Money with a dash of Funny: January 2016

Thursday 28 January 2016

Visa. No passport required.

"There are far too many transactions in cash for the liking of governments, and even banks. Transactions via the switching networks are far easier for all considered. We continue to consider this a high growth business with huge potential upside. Risks include heightened regulation, bearing in mind that the company is waiting to do business in Europe and China. In our view this remains one of the most attractive businesses to buy."

To market to market to buy a fat pig. Pull in your guts, tighten the belt and all that, what, what. We could see that the Reserve Bank governor Lesetja Kganyago was visibly irritated yesterday at the Monetary Policy Announcement, you can peruse it at your own leisure if you missed it yesterday: Statement of the Monetary Policy Committee. The inflation outlook has definitely deteriorated and there are many things that are outside of Reserve Bank control.

The currency is one of them, the natural investment flows have been back to developing markets, in the direction of the Dollar. That means if you smell like a BRIC and walk like a BRIC and taste like a BRIC, then you may as well be a fermented durian. Those folks who have been to SouthEast Asia will know what I am talking about. A Jackfruit is 50 times the size of a durian, infinitely more tastier, especially a fermented one.

Equally commodity prices which have impacted on ourselves, Russia, Brazil, heck, a whole lot of emerging markets dependent on raw commodity exports. Even Australia. Nigeria, Saudi, Venezuela, Norway, continents apart and reliant on the new best customer on the block over the last 2 decades. As the trajectory of the demand has slowed from the Chinese, this coincided with the taps of the mega projects being turned on, and huge technological advances in the cost saving area. Ditto, lower prices.

And of course internal mistakes, the finance minister debacle late last year, that looks like what is referred to in a professional sporting context as a "schoolboy error". I suspect that at some stage ex-minister Nene will reveal all, for now we have titbits. Politics, don't try and understand it, you will end up banging your head against the wall repeatedly. Rather have control of the things that you can, with regards to investing that is. You and I as individuals have no control over the inflation rate, food prices, definitely not the weather, nor how the Reserve Bank are likely to react to these prevailing conditions. As a collective we do, lower and wiser consumption, saving of resources and so on. And most importantly, you can choose what to buy and own, that you do have control over.

Economists agree that rates are going to continue to rise in a South African context, the currency may well improve after a budget that may meet Mr. Markets idea of what is a "good one". The inflationary outlook is certainly unfavourable for now, that may change. What was a little puzzling and pleasing at the same time is that the local market rallied sharply after the announcement, banks and financials saw aggressive buying.

The theory (or so it goes) is that the Reserve Bank is not influenced by outside factors and will stick vehemently to their mandate of keeping inflation in check. In other words, reading between the lines of talking heads, no political interference. So whilst Mr. and Mrs. Consumer may be feeling down on themselves, this was apparently the "right thing to do". Ai shem. As for consumer demand, the mandate of the SARB doesn't take that into account. So, until it changes, it won't.

After the dust had settled, the Jozi market had rallied nearly one and two-thirds of a percent. The Rand benefited from the rate hike, this morning after having settled a little last evening at 16.18 to the US Dollar, 23.15 to the Pound Sterling and 17.65 to the Euro. And that is BETTER! Better than before, which is always where one draws a line in the sand. What will transpire over the coming months from a demand point of view remains to be seen, like the SARB, we are all watchers in this.

Over the seas and far away in New York, New York, markets rallied towards the end of a choppy session, twice the market was in negative territory briefly. Stocks closed out the session up a little over half a percent on the broader market S&P 500 up a smidgen, below four-fifths on the Dow Jones Industrial, whilst the nerds of NASDAQ index was up more than that, just a fraction. Driven in large part from a roaring session for Facebook, the stock was up an astonishing 15.52 percent on the day, to close out the session at 109.11. Briefly in the session the stock went through 110 Dollars, the current market capitalisation is 267 billion Dollars. Which makes the company in market capitalisation terms (and definitely according to Mr. Market) a more valuable company than Wells Fargo. Tell that to Warren Buffett, his company, Berkshire Hathaway, has a market capitalisation of 309 billion Dollars.

Alongside Facebook there was a ripping session for Alphabet (the new name for Google), that stock was up over four percent. Amazon had a stonking session too, up nearly nine percent on the day. It has given a large part of that back overnight, the results were a marginal miss and let us just say that the market is pretty unforgiving when it comes to that! Alibaba had results that looked far better than what expectations had pointed at and perhaps some insight into the Chinese economy being just fine, thanks very much. Alibaba now trades at the market multiple, 18 times earnings. Revenue growth of 32 percent year over year is apparently not good enough, 400 million active annual buyers is also not enough. Two-thirds of revenues come via mobile, that is pretty astonishing. Perhaps with 83 percent of sales being China commercial sales, the market is being cautious. Still looks like a "good one" to me.

Over to the East, where the sun rises (my mother always said it is easy, yeast and east rhyme), stocks are all higher. Even in China, and by China one generally means Shanghai. Even though Hong Kong is China too, except they use a different currency and movement to and from Hong Kong to mainland China is not that easy. Look, it is complicated. As Paul was saying yesterday, the liberalisation of the politics is something that must happen, sooner rather than later. I wonder how that election would go! The Shanghai Stock Exchange is up nearly three and three-quarters of a percent.

In Japan something rare has happened, the Bank of Japan (BoJ) has implemented negative interest rates. That is the first time for Japan, there have been various other countries that have subscribed to what is termed NIRP - Negative Interest Rate Policy. This may not be new to many readers, the European Central Bank (ECB) deposit facility has a negative interest rate of 0.3 percent. In other words you pay the banks for the pleasure of them holding your cash. The whole idea is to go out and buy other riskier assets, spend the money and boost the economy, keep deflation at bay.

In other related news, yesterday the Japanese Finance minister resigned, a scandal around him pocketing money from a construction firm. Akira Amari resigned for the way his ministry handled the scandal and refused to suggest it was a bribe, rather a political donation. Sigh. 100 thousand Dollars, was it worth it? Amari suggests that the doubt created was enough to signal his departure. Honour or just? The Nikkei in Tokyo is up 2.8 percent, the Hong Kong markets, the Hang Seng is up around 2.2 percent as we write this.

Company corner

Visa reported numbers after the bell yesterday. Visa of course is one of the largest companies on the planet that enables seamless payments on their switching networks, be it that you are transacting online, in a foreign country and paying for goods and services, or whether you simply are at your local store that offers the service. Remember checks and travellers checks? I guess in the years to come you could argue the case for a cashless society and companies with the payments systems, those who enable the merchant to speak to your financial institution across their reliable and trusted networks and "get the transaction done" are operating in the right space. And by right space, I mean that a company like this, their peers and other payment networks, will see an uptick in their business.

It is fair to say that the old line, Visa takes you places is true. So has the share price. Since the stock listed and was effectively unbundled from all the major financial institutions nearly 8 years ago, the stock is up 330 percent to settle at the close last evening at 69.35 Dollars. That represents around a 12 Dollar fall off from their recent highs, and by recent I mean around November. Yip, even for the high flying stocks that are not part of the FANG (Facebook, Amazon, Netflix and Google) grouping, the going has been tough. In fact in the recent quarter the company had repurchased 25.7 million shares at an average price of 78.52 Dollars, having used 2 billion Dollars worth of shareholder cash.

