Goldfish market memory

"What is happening here is that a massive overreaction is being met with an equally aggressive rally globally. The S&P 500 has just had a rip roaring rally of the sort not seen since the year lows in February. Remember what that market slump was about in February? The S&P 500 is 11.82 percent higher since the lows of February. Quick check, do you recall what the market slump was about at the beginning of the year?"

---

To market to market to buy a fat pig It is all rather head scratching material really, the British "exit" from the EU. On the one had you have people in the UK who are intent on getting this sad separation done, equally there are some European leaders that are urging haste, it is in the interest of none to have this linger around. Clean up the room is the mantra. The thing is, the lawmakers of Britain need to make this decision. Damned if they do, damned if they don't. They should have made the decision in the first place, a complex economic decision should not be left in the hands of many. Mind you, if you embrace democracy, you should respect the process.

What is happening here is that a massive overreaction is being met with an equally aggressive rally globally. The S&P 500 has just had a rip roaring rally of the sort not seen since the year lows in February. Remember what that market slump was about in February? The S&P 500 is 11.82 percent higher since the lows of February. Quick check, do you recall what the market slump was about at the beginning of the year? Global growth concerns mostly associated with the Chinese economy. Angst whether or not the Fed would actually have to employ the same tactics of the ECB and the Swiss Central Bank. And others of course.

So .... does this mean that the dust has settled? I suspect not at all. There are definitely some assets that have repriced, some stocks like Brait, Capital and Counties, anything with a British flavour are still comfortably below their "recent" prices. It will take a lot of time to value these assets correctly, to reflect for a weaker Pound and subsequently their Rand profits conversion. One stock that has "benefitted" from the weaker Pound is Mediclinic. The company reports in Pounds now, remember. So if the Pound is weaker and their main territory is Switzerland, there is a boost to that overall number. Hence that is why their Rand price is trading at these (very short history since February this year) all time high.

Bidcorp also caught a serious bid after having been smashed, remember that they have a significant business in the UK, that business is nearly two decades old. They are certainly not Johnny-come-lately. Talking about that, did you hear that in the new James Bond, the movie is three hours longer as he has to stand in immigration queues at airports in Paris, Amsterdam and Milan? Kidding! Quick scoreboard check on the local front, the ALSI closed nearly a percent and a half higher, led higher by resources and Anglo American in particular (that stock was up over six percent).

The Rand (and many emerging markets at that) are catching a serious bid, 14.88 to the US Dollar, 19.86 to the Pound Sterling and 16.49 to the Euro. Quickly, buy some of those! Kidding again! Own equities, save more, press the repeat button over and over again. Where all of this goes in the short term is a mystery to me. What is more of a mystery is how the headlines read like "Dow Jumps 284.96 Points as Investors Look Past Brexit Fears" Huh? Investors changing their minds all the time. Perhaps I shouldn't be so precious about the usage of the word investor, the Oxford English dictionary (the online version) has the following definition: "A person or organization that puts money into financial schemes, property, etc. with the expectation of achieving a profit"

If "investors" change their minds every two days with the expectation of achieving a profit, then is it at all different from all of us looking for long term capital growth? The definition of trader from the same dictionary source is as follows: "A person who buys and sells goods, currency, or shares." Perhaps OLX and Craigslist are better examples of what people can achieve when they trade like crazy. I would like to hear some of your personal experiences on these platforms.

My craziness and stickiness aside, let us check the US scoreboard from last evening. All the major indices tacked on around one and two-thirds of a percent, the nerds of NASDAQ a little more. It was a broad based rally, Nike was even up sharply, the stock added nearly four percent. So perhaps the "sluggish" sales in North America were not really that bad after all. Sigh. We have to try and sift through all of the smog and make sure that the thesis remains intact. They are going to continue to manufacture and innovate on products that people really really want.

