. Let us be fair here, the money that has been given to one is from another. Some might feel a really bad taste in their mouths coming back to the negotiating table"
To market, to market to buy a fat pig. Oh, there you go, the anti austerity crowd, a collection known as Syriza in Greece has won the election, by seemingly a much bigger margin than some anticipated. Not a clear majority, a deal has been struck with a small bunch of independents to give them enough to lead. Greeks are clearly tired of austerity. The IMF and other European countries have basically given the Greeks a long lifeline, the Troika owns 80 percent of Greek debt, which just happens to be 175 percent of GDP. As the WSJ points out however, the debt is long dated, the interest rates are low and payment options are kind. The problem for the creditors however is that Greek debt is not owned internally, check this WSJ article to see just how high it is, relative to the other nations in the region: Who Owns the Government Bonds the ECB Will Buy? Greece is a different case. Ireland and Portugal are pretty different too, from all of the other European nations.
The questions to ask are simple. How much muscling room does this newly found confidence have for less austerity at the negotiating tables and more importantly, as Tsipras, the head of Syriza has said, basically we will see another renegotiation. Let us be fair here, the money that has been given to one is from another. Some might feel a really bad taste in their mouths coming back to the negotiating table, if, as this WSJ article points out Greek Vote Sets Up New Europe Clash, if Greece cannot pay the ECB back in July and August (an amount of 7 billion Euros), that could trigger an exit. Maybe. There is a small matter of 4.3 billion Euros that is due in March. I suspect that nobody wants to leave the Eurozone, I can tell you that equally no person likes austerity imposed on them. It is always good for other people. The Germans are clear, continue along the path of structural reforms, perhaps we can negotiate. Again.
If it is true that one in four households in Greece are just above the poverty line, I guess that needs to be addressed too. Christine Lagarde's comments, three years ago now, about how she had more sympathy for poverty stricken people in Sub Saharan Africa than Greeks hit by the austerity crisis, in which she described Greeks as rampant tax dodgers, struck a nerve. I am sure that it is not all Greeks, however when the perception remains that not much has changed in that department, too many government workers, too easy a lifestyle funded by someone else, then a reality check is needed. Lazy is a powerful word, we use euphemisms, such as the Mediterranean lifestyle. It is probably not a coincidence that there is a slower way of life in warmer countries than there is in cooler countries, where you have to spend more time indoors. Anyhow, as I have said all along, the Greeks must do what the Greeks must do, there are consequences to everything. Greece has a poor history of paying their debts back, since the war of independence in 1821, the country has been in technical default 50 percent of the time.
I was thinking this morning, on what can be described as a morning run, does this change any plans of Stephen Saad, Bob van Dijk, Brian Joffe, Johann Rupert, Sifiso Dabengwa, Adrian Gore, David Constable and many more? No. Greece is small, the population is getting smaller, less over the last three years. 37 percent of the population have a tertiary education in Greece, the OECD average is 40.4 percent. In Germany, those with tertiary educations are just over one in four, around 26.9 percent of the population. That does not mean that Germans have fewer skills, they have different skills. My point about the CEO's of the companies that we own for our clients is worth making, the reaction from the market has actually been pretty muted. Perhaps the time for the Greeks to do what they have to and to deal with the consequences has arrived. We are not experts on the country, we have nearly no exposure to the country from an investment point of view either. If people want to sell assets if they are worried about contagion or something else, then so be it, Mario Draghi and his team are on a fixing mission as we speak.
Company corner snippets
Kumba Iron Ore stuck out a trading update on Friday afternoon, of course with sliding iron ore prices their earnings were always going to be much lower than the period before. The Rand of course has been somewhat of a cushion, for these numbers of course. For the first half, headline earnings were 16 percent lower to 6.5 billion Rand, for the full year they are anticipated to be 10.61 to 11.41 billion Rand, in other words 4.1 to 4.9 billion Rand, lower than the first half by quite some margin. Results for the full year are anticipated to be around the 10th of February, there was some brief respite in terms of the falling iron ore price, the price has trended lower (like most commodity prices), stabilising somewhat after five straight months of downward direction. We are more or less at the same commodity price on iron ore today than the middle of 2009. Remembering that the iron ore price was flat for nearly 30 years, from the early 1980's all the way through to 2003. It was then that something changed, the Chinese demand exploded. Governments (who then taxed more) did nothing, it was all the demand from a new customer, where their government changed everything.
Spar hit us with a voluntary announcement this morning, voluntary because it was small relative to their market capitalisation. Their business in Ireland wants to buy the trading business (I guess that does not mean the physical properties of course) of ADM Londis. As per their website: Londis is owned and run by locals, so every Londis is shaped by and for the local community it lives in. In other words, we're Local Like You. Sounds familiar, not so? Sounds like your local Spar. The business has annual sales of 200 million Euros across 200 stores, it will cost Spar 23 million Euros. Spar has a total turnover of nearly 55 billion Rands. 200 million Euros is around 2.6 billion Rand. You can see that this is not really a big deal, what it does represent however is the group and their tactics to spread their wings further afield. You would hardly say that Ireland sounds like a great destination, however Ireland is a gateway to the rest of the European continent, there are still cheap assets there and distressed sellers who are feeling beat up. Now could be the time to strike!
The fellows from Reinet have released a consolidated NAV table as at the end of the last year. 73 percent of the NAV is comprised of British American Tobacco, around 3.35 billion Euros back then. Phew, that is a lot of eggs in one basket, it is however getting smaller. Credit must be given to the team for having not sold the shares, the right thing to have done in the whole unbundling process was to have held British American Tobacco and Richemont separately, and NOT to have sunk your BATS shares into more Reinet. The best investment of those three companies over the last five years was Richemont by a country mile, second was BATS and last, but having doubled, was Reinet. I guess what matters in time will be how the folks investing at Reinet can sweat the rest of the portfolio, whether or not you feel that paying the management fees (the structure has a cost of 1 and 10, I think) is fair value, that is another question altogether.
Things we are reading, we think that you should read them too
The quickest way to learn 9 new stats is by looking over theses graphs - The nine most important economic charts of the week.
A look at how Apple is taking over the world - Chart: Demand for Apple's iPhone 6/6+ stays strong. It is scary to think how they are growing marketshare even though they control such a large part of it already. The more people that own an iPhone the more they will also be spending in the app store.
Some more awesome Apple info, just to wet your appetite ahead of their results tomorrow - This is the difference between Microsoft and Apple
Doing nothing is very hard for us in a modern society, both in investing and our general lives - Doing Nothing is a Decision
Home again, home again, jiggety-jog.We had a slow start this morning as the market digested the news from Greece. However things have turned around and we're seeing some solid buying. Not for the commodities however, gold and the diversified miners are taking a beating
Sasha Naryshkine, Byron Lotter and Michael Treherne
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