Numbers for the first quarter of their financial year 2016, here goes. Operating revenues increased 5 percent (8 percent stripping out the negative currency headwinds) over a year ago on payment volumes that changed 12 percent in constant terms, 62 percent of all of those being debit cards, the balance being credit cards. The total number of Visa embossed credit cards number 2.459 billion. And to think that to have a Visa embossed, or any other for that matter, credit card was a "thing". Remember? Now anyone has a gold or platinum card, perhaps the exclusivity has been lost in the age of the internet. Which is possibly a good thing, not so? Cash on hand at the company, nearly 25 billion Dollars. Which represents around 15 percent of the current market capitalisation. The company has whopping margins.

Which brings me to guidance that the company gave, this is for the full year ahead. They suggested that annual operating margins would be in the mid 60's percent, this is as you can imagine, an incredibly profitable business. They obviously have to spend a lot own their networks, to ensure that they can handle increased bulk. Annual adjusted Dollar EPS growth is expected to be in the low end of the mid teens range, which I interpret as around 13 to 14 percent, somewhere in that range. That then means that expectations for EPS are just above the 3 Dollars worth of earnings for the year. There will continue, as per the presentation on the investor relations page, currency headwinds, as much as a 4 percent impact. The stock then trades (based on a price in the pre market where it has moved higher to 71 Dollars) on a 23 multiple. The yield is low, around 0.8 percent. Not too generous yet!

What is still amazing to think is that the company does not have a business in China, on the conference call the chief Charlie Scharf had something interesting to say about that territory: "The strategic partnership and programs we announced, underscore our long-term commitment to China and to fulfilling the Chinese Government's goal of reducing property and promoting inclusive finance." That is pretty interesting, and does underscore the move to consumerism in China. And the deal in Europe has not been closed yet either, again Charlie on the conference call had this to say: "We've had great interactions with our Visa European colleagues. We've had a series of very positive conversations with European financial institutions and we remain confident that we're creating value and are focused on execution at this point."

I think that this business has huge scope to continue to grow. There are far too many transactions in cash for the liking of governments, and even banks. Transactions via the switching networks are far easier for all considered. We continue to consider this a high growth business with huge potential upside. Risks include heightened regulation, bearing in mind that the company is waiting to do business in Europe and China. In our view this remains one of the most attractive businesses to buy. And as such we remain conviction buyers of Visa.

Linkfest, lap it up

Given that it is Friday we decided to share some graphs instead of links. As the saying goes, a picture is worth a 1000 words.

How much of Facebook's revenue comes from mobile users

Number of dollar billionaires in China

Women now outnumber men in US running events

Year-over-year change in luxury sales in mainland China, 2014 to 2015

Home again, home again, jiggety-jog. Today is the close out of a horrible month for investors, good riddance. And to think that we are a week and a bit away from the Chinese year of the Monkey. The Red Fire Monkey to be more specific. Let us hope that the monkey business stays away!

Sent to you by Sasha and Michael on behalf of team Vestact.

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What's cooking Facebooking?

"100 million hours of video are watched daily on Facebook. 500 million people use events each month, 123 million events were created in the whole of 2015. That strike rate then seems pretty low? I suppose some events don't need more than 10 people. Yet what still amazes me is that the core business has only 2.5 million active advertisers."

To market to market to buy a fat pig. Stocks in Jozi, Jozi yesterday were in catch up mode across the globe, adding over four-fifths of a percent by the close and ending the day near the top end of the days trade. All the major sectors added and weighed in, a bit of a weird scoreboard from a winners and losers perspective however, Glencore up the most, Amplats down the most and everything in-between. Forget all that, stop the clock, Mr. Market today will have priced in a rate hike of some sort. Either 25 or 50 basis points, Joe Consumer is going to have to pull in their belly a little. Michael did send me a picture that suggested that the South African consumer had repaired their personal balance sheet significantly since 2008. Household debt had fallen. Yet the opposite is often conveyed across to us.

Quick leaping across the sea and far away, stocks sank in the second half of the period, mostly as a result of the Fed statement. The highly (every single time, every 45 days) anticipated FOMC statement. As expected, the Fed passed on hiking rates this time, whilst the domestic economy (the US) was strong, the rest of the world, well, not so much. "The Committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook." The FOMC (Federal Open Market Committee) will continue, like the rest of us, to monitor the labour market and inflation. Yes, thanks for that. And then this one is for all of you to interpret, classic Fed-speak:

"The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data."

So that means, "let's watch it". In the aftermath of the statement, stocks sank, the Dow(n) Jones Industrial average ended 1.38 percent lower, tech stocks were dragged lower by Apple, the nerds of NASDAQ ended down 2.18 percent, whilst the broader market closed down 1.09 percent. Apple (down 6.55 percent) forms part of all of those indices, a major piece of the NASDAQ of course. Sis. It seems that the Fed will continue to be cautious and perhaps investor confidence was rattled a little by the global outlook. I guess being cautious is not the worst thing right now.

Company corner

Facebook (Fays-book). According to the Dictionary of Naryshkine, "to Facebook" is a verb whereby you will completely ignore the people around you in order to post comments or statuses for maximum likes, mostly to people who are "friends", not necessarily your closest 10 besties. These "interactions" can take place in traffic, either driving or walking (both dangerous), at social gatherings when you are supposed to be talking to physical people, somehow the virtual people always seem more interesting. Weirdly, as online dictionaries point out, the word Facebook is often written with an upper case, yet the trademark name is in lower case, facebook.

Enough of that, let us chat about the company and their Q4 and full year results last evening. The results themselves are available here: Facebook Reports Fourth Quarter and Full Year 2015 Results. Annual revenues nearly clocked 18 billion Dollars for the year 2015, a roughly 44 percent increase in a single year. Somehow I don't recall anyone still talking about the disastrous Facebook IPO any more. And don't worry stress balls, the company is monetising mobile just fine.

Net income clocked 3.669 billion Dollars for the year, non-GAAP EPS for the quarter of 79 US cents comfortably trounced expectations. And as we all know, that seemingly is what counts, beating expectations. The same measure for the full year, non-GAAP EPS clocked 2.28 USD. With a share price that is up over 12 percent pre market, the stock is still not cheap by any normal metric. Yet at that pace of growth, the market is certainly affording the company a high multiple. The forward multiple is closer to 33 times earnings.

In terms of users, Facebook (or is it facebook?) clocked over 1 billion daily active users, 934 million mobile active daily users. Monthly active users were 1.59 billion, that is a sizeable number, no matter which way you look at it. There are roughly 7.4 billion people on the planet, which means that only 21 percent of the globe uses Facebook. Of course, many young people are not supposed to have access to the service, there is an age limit, my guess is that it is pretty loose, am I right parents of teenagers, or wrong? The growth rates of users by all metrics are in the high teens or mid twenty percentage growth rates. So yes, Facebook numbers are still growing, and yes, they certainly have their limits, there will be a ceiling. And to think that Facebook only turns 12 next week, astonishing, right? Myspace who?