---

If you want to know why the Europeans are so intent on sticking together and reducing conflict, then you should be mindful that tomorrow is the 100 year anniversary of the battle of the start of the Somme. It started on the first on July 1916 and "finished" on the 18th of November 1916. More than a million folks were injured and killed, for little other than the wishes of a few connected souls. Who were interested in upholding the status quo. Nationalism and the inability to see humanity, rather than inward (backward) thinking led to the two most awful conflicts of our time. If you want to bet against the project that has started to galvanise Europeans (and to make sure that they do not see these conflicts again), then good luck to you.

I continue to believe that the "project" will work. Already with one central bank and one currency, no borders, no trade restrictions or movement of people. Ultimately the united economic zone will prove to be more powerful than people think currently. In terms of the original Why the Euro? question asked, the last one, the benefits of the Euro - "A tangible sign of a European identity" has not been fulfilled. People will still identify for a long time with their countries and territories and want to guard that fiercely. I suspect it will become less about countries and more about territories in time.

People forget the bombs and "terrorism" in Europe in Spain, Ireland, Italy, the United Kingdom of yesteryear. See this list to see if you can remember any of these - Terrorism in the European Union. Italy, France and Belgium have had their fair share of attacks over the years, even Greece has had a lot of attacks from Separatists over the years. There will always be people pushing their agendas. Unfortunately using violence has an impact. Let me be clear, humanity wins each and every time, groups have their day in the sun. Europe will not fail, they will collectively grow stronger. And that is my opinion.

---

Linkfest, lap it up

Can you classify these inventions as failures or just very weird ? - These Are The 12 Most Ridiculous Inventions From The 1920s.

It is amazing what you can learn from youtube, also shows that age is not a factor in our modern society - This Teen's Lawyer-Bot Is Busting Thousands Of Parking Tickets. Being able to program is a tool/ skill that I think will become more central going forward.

One of the topics coming up more regularly is how machines are having an impact on the labour market, with the end result still unknown. One theory is that machines will increase income inequality another is that machines will make entire populations better off due to the lowering costs - How Machines Destroy and Create Jobs

---

Home again, home again, jiggety-jog. Stocks are mixed globally, here they are up. In the UK they are down. Across in Asia it is a mixed bag. Italian banks (and European banks in general) are coming under scrutiny. British politics is going to be a talking point for a while. And where to next. So, it ain't over until it is over.

---

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

Email us

Follow Sasha, Michael, Byron, Bright and Paul on Twitter

078 533 1063

Nike needs to do it ... and more

"Combining comfortable clothes with an athletic element allow you to work out and then walk around afterwards without feeling exposed. Or just hanging around in athletic gear, even if you are doing nothing athletic during the day. All the big manufacturers of athletic apparel and footwear have as much of a bias towards fashion as they do to functionality."

---

To market to market to buy a fat pig Huh? I kept asking the fellows in the office whether or not there was a concrete reason why stocks globally were moving so much higher. The reasons given were relief rally, oversold and bargain hunters, and then some of the usual trader talk along the lines of short squeeze this and dead cat bounce that. The origin of the term, dead cat bounce apparently traces its roots to the Far East, two FT journalists quoted a broker who used the analogy. And then it stuck. Now I thought cats were supposed to land on their feet, for starters and secondly, being very good climbers, they wouldn't fall in the first place. What do I know, I am more of a dog person myself. I love the more loyal and slightly dimmer dog, what can I say!

I see in some market reports that a sense of calm has returned. Are you kidding me? British politics looks more polarised and splintered than ever. What matters in those developed economies and societies is that the bureaucratic functions still seem to work well. As many often point out, until recently Italy had more governments than fans had time for managers, yet society still worked. The first Prime Minister of Italy post the second world war held the post no less than 7 times in a 7 year period. For Berlusconi it was four times! Since 2000 it has been relatively stable, with "only" six prime ministers, including Berlusconi twice.

