"Glencore inherited this stake when they bought Xstrata in May 2013. Xstrata wanted to buy the entire Lonmin, that was back in 2008. Imagine if that had happened. On the 7th of August 2008, whilst the US subprime crisis was spreading and about to really get real, Lonmin rejected the Xstrata offer as wholly inadequate. The price apparently failed to adequately reflect the true price of the company. The chairman, Sir John Craven added that this was opportunistic and unwelcome. Xstrata wanted to buy all of Lonmin, back then, for 33 pounds a share. In December that year, the share price of Lonmin was at 5.50 pounds a share, the middle of the financial crisis. Just this morning the stock is trading in London at 163.4 pence. Since then, thanks Sir John, the share price in Pound terms is down 93 percent."
To market, to market to buy a fat pig. I have Greek fatigue. I love Greek food. I have Greek friends and family. Ancient Greece fascinates me, I think that my mother actually took that subject at university. Ancient Greek. The Greeks laid the foundations for democracy and most importantly for me laid the foundations for merchants, modern day business folk. As merchants were not from the upper classes they may have enjoyed wealth beyond the imagination of most, they did however not attract the class status that they desired, hence the saying money cannot buy class. Of course that takes on a new meaning as each generation goes by.
The current Greek tragedy is that the country has too much debt, the plan to pay it back is too hard and going to take too long for most ordinary citizens. That is the long and the short of it all for the Greek people. For the Germans and the rest of the Europeans that used their tax payer money in order to cast the country a lifeline, with (let us not fool ourselves) the interests of keeping the Eurozone together, the onus is on the Greeks to make good on their promises made in tough times. People change their minds, most especially when it does not seem to be going your way. I often say that when people are impacted in their pockets, their head takes over from their heart. Or their heart takes over from their head.
Either way, it is far easier to change your mind quickly relative to your personal circumstances than it is for governments to repair public finances. Most especially when the state has made promises to the electorate who may, or may not understand how government finances work, and suddenly they are not possible. It is easy to get elected on the basis that I make promises, implementing them always falls back to the same common denominator, do I have the funds in order to do this? The long and the short of it is that Greece are on a deadline, if they think that the Russians or the Chinese have their best interests at heart, I would think again. The debt is real, there has been a sizeable write off already. Sigh. It is going to hang over our head like an obnoxious uninvited guest. You can move away and talk to someone else, it is still however there. For me it represents an opportunity to buy the same companies potentially at cheaper prices. As long as it is quality, the price is determined by the collective in the market.
25 years ago today, where were you? I was at school, it was a Sunday afternoon and I was sailing a little one man boat on Settlers dam, just outside Grahamstown. I docked the "boat", we were told in the afternoon to expect the release of Nelson Mandela and we all went closer to a radio and listened in to reports. If you think 25 years was a long time ago, think about this for a bit. He was in jail for 27 years. This is 25 years later, a long time ago. In two years time when we get the opportunity to recognise and celebrate this day, Mandela would have been released from jail for as long as he spent in jail. In terms of years, the exact dates obviously would differ. 25 years is a long, long time ago if you enjoyed personal freedoms to do what whatever it is that you want to do, imagine spending exactly the same time in an oppressive place where you have no freedoms of any sort. Truly a great man, the father of the nation, a man that all folks that can be proud of. Where were you, were you there, I would like to hear your story. Paul was there, 25 years ago today.
Markets in New York were up and away, the broader market up over a percent, tech stocks were up nearly a percent and one third. Locally markets were flat, as flat as a pancake on Shrove Tuesday, which is next Tuesday. The day before Ash Wednesday, the start of Lent. Yes, that is how flat markets were. We were however above 52 thousand points on the local market. Earnings were strong form Coca Cola (a sigh of relief for many), in the end the equities market rallied to be only a percent or so away from the all time high. I have seen several suggestions that with energy being such a big part of the S&P earnings, the trajectory for collective earnings in the short term has been heading down.