The Zuck on the conference call: (sign up for free, remember?) Earnings Call Transcript, made some interesting observations about the platforms. 100 million hours of video are watched daily on Facebook. 500 million people use events each month, 123 million events were created in the whole of 2015. That strike rate then seems pretty low? I suppose some events don't need more than 10 people. Yet what still amazes me is that the core business has only 2.5 million active advertisers. There are 50 million small businesses that use Facebook as a platform, makes sense to use that platform rather than replicate something else.

In terms of their other major platforms, my personal favourite, Instagram, clocked 400 million users back in September. Sheryl Sandberg said on the conference call that 98 out of their top 100 advertisers on Facebook advertised on Instagram too. Facebook's "Vine", a looping video app called Boomerang reached number one in the App store in 70 countries after it was launched. Messenger has 800 million users monthly. Did you know that you could simply use the desktop version of Messenger? Really. The company is also testing an artificial intelligence digital assistant for Messenger called M. M for mom or M for Judy Dench? Either way, M deserves respect. You can of course make payments with Messenger, I am not too sure here in South Africa yet?

WhatsApp ended the year with nearly one billion users. WhatsApp is now for free, advertising will come soon no doubt. So I am guessing that Facebook is nearly there in terms of their 1 billion for 3 platforms, by the end of the year WhatsApp crossed that mark, Messenger likely to get there this year and of course the big daddy, Facebook, is there a long time ago. Perhaps Instagram at half a billion by year end. And there is more (wait!), Oculus, the virtual reality hardware starts shipping by the end of March. Pre-orders are open in 20 countries. Tim Cook yesterday said that he thought it was an exciting product, an Apple one to compete at some stage? Zuck ends off on the conference call talking about the addition to his family and continuing to try and leave the world as a better place than inherited. It sounds cheesy, I suspect however that the company could actually do exactly that.

Talking of which, the company continues to grow at breakneck speed, adding 38 percent to their headcount last year, which now numbers 12700 folks. CFO Dave Wehner said on the conference call that the company intends to continue to invest heavily in their existing businesses, across all platforms, capital expenditure levels expected to be between 4 to 4.5 billion Dollars. The pace of growth in their businesses is going to have to keep pace, both the core users and the investors expect this.

The conclusion is simple, if not always cautious. This company continues to grow at a breakneck speed off a bigger and bigger base. User adoption continues unabated, there has to be a ceiling at some stage where users are at a maximum. Equally there may be user fatigue. At the core of us is communication, somehow we are not always good at that. We continue to add to what is turning into a quality business, wonderfully run and most importantly, great experiences that have monetised (and will continue to monetise) all their core platforms. We continue to add Facebook as a core holding to our portfolios.

Linkfest, lap it up

When Elon Musk announced the hyperloop in 2013 it seemed closer to fantasy than reality, things have progressed since then where the hyperloop is now moving into the testing phase - SpaceX Names Hyperloop Track Partner

Going back to the 1800s the average price of oil is $47 a barrel - Actually, oil prices aren't that extreme if you go all the way back to the 1800s. Having a look at the graph below it is scary to see that oil was above $400 a barrel at some point!

Another stepping stone for the AI industry. - Google's AI just cracked the game that supposedly no computer could beat. Have you noticed how Google search now tries to understand your question and spits the answer out at the top of your search results?

Home again, home again, jiggety-jog. Stocks are mixed to start with, showing a marginal improvement now. Rates announcement will be later this afternoon. As the ex governor Tito Mboweni always used to say, tighten your belts. And then he had that look, the headmaster one.

Sent to you by Sasha and Michael on behalf of team Vestact.

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Wednesday 27 January 2016

Apple's slow record

"the worst quarter in terms of growth rates in an absolute age (since the iPhone 5), the article point out the obvious, that the iPhone makes up two-thirds of all revenues, and stresses that the newer products (the Watch, the iPad) are not going to pick up the slack of slowing sales of the iPhone. And by slowing, sales unit numbers grew by less than anticipated, a whole 2 million units less than the market forecast, still topping nearly 75 million for the quarter, no mean feat."

To market to market to buy a fat pig. Stocks in Jozi delivered a session that was the opposite of the day prior, perhaps it was as a result of letting the fellows from the highveld doing the business at Centurion, thumping the English. OK, and Hashim Amla, he is an honorary Joburger, he wishes he lived here and didn't have to commute between his hometown of Durban and his team in Cape Town. KG, Quinny and Temba Bavuma. Although, I know you chaps from Cape Town, you will claim Bavuma. The bottom line is, if you want a job done, ask us Joburgers next time, OK? And to think that those three went to three of the best known schools in Joburg (St Stithians, KES and St. Davids respectively). C'mon St. Johns, pull your blue and red socks up. Clive Rice and Bruce Mitchell are not enough, OK?

Back to the business of markets, we added a smidgen over two-thirds of a percent here in Jozi, stocks were led higher by gains across the board, mostly however by the resources index. And specifically the gold stocks, I noticed that several of the companies share prices making new 52 week highs were the gold producers. It seems like deja vu (missing my accent marks, forgive me internet), the last three January periods have seen gold stocks rally hard into the close of the month and then unfortunately all fizzling out over the rest of the year. Some of the moves are more eye popping than the after effects of a raw habanero, and of course feel a whole lot better for the folks holding the stocks.

Over the last 3 months, the share price of Harmony Gold is up 212 percent. True story. At the same time, over the last 12 months, the Harmony Gold share price is down nearly 3 percent, essentially flat in Rand terms. Over the last five years the stock is down nearly 60 percent in Rand terms, it always depends where you draw your line in the sand and measure from. The company has been the beneficiary of the much higher Rand selling price of gold, plus the price of gold has recovered a little in Dollar terms. And as such, the company is most leveraged to a higher Rand gold price, hence the explosion in the share price recently. The index as a whole is up 44 percent this year, what an astonishing move when measured against the overall market, which is down nearly 7 percent. Will it last? Your guess is as good as mine, the earnings ultimately set levels of share prices, if those are likely to be sustainable, then yes. If not, then no. That may as well be a no comment at the footsteps of the courthouse.

Over the seas and far away in New York, New York, stocks rallied sharply into the close. The Dow Jones (spell checker changed it aptly to Down Jones yesterday, apologies) added over one and three-quarters of a percent, the nerds of NASDAQ rallied a less impressive 1.09 percent, whilst the broader market was again somewhere in-between the two, which is normally always the case. The S&P 500 added 1.4 percent by the close, led by energy and materials stocks, which added over three percent.

Again, a rallying oil price has everything to do with the movements in stocks, whilst a windfall for consumers means more consumer related activities and purchases, stresses in the energy sector point to worries for the banks and investors holding debt associated with the same said companies. The suggestion is that half of all energy junk bonds are distressed, that amounts to 180 billion Dollars. Is that a lot? Yes, and no. Yes, that number sounds like a huge amount and is of course someone else's asset, not such a "good one" any more. Whether or not it is going to cause a broad based financial meltdown remains to be seen, I suspect not at all. Memories of the financial crisis are still relatively fresh, perhaps that is why caution remains the better part of valour currently.