Another major event capturing the news reels this morning, Twitter and all the associated communication platforms is the horrible events at the airport in Turkey. It is just a matter of time before all airports start screening people differently before they arrive any where near the airport terminal. Or, perhaps there can be stronger security outside. I get the sense that sadly we have become desensitised to these very important events, the lives of over 100 people impacted immediately and thousands others indirectly. Perhaps all of us. We live in a world where people will end their own lives and take others with them to strike fear into the hearts of others. I for one can't understand extremists.

Stocks are all up again across the globe. Part of the reason is the fragmented political environment in the UK and that the EU has not received anything formal yet. i.e. Whilst the people had voted to exit, it is actually the politicians who have to formally approach the European Parliament and European Union and start the process. And seeing as the leadership of Labour, old Jeremy Corbyn basically is persona non grata in his own political movement (and the leadership of the ruling party is currently vacant), who exactly is going to negotiate this exit? For now, nobody. There may well be an election in the UK as early as October, that could in essence be another referendum. In the meantime, there are around 6 million people with Irish heritage (including England football captain Wayne Rooney) and many of them are scrambling to become Irish citizens. To stay European, you know!

So what should you continue to do? Nothing. Still nothing. When the dust settles we will have a clearer idea of what to do. Selling in panic is never a good idea. In fact, history will show you that it is a VERY BAD idea. SMH, now I am reading headlines that all asset classes are benefiting from the uncertainty, the fact that there is this political void and seemingly inaction from all corners. Pfff .... the longer I do this, the more I realise that many quarters of the market is like the proverbial Jack Russell chasing their tail. That segment of the market provides us with the necessary liquidity that we so crave however.

---

Company corner

Nike. This is a company that has just been doing it for a while now, both revenues and profits have been growing sharply, leading to a big earnings multiple expansion and with that a rapidly appreciating share price. Share holders have become used to the idea that the stock has just grown as global and in particular, North American sales have consistently been above expectations. In fact, if you visit the Investor Relations landing page of their website, there is Cristiano Ronaldo running away from the crumbling defence, some figurines exploding. And in bold letters there, it states that Nike is a growth company.

We all know that Athleisure is a "thing". Combining comfortable clothes with an athletic element allow you to work out and then walk around afterwards without feeling exposed. Or just hanging around in athletic gear, even if you are doing nothing athletic during the day. All the big manufacturers of athletic apparel and footwear have as much of a bias towards fashion as they do to functionality. I simply have to recall the old poly shorts and your beat up running shirt to know that fast forward a couple of decades and even the socks are seen as highly important fashion items, as well as being darn comfortable and of course most important, functional. Whether or not, as a casual runner, my times have improved much with all the gear is another matter entirely.

Research from Morgan Stanley (via this - The Rise of Athleisure suggests that as a category (athleisure), the market is now 270 billion Dollars per annum globally and is set to grow around 30 percent before the decade is out. There is still plenty of wriggle room for all providers, inside of the majors competition to Nike have emerged, most especially with Under Armour. Strong personalities such as Steph Curry and Andy Murray, as well as Jordan Spieth, and some other well known US athletes, like Tom Brady. Highlighting the move to all sports and casual wear is that both Misty Copeland (an extremely talented ballerina) and Giselle Bundchen are featured as Under Armour sponsored athletes. Bundchen's husband, Gridiron legend Tom Brady is also sponsored by Under Armour. First husband and wife team? In terms of teams, only Spurs (Harry Kane's team) are one of the big sponsorships.

This is a piece about Nike, not about Under Armour. In order to show how competitive it has been, that is why we spent a little time discussing a competitor. Herewith the fourth quarter and full years results 2016 released last evening. At face value the metrics all look pretty decent. I suspect there were two things that everyone focused on, one was that whilst quarterly earnings were a slim beat, the sinking in that earnings were actually flat on the comparative quarter meant that the recent share price weakness was probably justified. In other words, if you are going to own a growth company, be sure that it is a growth company.