Company corner snippets
Apple passed through the 700 billion Dollar market capitalisation last evening, by the close that is. At 122.02 Dollars a share, 5.843082 billion shares in issue = 712.97 billion by my calculation, the WSJ suggests that it is 710.74 billion Dollars. I must have something wrong then, perhaps the number of shares in issue which was reported at the last set of results is a little less. i.e. They (Apple treasury) must have bought more shares back over the last two weeks. The WSJ article that points out the "first", titled Apple: $710 Billion and Counting, that as a result of a fast growing customer base in China, Tim Cook reckons that the law of large numbers does not apply. If you think about it, whilst Apple has the smartphone profits share (remember yesterday), they certainly do not sell the most phones. Quality over everything else. I jotted down a few points for an interview: Apple through 700 billion Dollars as a market cap, that is pretty interesting. = (at current exchange rates) 8.343 trillion Rands. What Apple pays in dividends is about what we (South Africa) pay annually in interest on outstanding government debt. That is astonishing.
Glencore have announced that they are selling their 23.9 percent stake in Lonmin during the first half of this year. As they point out, they (Glencore) inherited this stake when they bought Xstrata in May 2013. Xstrata wanted to buy the entire Lonmin, that was back in 2008. Imagine if that had happened. On the 7th of August 2008, whilst the US subprime crisis was spreading and about to really get real, Lonmin rejected the Xstrata offer as wholly inadequate. The price apparently failed to adequately reflect the true price of the company. The chairman, Sir John Craven added that this was opportunistic and unwelcome. Xstrata wanted to buy all of Lonmin, back then, for 33 pounds a share. In December that year, the share price of Lonmin was at 5.50 pounds a share, the middle of the financial crisis. Just this morning the stock is trading in London at 163.4 pence. Since then, thanks Sir John, the share price in Pound terms is down 93 percent.
The horrors and the tragedy of the events at Marikana in August 2012 were followed with a rights issue, in which again shareholders were urged to follow their rights at 140 pence, a discount to where the price is today, over two years on. Glencore shareholders will vote on whether they plan to distribute the shares to their shareholders. i.e. if you have Glencore shares on either share register, you can then decide whether or not you want to continue to be a shareholder of Lonmin or not. What this does do is create an overhang, potential sellers of the shares, hence that is why the Lonmin share price is down. Secondly, it removes an asset that is non core for Glencore, it is up marginally and solves what is a problem.
How do you feel about this? Sin stocks pay as alcohol and cigarettes beat sober rivals is the FT headline, it is a subscription only piece. The suggestion is that if you had (your great grandfather) invested 1 Dollar in tobacco companies in 1900, according to a study done by London Business School, it would be worth 6.28 million Dollars, counting dividends invested. I can remember a conversation with a client who is more than a little older than me, being told in the late 1960's by industry types that the tobacco industry as an investment was a poor one. The health concerns for the users are well documented, to the point where the packets say, use this and you will get x or y or z.
Equally eating too much bad food leads to the same result, we all die, it is a matter of how. Sorry for ruining your day, it was not the intention. I for one would rather allocate capital in the direction of a business that has the ability to cure cancer, rather than a business that has a product that causes cancer. Anyhow, I believe firmly that the next 115 years are NOT going to be like the last 115 years for these businesses, volumes globally are declining, eventually cost cutting and less usage of your products is the start of a bad downward spiral. I would still continue to advocate to sell tobacco companies as an investment, allocate your own capital towards businesses that advance human technology. I know that investing is supposed to not be emotional, i.e. separate emotion from numbers, I just however cannot see how a business that sells a product that is harmful for you and addictive has good long term perspectives. I struggle.
Things that we are reading, you should too
The best news for the middle class, things are getting cheaper - Six Things Technology Has Made Insanely Cheap. The power of technology and the power of human innovation to make more with less! It is great to see!
Another move from Google in the direction of healthcare - Google adds fact-checked medical advice to search.
Technology disruption the status quo is a regular feature in our reading pieces - New York City hotel rooms are getting cheaper thanks to Airbnb. This a great way to better use the resources available to us, when you have excess capacity (a free room/ apartment) you list it on Airbnb and get some compensation for it. Increased efficiency and more money (resources) to go around.
This is a very cool dynamic graph showing the change in city population numbers - Bright lights, big cities. Urbanisation and the rise of the megacity. I was amazed to see how few urbanised people there were in 1950.
Home again, home again, jiggety-jog. We were trounced in the cricket against the hosts in the land of the long white cloud. Long fern. Cricket people, we are talking about cricket. I say that you must get your losing over with now. It does little for confidence however. Sigh, Sunday is another story, against our neighbours to the north who managed to smash Sri Lanka, true story. Markets are about flat here too.
Sasha Naryshkine, Byron Lotter and Michael Treherne
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