Stocks across Asia this morning are trading higher, apart from the Shanghai Stock exchange, which as we all know acts detached and decoupled from global markets. Another down day there, and that market is now down around 23 percent since the beginning of the year. Ouch. As we often say, add 100 million brokerage accounts, only 25 years of capital markets of relatively small size (compared to the economy), which is very immature by global standards, a propensity to look to save like crazy and a high level of risk taking and you have the perfect cocktail for volatility. And irrationality. A vicious rally could happen at any time, higher levels of leverage may be adopted at any time and markets could ramp up sharply. Equally the opposite, which is currently happening, could play out. We don't own any stocks listed in China, or derivatives thereof.

Company corner

Apple, the largest company by market cap, at an astonishing 554 billion Dollars as of last evening (that equates to over 9 trillion Rand), reported numbers yesterday. These are numbers for the first quarter of their 2016 financial year. The headline from the company on their investor relations website says: iPhone, Apple Watch, Services & Apple TV Drive All-time Record Revenue. Record quarter all around.

The WSJ however says the following: Apple iPhone Sales Grow at Slowest Rate Ever, the FT leads with Apple's iPhone growth era comes to an end, whilst the Bloomberg (not behind a paywall, most accessible) headline is Apple Forecasts First Sales Drop Since 2003 on iPhone Slowdown.

Read them all, they pretty much say and stress the same thing, the worst quarter in terms of growth rates in an absolute age (since the iPhone 5), the article point out the obvious, that the iPhone makes up two-thirds of all revenues, and stresses that the newer products (the Watch, the iPad) are not going to pick up the slack of slowing sales of the iPhone. And by slowing, sales unit numbers grew by less than anticipated, a whole 2 million units less than the market forecast, still topping nearly 75 million for the quarter, no mean feat.

And then guidance, which is also important, fell short of what the same said analyst community had pencilled in. And their biggest engine of growth, China, is perhaps not growing at the pace that the "90 dayers" were hoping for. What is a 90 dayer? It is someone who suffers from quarteritis. Quarteritis is a condition that I am certainly guilty of, when the going for a specific quarter is good, you tend to be drawn in, equally the opposite is true. Try not be a 90 dayer, try not get sucked in and suffer from a bout of quarteritis every 90 days or so.

CEO Tim Cook in fact made points worth noting about the most successful product that almost any company has ever had, from a profitability point of view, on the conference call (you will have to sign up, then it is free to read), courtesy SeekingAlpha: Q1 2016 Results - Earnings Call Transcript.

"We sold 74.8 million iPhones in the December quarter, an all-time high. To put that volume into perspective, it's an average of over 34,000 iPhones an hour, 24 hours a day, seven days a week for 13 straight weeks. It's almost 50% more than our Q1 volume just two years ago and more than four times our volume five years ago."

It is a classic Oliver Twist and gruel (thin porridge) moment from the market, perhaps Apple certainly are not the mean master, nor is the market the poor little 9 year old boy, either way "Please, sir, I want some more." The market wants more. The market wants higher iPhone sales, it wants a new product. The last real smash hit, which seems to be falling away is the iPad. I still have the version 1 that "works" for my needs.

In fairness, the products are so awesome that you don't really need to renew that quickly. That is the biggest issue plaguing the company, as far as Joe Investor is concerned. Forget the fact that the current product is hugely profitable for the company, which could see a refresh cycle this year no doubt (the iPhone 7) catapult the sales higher (as the 6 did), the question then comes off the higher base, how much more?

The share price reflects all of this news. Post the results the stock is down two and a half percent. The cash and cash equivalent (around 216 billion Dollars) relative to the market cap at the open (540 billion Dollars) is nearly 40 percent, the highest percentage I can remember. The company is still growing earnings as a result of strong buybacks, the earnings multiple reflects the current reality, the stock is currently trading at less than 11 times, with the dividend yield of over 2 percent pre-tax. Granted that a lot of cash is offshore and some argue should be discounted (they would have to pay high tax rates to bring the cash back), I am sure the stock holders know that. The company also has piled on the debt, in order to facilitate the strong buyback and dividend policy.

The fact is that Apple are capturing you in their ecosystem, households are receptive to their products, the Mac is growing market share in a shrinking PC market, that tells you that the ordinary person still recognises that quality trumps the pay off on the "quality" price of the product too. As a stock holder it is concerning that a new product seems a way away, one has to remind oneself that quality is enduring. Whilst the product sales as a result of global economic weakness cited by Tim Cook seems to have set the price in a funk, the company has the resources and capabilities to reinvent, to grow other services and products through invention or acquisitions. After a while equally the currency headwinds will abate. We continue to maintain our buy rating on the business, most especially on current weakness.

Linkfest, lap it up

This is one of the reasons that the US is/was considered the land of dreams. Through most of the 1800s the Wild West was still being tamed and if you wanted land, you basically just had to show up and you could start a new life - A French Communist Utopia in Texas. Basically the utopia didn't work because the men sent to start it were inexperienced and many died on the trip to Texas.

Sticking with todays Apple theme - Apple is making big leaps in processor technology - and Intel should be worried. Building their own hardware won't impact profit margins that much but what it does do is allow Apple to have even greater control of the user experience, which is the reason people stick with Apple when they start using their products.

As people become more health conscious, as governments have rising health bills and tighter budgets, the easy target will be rising taxes on junk foods - Big Soda now has a planet-sized problem on its hands. If governments are paying our healthcare bills then it seems right that they can dictate to a degree what we eat? It will take some time before any meaningful taxes could be added but I think it will happen.

Home again, home again, jiggety-jog. As mentioned, stocks across the East are on balance higher, stocks locally will no doubt open higher, US futures are lower, no doubt Apple will drag things down, being such a big constituent of the index. We have opened better here on the session, led today (so far) by the platinum stocks.

Sent to you by Sasha and Michael on behalf of team Vestact.

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Monday 25 January 2016

Be Optimistic

"Points such as optimism appearing oblivious to the risks, whilst pessimism seems so much more intelligent and aware are true, even if not stuffed with facts. When someone is screaming and telling you the world is ending, you had better pay attention. When someone keeps telling you to keep calm and that everything is going to be OK, there seems a genuine "something" missing. They know nothing, so innocent and unaware of the world."

To market to market to buy a fat pig. That rally lasted all of ten minutes. Perhaps a little longer, in market terms. Depending of course at what end of the spectrum you invest. Two days is either a time that you can lose your boots and find them again, or a blink in the investment world. Stocks continue to trade in lock step with the price of oil, which really leaves me scratching my head. You would have to think that lower prices of fuel and energy are good for consumers globally, for earnings and equity market levels (i.e. all the energy and services related stocks), that is not too good. The journal (that is the Wall Street Journal to you and I, who are not for jargon) suggested that Oil, Stocks at Tightest Correlation in 26 Years.