As the company pointed out (see the table below), North American apparel sales were 2 percent lower when measured against the corresponding quarter, 8 percent higher over the year. Total sales (see at the bottom of the table) in North America make up 45.6 percent of group sales. And if those are "sluggish" as the WSJ points out (Nike Reports Sluggish North American Sales), then does the growth tag still hold true? First, here is the long and detailed table of Nike sales across all regions of the world -

I suspect that one can answer the question about growth by pointing to the Chinese region, sales are only 11.7 percent of total sales. In order to determine whether or not the company is a "growth" business, let us throw back to the 2010 annual report. Total sales were 19 billion Dollars, they are now over 32 billion. Greater China sales back then were 1.74 billion Dollars, they are more than double now at 3.785 billion Dollars. In some parts of the world, and in particular a huge market shifting one (the next growth engine in China is largely consumer based) like China, the company is still growing like gangbusters.

I know this is pretty long, I want to however highlight why I think that the future is exceptionally bright for the whole industry and this specific company. The chief Mark Parker (not related to Spiderman) spoke about global sport participation, a move to mobile and importantly, the ability to customise your shoes and clothing, personalised "stuff".

"Participation is increasing all over the world ..... people are leading healthier, more active lives. At the same time, the rise in sport culture is bringing fitness and style together, profoundly influencing what we all wear every day. It's clear: our amplify category offense is a model that works. We're growing the business across the entire lifestyle of sports - from performance to sportswear.



And in retail ..... our industry is in the early stages of unprecedented transformation. Mobile innovation and personal services are dominating the landscape. That's why we invest in integrating digital and physical retail seamlessly, giving our consumers better access to the products they want ..... and why we're working even closer with our best wholesale partners who share our vision for the future of retail.



Manufacturing, too, is undergoing its own revolution. We're rethinking the fundamentals across our business - in how we make products ..... how fast we deliver them ..... and what kind of impact they leave behind. With other innovators like FLEX or HP, we're deploying projects across our source base to reduce costs and delivery time, improve quality, explore customization and enhance performance."

In conclusion, the stock has taken a hammering this year, it is down at 51 Dollars pre market, and now trades on a 23.6x historic multiple, which is possibly at this juncture a fair reflection. We do however believe that the growth will return, the thesis is well intact and this may prove to be a wonderful opportunity to acquire the market leader at a much cheaper price. Across all territories, future orders still look strong, nearly 20 percent up in mainland China. We maintain our buy rating on the company.

---

Linkfest, lap it up

Another company that takes advantage of the sharing economy is now worth not billions but 10s of billions - Airbnb is raising a new round of funding that would value the company at $30 billion.

Here is an idea of how widespread the company is in major US cities.

You will find more statistics at Statista

Sticking with billion dollar tech companies, here is a list of companies that started in garages - These Billion Dollar Companies Were All Started in Garages.

The latest news from the biggest private tech company - You Can Soon Book a Hot Air Balloon Through Uber.

---

Home again, home again, jiggety-jog. As mentioned earlier in the message, stocks are all higher across the globe. The Pound is bouncing off the worst levels, that snarky remark from Nigel Farage that the Euro was "crashing" or some such other way of putting it riled me a little. He would do worse to go and have a look at the 17 year graph of Sterling, the time that he has been a member of the European Parliament. When Farage arrived, it was around 1.55 to the US Dollar, now it is 1.33. Seeing as the Euro was basically accepted at around the same time (1999), the levels to the Dollar have gone from 1.05 (back then) to around 1.10 now. Nigel, update your reality, OK?

---

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

Email us

Follow Sasha, Michael, Byron, Bright and Paul on Twitter

078 533 1063

Global Naspers

"By geography, revenues are 49 percent Asia, 23 percent South Africa (still big), 15 percent Europe, 2 percent Latin America, only 9 percent "Rest of Africa" and lastly "other" is two percent. In terms of where revenues are derived (outside of the segments) it is IVAS (Internet value added services) and Games at 36 percent, subscriptions (to TV) at 23 percent, ecommerce at 21 percent, with advertising at 11 percent. Print, circulation and distribution is a meagre 3 percent"

---

To market to market to buy a fat pig This British vote to exit the EU is a highly emotive issue. At the core is a changing world, free movement of people and skills. And I am afraid that the older generation, who has seen little by way of wage growth, blame immigrants for their lack of progress. Here is a pretty good summary of what I am talking about - The U.K. Brexit: Economic Destruction Vs. Creative Destruction. I shall copy and paste one sentence and you can tell me what you think later:

"And when the disruptive innovations are as big, and frequent, as what's happened the last 30 years - globalized economy, nationwide and international super banks, outsourcing, offshoring and the entirety of the Internet of Things - it has left a lot of people really concerned about their future."