In other words, and I think that this is the best way of explaining it, if I provided an oil and gas company with software, or even cleaning equipment, tight budgets would mean that I come under pressure too. At the same time, Joe Consumer has more money to spend and may well drive the global economy in a different way, consuming. Which may require higher transportation of goods around the globe (even locally), which means that demand for oil and gas get stronger. And so the cycle continues.

It is the same with the equities markets, day in and day out. The sun comes up, the electronic opening bell rings, stocks trade, there are sellers and buyers, the bell rings for the close, the sun goes down. Repeat, and repeat again. Yet in our jobs, no two days are ever the same, there is always something going on. Even if the underlying companies that have their stock prices change hands furiously do the same thing.

Yesterday in Jozi, Jozi, stocks sagged all the way into the close, where we ended the day nearly one percent down. Having opened better during the course of the day stocks went {hum the tune} slip sliding away. Paul Simon, what a singer! Unbeknownst to me, Art Garfunkel had a successful solo career. It is hard to believe that Simon and Garfunkel have been broken up since 1970, they started as school kids called Tom and Jerry.

Back to local equities, where it does seem like a simpleton cat and a friendly mouse keep chasing each other, there certainly was enough company news to leave you feeling indifferent. See below in the company corner segment. The Monetary Policy Committee has a really tough time of it later in the week, the drought and weaker currency will obviously mean imported inflation, the weak demand in the economy will mean a balancing act. And a consumer that whilst having worked hard to repair their balance sheets, still looks a little exposed. Good luck to them, the stuff that I have been reading suggests 150 basis points rate hikes between now and the end of the next year.

And then over the seas and far away, stocks in New York, New York sank in the second half of the session as oil prices slipped. Both the S&P 500 and the nerds of NASDAQ slipped over one and a half percent, the Down Jones by around one-quarter of a percent less than that. McDonald's produced some stellar results that were all led by the US again, it has now been confirmed by both Starbucks and McDonald's that the average Joe (and their cup of Joe) are in pretty good shape. Obviously the companies cannot control the currencies, McDonald's pointing out that they will be taking a currency hit. Tonight of course is the much anticipated and highly publicised Apple results. Those are set to be released after market, either stay up and see the release one hour (traditionally) after the market closes, or wait for tomorrow morning.

I am going to leave this part of the message with a simple, yet powerful message. Byron sent this onwards yesterday, it is simply titled Why Does Pessimism Sound So Smart? the author is well known in the financial world, a fellow by the name of Morgan Housel. In this article, Housel makes a few excellent points against the backdrop of the reality that the S&P 500 (has risen) 18,000-fold over the last century.

Points such as optimism appearing oblivious to the risks, whilst pessimism seems so much more intelligent and aware are true, even if not stuffed with facts. When someone is screaming and telling you the world is ending, you had better pay attention. When someone keeps telling you to keep calm and that everything is going to be OK, there seems a genuine "something" missing. They know nothing, so innocent and unaware of the world.

And then the last point that he makes is #winningly good (I just made up a word): Pessimists extrapolate present trends without accounting for how reliably markets adapt. If your energy prices double, you will look for an alternative, not so? Replace energy chewing light bulbs, use gas, start using solar panels, sound familiar? All those good things, and once it becomes economically viable, it becomes mainstream. What happens to the grid as we know it? It changes, for the better of humanity.

Company corner

Amplats warned that earnings would be well lower (much lower), in the face of what we now know is a changing company. Changing from expensive underground mining to fewer and more profitable open cast and mechanised mining. That is effectively the future that has been chosen by the shareholder. And to think that the share price of Amplats in Rand terms is down nearly 60 percent. The going has been more than tough, it has been awful. See the twelve months ended 31 December 2015 trading update.

Whilst the stock slipped nearly three percent on the day, I suspect that much of that was market related, implying that (using a Rumsfeldian) all this was known knowns and baked into the share price cake. Talking about Rumsfeld, I saw this via Quartz, can you believe it? Noted torture enthusiast Donald Rumsfeld has made a really difficult solitaire app. Which is more torturous, holding Amplats shares for the last decade or hearing about (from Rumsfeld) the hardest version of solitaire and downloading it to compete? It is close.

The Lewis group produced a rather tepid trading update, I guess that is to be expected in this environment. Over five years, the price of the Lewis stock is down 41 percent. The market is telling you something here, that it doesn't even believe the current price, relative to future prospects. The historical dividend yield is 11.8 percent, the multiple (the current share price to the historical earnings) is less than five times. You can't even buy a private business at that price. Mr. Market is clearly cautioning you on this one, throwing up a flag of sorts. Is the consumer really about to stop buying furniture and is the company going to been thrown the book by the regulators for their insipid business activities? Is that what Mr. Market is really worried about? Time will reveal the answers no doubt.

AVI, the brands business that sells well known household good such as Bakers biscuits, Five Roses, Freshpak (you Rooibos drinkers, you!), Provita, I&J (Feeesh) and distributor of the likes of Carvela, Lacoste and Kurt Geiger shoes through their Spitz stores , released a trading update yesterday. This is for their 6 months to end December. It looks OK at face value, the reason for the share prices of them, and their peer grouping, Tiger Brands and Pioneer Foods sinking over the last six months can be attributed to several things. The weakening Rand and crippling drought means that input prices are going to rise, whether or not these companies can pass it onto their customers remains to be seen. I guess not all of it.

The other "thing" that has happened is that global investors have fallen out of love with emerging markets, that is ironically longer dated in nature. It may take years before some money managers decide that emerging markets are no longer broken. Against that backdrop it is fair to say that the dividend underpin (currently 4.4 percent pre tax) should provide a floor for the stock. Thank goodness for prudent cash management. Sometimes boring can be good.

Linkfest, lap it up

Thanks to the information age and an increasing number of people willing to do the hard yards, it is getting more difficult to find inefficiencies in the market. Making continuous outsized returns is becoming that much more difficult - Why we'll never see another Warren Buffett or George Soros ever again.

Having a computer know if you are being sarcastic or not has very little practical use. It does however show how far machine learning has come, being able to detect sarcasm requires some level of "understanding" - Researchers have developed an extremely effective "sarcasm detector". I'm looking forward to a day where I can do even more stuff by just talking to my phone/watch/fridge/TV/car.

Our style of keeping things simple and keeping our eye on the longer term view has served us and our clients well over the past 13 years - Finding the Real Expert.

The article title is a bit misleading, I suspect it was chosen to get more clicks - Dumb Alpha: The Drawbacks of Compound Interest. The point of the article is that, when investing lump sums with a long term time frame, your timing still matters. The market returns closer to the starting point matter more to your long term returns than the latter returns. To maximise long term returns, regular additions to your portfolio is essential!

I don't agree with this guy at all, the former finance minister of Greece: Yanis Varoufakis: Capitalism will eat democracy -- unless we speak up. And communism or extreme socialism will work? You can't speak up there. North Korea, Cuba, the list is finite, which is a good thing for productivity and inventions. Any one who names a political agenda after themselves is a narcissist (Marxism, Leninism), there is a Greek word that Varoufakis will understand.

Home again, home again, jiggety-jog. Stocks across Asia are understandably lower. The Nikkei in Japan is down over two and a half percent, the Shanghai markets are nearly down three. Hong Kong markets are off 1.8 percent, at least the US futures point to a little green open, obviously with earnings in focus it will differ on a company by company basis. I thought that the market would be more receptive to earnings as a whole, rather the same concerns around the oil price, the global economy and in particular China remain front and centre.

Sent to you by Sasha and Michael on behalf of team Vestact.

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Sunday 24 January 2016

Starbucking the Trend

"The company also stuck out their 2016 targets, which included adding 1800 stores, which equates to nearly 34 new stores a week in this 53 week year. 900 of those in China/Asia Pacific and an astonishing 700 in the US. Of course not all are company owned, two-thirds of the new opening in China/Asia Pacific are likely to be licensed, half in the US."

To market to market to buy a fat pig. Wow, what a huge day Friday was for all stocks across the globe. I must admit, I didn't check all the bourses, there might be some spots of red here and there, in large part it was all go. Our stocks rose nearly three percent, resources up five percent by the time all was said and done. There was a single company that was having some impact, that being MTN which stuck out a SENS announcement during the course of the day that was well received. That and the rocketing oil price, which thankfully put to rest any idea of technical definitions being sensible.

Before we chat about MTN, let us chat again about the technical levels for corrections, bear markets and bull markets. A correction as far as I understand it, is a draw down of more than 10 percent, a bear market is twenty percent and a bull market is when a price is up more than 20 percent from the recent lows. When I saw the notification on my phone from one of the big global news agencies that the oil price was now in a bull market, I had to laugh hard.

For WTI (West Texas Intermediate) crude oil, the 52 week low price of 27.56 Dollars was reached last week. The price is currently 32.47 Dollars, up a lot since last week, so much so that it tests the technical definition for a "bull market" now. Get this though, we are not even 4 weeks into the new year and the same price of oil is down 15 percent year to date. So I ask you, with laughing tears in my eyes, how can oil be in a bull market during the month of January, if the price is down 15 percent year to date? {Insert a heavy dose of sarcasm here} Well done technical terminology, once again you have proven how incredibly useful you are. It doesn't sound like a bull market to me, it sounds like temporary respite in the face of heavy selling. Or in the case of the knight defending the bridge in Monty Python (missing multiple limbs that have been hacked off), a mere flesh wound?

Over the seas and far away in New York, New York, stocks piled on gains aggressively. Thanks of course to the roaring oil price and sentiment improving, in the wake of the European Central Bank chief, Mario Draghi's comments the day earlier. The nerds of NASDAQ added over two and two-thirds of a percent, the broader market S&P 500 up two percent and the Dow Jones industrial up "only" one and a third of a percent. Energy stocks rallied nearly five percent, not too dissimilar to the resources sector here. Apple rallied over five percent Friday, remember that earnings are tomorrow evening, after the close.

It wasn't all plain sailing, American Express was crushed, down over 12 percent as they presented the prospects of low growth. The stock reflects that, the stock trades at less than 11 times earnings with a yield of 2.11 percent, hardly a kings ransom. Berkshire hasn't had a good time lately, IBM was a disappointment, Wells Fargo (those were better than OK) is lower in anticipation of a slowing rates cycle, and now American Express is slowing. All those stocks are incredibly cheap relative to the market rating however, I am sure that the other of the big four Berkshire stocks, Coca-Cola is not exactly cheap, nor is it growing fast. I am not going to argue with the greatest investor of all time, Warren Buffett knows what he is doing.

Company corner

So to MTN quickly. The company stuck out a SENS message, as we said, that had a marked impact on their share price. The stock surged 9.21 percent on the day, yet there hasn't been much to cheer about this year, the stock is still down over 7 percent year to date and nearly 40 percent lower over the last 12 months. The stock reached a 52 week low of just over 113 Rand a share last week, which meant that Vodacom had, with one quarter of a subscriber base, a bigger market capitalisation. For obvious reasons we know why the MTN share price has fallen, the company has been under the pump for the pending fine in Nigeria. A little bit of "good" news, the market interpreting this announcement that way. So here is a copy paste, titled Further update on the fine imposed on MTN Nigeria:

"The above-mentioned matter came up for hearing before the Federal High Court in Lagos, Nigeria this morning, Friday, 22 January 2016. The judge adjourned the matter to 18 March 2016 in order to enable the parties to try and settle the matter. If the parties are unable to reach a settlement the matter will then proceed on that date."

The market interpreted that it may be favourable for MTN if the courts are telling them to settle. One way or another. I guess as they say in the classics, we will have to wait and see. Obviously the soaring (all relative) oil price would be beneficial, MTN of course operate in territories of large oil exporters, namely Nigeria and Iran. We continue to watch and believe that the fine imposed may be reduced once everyone deliberates with cool heads.

Starbucks reported numbers Thursday evening, after the US market closed. The headline from their Investor Relations page says: Starbucks Delivers Record Q1 Revenues and EPS. Many others that I read suggested that a miss and guidance lower would weigh on the stock. It did initially, pre market the stock was down three percent, that however didn't last for too long, the stock ended the Friday session up one-quarter of a percent. And to think that in the August washout the stock traded in the low 40 Dollars, currently (in the recent washout) the stock is a whisper away from 60 bucks, pretty close to the all time highs of 64 Dollars.

The market rates the stock on a thirty multiple, which means that they expect higher than a 15 percent increase in earnings. Or are investors comfortable to rate stocks higher, when they do have the prospects of raising sales at a faster click than their peers? According to a Barron's article that I read over the weekend, the stock affords a 15 percent premium to their peer grouping, which at that multiple is not that much. The market really likes the growth trajectory, the market really likes the CEO Howard Schultz. The engine of growth continues to be the US, the company has had a strong December (despite not keeping with the tradition of the cup, red with a christmas tree on it, true story), adding 23 percent to their membership program in the US. That now stands at 11 million strong.

The Japanese integration of now owning all the business (see our piece titled: Starbucks goes bigger in Japan) has boosted revenues sharply. The company also stuck out their 2016 targets, which included adding 1800 stores, which equates to nearly 34 new stores a week in this 53 week year. 900 of those in China/Asia Pacific and an astonishing 700 in the US. Of course not all are company owned, two-thirds of the new opening in China/Asia Pacific are likely to be licensed, half in the US.

All in all, coffee continues to be a strong growth segment globally, both in and out of store. Added to the growth in consumption of their core product, Starbucks is no longer just a morning business, or just coffee for that matter. It has become a destination, all day afair, with a stronger contribution from the food segment, which is growing much faster than the brew segment. We continue to recommend the stock as a core part of your portfolio, it should be part of the makeup of your global growth in consumers from Tokyo to Seattle (that way around), they are soon likely to be here, courtesy of Taste Holdings.

Linkfest, lap it up

One of the many ways that we are getting more efficient in our energy use is through the switch to LED lighting. Depending on your cost of electricity, you can recoup the extra cost of purchasing LED within in 3 years by having a lower electricity bill. The LED can then last around 20 years, to me it seems like a no-brainer, change bulbs to LED when they blow and then I don't have to change them again - LED Lights

The Apple ecosystem is part of the reason that people keep coming back. Part of its value can been seen in Google paying Apple to keep the Google search bar - Google Paid Apple $1 Billion to Keep Search Bar on iPhone.