I do not agree with the conclusion that Britain is about to fall down a hole. The scenario that he paints is not a particularly rosy one. People can unwind their choices, isn't it called democracy?

Tax payers of all creeds and colours pay the same amount, the law doesn't discriminate in any shape or form of how many tax dollars you pay. Immigrants in all shapes and forms have no plan B. By nature immigrants will work longer hours, do jobs that locals don't want and definitely give more. Uber is a good example of the lengthy hours that immigrants put in, I have driven here, Cape Town, Paris and New York, each and every case I think that I engaged with the driver they were not originally from there.

In Cape Town recently, a man of Zimbabwean origin and a man from Burundi shared their experiences with me, they work six to six and a half days a week, in order to meet their quota for the week. And it is certainly not an 8 hour day, perhaps 50 percent more than that. The one fellow woke up at 03:30 and the other went to sleep around 02:00. The flexibility afforded to these long toured working folks by technological advances of the collective humanity meant that their income and living standards can be raised. By working 60-70 hour weeks, people can change their lot in life and give their offspring a leg up.

Fight technology and globalisation at your peril. I suspect that whilst the Europeans are pushing hard for the English to leave (and making these utterances in German and French now), the leadership vacuum in UK central makes the job harder to negotiate from a position of strength. This may well be seen as another example of the higher powers inside of the European Union wanting to punish the revolters quickly (think Greece austerity). And that may not be the best for all of us in the long run.

As ever, what should you be doing right now? People waking up in England this morning may be feeling sorry for themselves and lamenting their lack of fortitude on the football field, losing to a country of 'basically' fisherman whom they used to lend (and deposit) lots of money (didn't they have a massive banking crisis?), they are still going to need goods and services. They are still going to head off to work.

British folks future may be a little less certain from last week, Google trends have indicated a spike in searches of emigrating to Canada (true story - Brexit fallout: 'How to move to Canada' trends in U.K. after European Union vote), it isn't as if they are going to all assume the foetal position. There have been pretty dire knock-on effects, immediately the hallowed triple-A rating is gone (she gone!) - U.K. Rating Cut Two Levels by S&P, One by Fitch After Brexit. Who knows.

To answer the question, do nothing now. Do not react in a way that will lead to the detriment of your long term savings plan. In conclusion, two tweets stand out for me, and they are both associated with one another. This one from Morgan Housel requires a little thinking about, it makes brilliant sense.

And then our old pal Cullen Roche replied, again this makes complete sense. Like everything in life, investing is hard. So is running a business. So is learning for a degree, passing with honours along the way. These are all things that are hard, if they were so easy, everyone would do it. Investing is like a never-ending marathon, where you get the opportunity to rest and take stock from time to time.

Keep calm, carry on, stay the course and above all, don't be reactionary. The British may indeed change their minds again, whether or not the Europeans may be that accommodating is another question entirely. If you needed reminding, there are candidate member states who want to get into the trade block, heck, Turkey has been waiting since 1987. From an out and out map point of view, Turkey seems an age away. Turkey ticks a lot of boxes. As ever, there will be a winner in all of this. Paris, Dublin or Frankfurt may well become the capital of finance, or even Zurich, keeping it independent? Maybe? Yes? No? If you wanted to know who the people are - Check current status.

Scoreboard check. Our market closed just above 50 thousand points. Three percent down on the day. We are around 4000 points lower than recent highs. Incredible, right? In New York stocks were trashed and kiboshed again, down to 2000 on the S&P (down 1.8 percent on the day), the Dow Jones off one and a half percent, whilst tech stocks were beaten up real bad, down 1.8 percent on the day. Astonishing downward moves. This morning stocks are up across the board heavily. Expect volatility to continue, be sanguine and stay the course.

---

Company corner

It is Naspers time. It is more than a little complicated when trying to review this business, and that is why there has always been various views on why you should or shouldn't own the stock. At a face value the stock from an earnings point of view always looks overpriced. Not all valuation metrics are the same, you value the business based on the future profitability of the business. I suspect that many investors who try and value this business grapple like all of us to try and value what the likelihood of the increased investment in key areas is likely to yield. In other words, heavy investments currently in their classifieds and ecommerce businesses, mean steep losses for the time being. The longer dated investor may well think that this is very necessary for the business to jump to the next stage of investment.

Around two years ago, Koos Bekker cautioned that the TV business may well be a legacy business, it is old school. With improved internet speeds, the roll out of many more channels (think Netflix and their (Naspers) own Showmax) we are seeing the evolution of TV. What is not quite clear in the whole TV on demand thing is where does sport fit into this. You cannot watch sport second hand. You have to watch each and every match live, otherwise you miss something. FOMO is real, most especially for sports fans. We live in times that evolve, and quickly at that. You are more likely to consume more and more media via your handset. Naspers are there and want to be there. I suspect that there will also be a time when people associate the business with the new chief and less so the chairman.

Let us cover the results in several bite sizes, first today the marked impact of the Dollar in their results. Weakness across the board in emerging market currencies led to Dollar being revenues flat, the Dollar strength had a drag of 285 million USD on core headline earnings. In local currencies revenues grew by 22 percent. Listed investments account for nearly half of revenues, 46 percent to be precise (Mail.ru and mostly Tencent), whilst ecommerce is growing sharply, contribution of 22 percent to overall revenues. And then video entertainment, which is the old school satellite TV and Showmax as the newer kid on the block, that is 28 percent in total. The balance, a mere 4 percent is media and other.

By geography, revenues are 49 percent Asia, 23 percent South Africa (still big), 15 percent Europe, 2 percent Latin America, only 9 percent "Rest of Africa" and lastly "other" is two percent. In terms of where revenues are derived (outside of the segments) it is IVAS (Internet value added services) and Games at 36 percent, subscriptions (to TV) at 23 percent, ecommerce at 21 percent, with advertising at 11 percent. Print, circulation and distribution is a meagre 3 percent, it is a wonder that this business is still called Naspers (loosely translated, National press).

Here is the part that makes it difficult to understand the business, a picture tells 1000 words, in some cases with some iconic ones, more than that. Their development spend is clearly focused on businesses that they think are likely to catch more subscribers and users in the coming years.

Forex swings ate heavily in the absolute development spend in the company, over the last three years Naspers have spent an astonishing 2.265 billion Dollars in their various businesses. In Rand terms that is over 34 billion. So when will these heavy spend yield positive results for shareholders? Perhaps to answer, one has to point out that the company is not always going to get it right. In the most recent results they have written down the value of many assets, including the South American print business Buscape, Konga (an electronic ecommerce business in Nigeria) as well as Netretail, an Eastern and Central European internet retailer.

When you part with your hard earned money and invest in this business, you are leveraging off incredibly smart minds who are following current trends in consumer behaviour and patterns. Think OLX, Takealot, allegro, Flipkart and goibibo. They might not be well known to you, they are parts of other peoples channels. The company will continue to invest in higher growth business models as well as continue to make their respective subscriber bases much bigger than currently. And all of this will take place on the device in front of you, the mobile phone. Why? Increasingly in the areas that the company operates the internet is delivered in that fashion.

We continue to own what is still essentially a proxy for Chinese entertainment business Tencent with maturing other businesses and most importantly very exciting new businesses. This is still one of the best opportunities in our local market, we continue to accumulate this business on weakness.