Josh Brown has a look at how some of the great investors of the past 50 years have reacted when they had down years - The Mark of a Truly Great Investor. Even the best get it wrong sometimes and get smoked by the market.

Home again, home again, jiggety-jog. Stocks across Asia are showing gains, US futures are pointing to a muted gain. It is all going to be about earnings this week, which is my favourite, favourite thing in the world. Earnings season! Bring it on.

Sent to you by Sasha and Michael on behalf of team Vestact.

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Thursday 21 January 2016

eMpTyN

"At the moment MTN finds themselves on the wrong end of the stick as far as developing markets are concerned, the wrong ones. Emerging market stocks, the market tells you those are finished."

To market to market to buy a fat pig. Drop your pom-pom gun, here is my bazooka. That is kind of the message that European Central Bank (ECB) chief Mario Draghi sent when he showed the market his cards. Draghi suggested in the press conference post the ECB decision (watch the YouTube video -> ECB Press Conference - 21 January 2016) to leave rates on hold (that wasn't a surprise) that "we have the power, the willingness and the determination to act. There are no limits to how far we are willing to deploy our instruments within our mandate to achieve our objective of a rate of inflation which is below but close to 2%."

It is probably easier to read the statement and then the questions and answers segment: Introductory statement to the press conference. I remember that we had a headline that went something along the lines of "Mario Draghi, cool, suave, measured, obviously Italian". Central Bankers need to give off the I am large and in charge message. The obsession with the actions of the Central Banks is something that has been around for years, in all of my readings of the historical stock market post the second world war, the various authors are always pointing out the market waiting for the Federal Reserve. If you wait for the Fed your whole life before making an investment commitment, it may be never.

In some of the questions and answers, and this shows how much of a mugs game it is to even interpret the minutes of the banks meetings, the ECB president corrects various assumptions of the folks asking the questions. As he was there. And that of course is central to my argument of not trying to second-guess what central banks are going to do, and what impact that is likely to have for equity markets. Nevertheless and having said that, stocks globally rallied on the basis that Mario Draghi's ECB (it is not his, rather he is in charge) are ready to act and will likely come with continued programs to continue to lend a hand to the soggy European rate of growth.

Our market locally may have ended down 0.1 percent, that was comfortably off the lows of the day, we were briefly in the green during the second half of the session. There was a trading update from the Clicks Group that looked pretty decent, the market cheered the news and sent the stock up 4.4 percent. Since the November highs however the stock is down around 19 percent. Is it fair to say that until yesterday, if I am using the technical terminology correct, Clicks was in a bear market? Ha ha, I dislike the technical terms, they can be used how and when you like, they are used to generate headlines and that in turn leads to emotional responses from investors.

MTN was out with another bit of bad news during the day, the authorities in Cameroon suggesting that the company is involved in bribery, along with the other operator, Orange. And guess what, they are seeking to hit the company with another fine. No fine yet and MTN haven't been given any official documentation so they haven't released a SENS, that didn't stop the stock tumbling over 4% yesterday. We certainly are in the midst of a terrible storm for the company, the Nigerian overhang of a court case pending and now this, it really feels awful. And by the way, we certainly called this one wrong in the short term. Wrong, wrong, wrong. Currently trading on eMpTyN. We will continue to evaluate and for the time being continue to suggest that one holds the line here, uncertainty always leads to selling and with lower prices the faith is lost. As Byron pointed out yesterday, MTN has 4 times as many subscribers compared to Vodacom but now has a lower market cap. At the moment MTN finds themselves on the wrong end of the stick as far as developing markets are concerned, the wrong ones. Emerging market stocks, the market tells you those are finished.

Talking about emotions, it is important to keep them in check. A nice piece from the Psi-Fi blog on what to do when moments like these strike: Be Prepared, Be Resilient. All the important points are to be made there, nobody really knows how markets are likely to react in the very short term. Everyone panics. The worst thing to do is to throw in the towel, either early or late as the author points out. Stick to your savings plan, stick to the quality in your portfolio. Let us throw in a few lines that are worth regurgitating, if you are not going to read the whole thing:

"There's no point being the best darned stockpicker in the known universe if you flee for the hills at the first sign of trouble - or, even worse, at the last."

"Indeed, there's an argument that any strategy that works in the long term must occasionally go wrong to shake out the feeble and fickle, otherwise it becomes a crowded trade and fails by definition."

And lastly: "We absolutely know that markets don't stay the same but all we suffer from the curse of myopia - the ability to disregard painful past experiences just as soon as they're no longer current."

In the words of the worst limousine driver in history, Lloyd Christmas, "be strong" as he said goodbye to the girlfriend who never was, Mary Samsonite. Stay strong, stick to the plan, don't be frazzled and remember what the objective is likely to be. Saving is hard at the best of times, when equity markets turn down, it can be even harder.

Stocks across the seas and far away started on a roaring note, and then the rally fizzled a little, the nerds of NASDAQ ended flat, whilst the S&P added half a percent. The Dow Jones added three quarters of a percent, the oil price did an about turn, on comments from the Saudi kingdom that current prices were a little crazy. Agreed, what however is the cost of production and what about a windfall for Joe Consumer across the globe?

Linkfest, lap it up

The one advantage of the weaker Rand is that traveling to South Africa is now very cheap - Buy Your Ticket to South Africa on This Rand.

Here is the Barmy Army singing about the good exchange rate at the cricket the other day - 23 Rand to the Pound - Barmy Army

European furniture sales has hit a peak according to IKEA. The good news is that reaching these record numbers in furniture sales points to a strong underlying economy, the bad news is that there is not much growth for Steinhoff's assets in Europe - "We've hit peak curtains:" Even IKEA thinks everyone's bought enough useless stuff

Is it a problem that 50% of the planet can't name a single CEO? I wonder if it stems from an overload of information from social media, with the result being that no knowledge is retained? - More than half of people can't name a single CEO. I was shocked to see that 80% of Germans couldn't name a single CEO.

Using mosquitoes to fight other mosquitoes seems like a good idea - Brazil's fighting its biggest epidemics with weaponized mosquitoes.I suspect that there will be some pushback to using genetically modified mosquitos in the wild but if we can stop the spread of the diseases that they carry, it will improve the lives of millions.

Home again, home again, jiggety-jog. Markets across Asia are mostly higher, with the exception of Shanghai. We know the deal, 100 million retail accounts, a propensity to speculate on top of a desire to save at all costs, inside of a limited pool of assets, it is truly a strange cocktail. The Japanese market is up over three and a half percent, the Hong Kong market is up just a little less than half of that.

Sent to you by Sasha and Michael on behalf of team Vestact.

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Wednesday 20 January 2016

Henry Wells and William Fargo

"A strange metamorphosis of a company from being the transporter of goods and people via stagecoach, now you know where the logo comes from, the name comes courtesy of the founders, Henry Wells and William Fargo. Believe it or not, those same two fellows, Fargo and Wells, teamed up with a John Butterfield to found American Express."

To market to market to buy a fat pig. I recall a terrible daily workout session on SABC in the 80's in the early morning, before we had to go to school, called Body Beat. It was awful, the instructor was cheesy, the assistants helping him were just as cheesy, where was the fashion police back then? They should have been hung, drawn and quartered for being allowed to wear such bad clothes. The theme song I think was get that perfect beat boy, the instructor I remember used to scream at people, "up and down" and "up and down".

The gyrations from the session in New York was about the same yesterday, a badly dressed movie that you had seen before, with an instructor shouting "up and down" in the background. OMW (that is Oh my word), I managed to find it on YouTube, it is really cringeworthy, and how this managed to make early morning TV is beyond me: Body Beat. These may be later versions, still the "same". Wow. There was another one. Brace yourself: Body Beat. Cape Town people, help me, where was the first one filmed?

Stocks started and ended in the same place on Wall Street, the lows of the sessions were around halfway through the session, from there a heroic comeback was in order. So much so was the comeback that for a short while the nerds of NASDAQ were up, the S&P 500 was off only one-third of a percent, ending the session down 1.17 percent. The Dow Jones Industrial Average was trading down around 550 points at one stage, equally staging a strong comeback. Down over a percent and a half is hardly cause for celebration.

Moments like these call for a strong stomach, they call for remembering that this is what happens in equity markets. Panic sets in, irrationality takes over and some short term folks have to walk the proverbial margin plank. Forced to close positions that ordinarily they would not. Treasuries continue to attract a lot of attention, volatility is up 50 percent since the beginning of the year. Yet the Vix, the index that measures volatility, is "only" at 27.

Remembering that at the depth of the financial crisis it rode all the way up to 87, if memory serves. Volumes in volatility have risen sharply since 2008, rising over sixfold on options, nearly 50 fold on the VIX futures. It is a fascinating market and something that I would dearly love to understand more about. In sticking with the motto, keep life simple however, this is possibly never an option, excuse the pun. Something else that was visiting multi year lows was the oil price, last at these levels in 2003, below 27 dollars a barrel briefly. Down 25 percent year to date by the 21st of January, does that sound a little like too much and too far too soon? It might reflect a new reality of greater supply and muted demand as a result of slower growth and efficiencies.

On the local front we did not have the benefit of having simultaneous timing with the US session, most of the major bourses around the world were closed during this period. Stocks sank nearly two and three-quarters of a percent. There were no prisoners, stocks were battered from all quarters, resources again sticking out as the worst impacted of the lot, down four and a half percent by the close, some of the big names at the bottom of the scoreboard were the likes of Anglo and BHP Billiton, equally Naspers was there.

Ben Carson had a good piece titled Three Things That Matter During a Market Sell-Off that is worth a read, point three had me in stitches (relative when reading blog posts, Ben is not the Fly), it is definitely worth a copy and paste: "The majority of the people taking victory laps for "calling" the market correction would have had you out of the market for the past 50-100% or so of gains (and they’ll never get you back in). Charlatans aren’t offering advice, they’re fear-mongering to draw attention to themselves. Do your best to ignore these attention-seekers and focus on utilizing sources of advice that seek to provide context and perspective."

I think Ben nails it, it is hard to "live" through these market draw downs and feel like you are still doing the right thing, as the voices of the "I told you so" gets louder and louder, I noticed that Nouriel Roubini made a comeback yesterday, perhaps that tells you something. Surprising that we haven't seen more Marc Faber lately. Talking of doom and gloom, I watched "The Big Short" last evening, some good acting from Steve Carrel and the like, I had read the book a while back and it was a good refresher. Entertaining, whilst trying to explain the financial crisis.

Are we any where near? No, I suspect that we may, in a few weeks have seen the worst done and dusted and the confidence will return. Stocks across Asia have been equally volatile this morning, markets in the UK (i.e. the FTSE) entered what is called "bear market" territory, you know, a fall of more than 20 percent. Jeepers. That feels bad. It does not mean that you should sell, in fact you should always think the opposite. You should want to buy shares immediately when the prices get cheaper, history tells us that these opportunities come around only for a moment of what if, perhaps I should have. That sort of thing.

Company corner

Wells Fargo reported numbers last Friday, before the bell, in amongst all the bedlam (strictly speaking that word is derogatory) we have pushed the results reporting (from our side) a little out. I read their now old 2014 annual report and then their Full year and fourth quarter numbers yesterday in more detail. At face value the numbers I guess are uninspiring, for the full year for 2015 earnings and revenues grew by very low single digits, barely at all.

It was however not a bad year for shareholders however, 12.6 billion Dollars was returned over the course of the year through share buybacks and dividends. With a market capitalisation of 246 billion Dollars, that is around five percent. The yield at current levels (hopping around a little, apologies) is 3.13 percent before tax and on the full year earnings per share is 11.55 times. I guess the share price reflects exactly that, muted growth over the last year and a tough year with regards to growth prospects. And as such prices the stock accordingly.

A strange metamorphosis of a company from being the transporter of goods and people via stagecoach, now you know where the logo comes from, the name comes courtesy of the founders, Henry Wells and William Fargo. Believe it or not, those same two fellows, Fargo and Wells, teamed up with a John Butterfield to found American Express. A mailing company, located in New York. In the lead into the financial crisis the company was the only business with a triple A credit rating. This company is good enough for Buffett, it is one of the big four holdings of Berkshire Hathaway. American Express is too, perhaps Buffett knows his history better than most, perhaps it is just a coincidence.

So why hold this business? If you read through the results you get the sense that this is a business that operates along the lines of good old fashioned banking, offering the services that their clients have always been used to. In a sense mom and pop style banking. The investment is based on the premise that the US economy will continue to be strong, and that their core business will grow with the continued recovery. Whilst rates pick up, their net interest income will too, and having worked hard at keeping costs low and business simple. We continue to recommend the company and in particular find them attractive at these deflated levels.

Linkfest, lap it up

We already know that exercise has many benefits. Here is another one to add to the list, improved memory - A neuroscientist says there’s a powerful benefit to exercise that is rarely discussed. Most of the focus of exercise has been on the amount of weight that I can drop if I go for a run regularly, going forward the improvements to cognitive abilities will get more focus. The data base of information that Discovery is collecting on it’s members is getting more valuable by the day to the company and to researchers who want to find long term correlations between exercise, diet and longevity.

As battery demand increases so does the need for Lithium. Given the need to store solar and wind power and to power the likes of Tesla, the demand for batteries is set to soar - An increasingly precious metal. Given the huge spike in lithium prices the hunt for a lithium substitute will have begun, we may even find another element that works better in batteries.

Given the low unit cost of natural gas it is cheaper for many oil companies to burn it on site instead of pipe it - "Flaring" Wastes 3.5 Percent of the World's Natural Gas.

Home again, home again, jiggety-jog. Markets in Asia were up, now they are down. It is all over the place at the moment and very hard to call. Stick the course, keep calm and add to your portfolio’s if you have some spare change lying around.

Sent to you by Sasha and Michael on behalf of team Vestact.

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