---

Linkfest, lap it up

It is probably not surprising that on a square meter basis weed has strong returns for retailers - Marijuana shops are more lucrative than Whole Foods, by at least one metric. Not though how far ahead Apple stores are, they are streets ahead of anyone on profitability per square meter!

When sales decline marketers need to get creative - In India, KFC is serving fried chicken in boxes that double as phone chargers

Hedge funds have started getting more airtime recently in South Africa - Unquantifiable Risk. When investing in a fund there is always more risk than if you invest directly into equities, sometimes that risk is not properly valued.

---

Home again, home again, jiggety-jog. Stocks are up sharply. There have been many views over the last few days. Remembering that opinions are like you know what. I am not surprised that central banks are talking coordinating efforts.

---

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

Email us

Follow Sasha, Michael, Byron, Bright and Paul on Twitter

078 533 1063

Still stEUpid

"Overnight the value of the Pound to their global peers is less. And to rub salt into the wounds, most folks who voted no would do well to peer into their pension funds. They would see the value, in Pound terms, has diminished significantly too. Stocks in the UK took an almighty pasting Friday, perhaps it was and is a little overdone."

---

To market to market to buy a fat pig Ooops. Guess how wrong I was?!? Very, it turns out. The polls were right and wrong, the bookies were dead wrong. The upshot of the "leave the EU" vote was that British people began googling like crazy what the EU really was. Dinkum, as they say down under. Michael made the point that you shouldn't leave such important decisions in the hands of those without the necessary skills to weigh up the future. There is a reason that politicians vacillate and hedge their bets, in the same way that economists have two hands.

What is interesting is that the older voter in the UK almost entirely wants to be British again (whatever that means) and the younger voters want to be European. You could of course blame politicians for the mess in the first place, a referendum on the EU? Really? People will just vote with their narrow minded views and not see that the movement of goods and people is a wonderful thing. You cannot fight the will of the people. There are many unintended consequences to isolation. Can you get stupider than this? Check this out: The British are frantically Googling what the E.U. is, hours after voting to leave it.

I am reminded of the relative economic prowess of North Korea to their South Korean neighbours during some of my reading. During the late 1960's, ethnic Koreans in Japan chose to move to North Korea, their path seemed better, the economic prospects were brighter in the communist country. At least it seemed so on paper. A decade and a half on from the split, the North with their communist ways seemed far better than the South with their relative (not entirely) free market approach. Today the results are laid bare for all to see, the North is a basket case with people genuinely shorter and stunted as a result of low nutrition, as a result of failed economic policies. The South, well, their internet is so quick (not that it is a measure of human progress) that they have chill sessions to detox from technology. Two worlds and two paths chosen sixty years ago with consequences for ordinary people.

I am not suggesting that for a second that the UK will ultimately follow this path. Politically it looks like a mess. The Scottish Parliament has suggested that they may want to block this move, perhaps paving a path for the country to enter the EU themselves. So let us see what transpires when the dust settles. I saw that Europeans (from the mainland) were trying hard to expedite the "article 50" so that any other country thinking about this, in the political sense it is nationalists and right wingers, hardly the best sort at dinner parties, were set to think twice about the political implications.

Overnight the value of the Pound to their global peers is less. And to rub salt into the wounds, most folks who voted no would do well to peer into their pension funds. They would see the value, in Pound terms, has diminished significantly too. Stocks in the UK took an almighty pasting Friday, perhaps it was and is a little overdone. The FTSE did bounce pretty hard off the lowest levels, banks and financials were still dealt an almighty blow. Three and some change percent down on the day might not sound that bad, it is against the backdrop of a pound that weakened. Get to that in a minute. Barclays was down 17.68 percent, Lloyds fell 21 percent, the Royal Bank of Scotland was off 18.04 percent. HSBC, with operations globally, as well as Standard Chartered, fell 1.43 and 2.58 percent respectively. Hargreaves sank 15.4 percent, Provident fell 16 and a smidgen.

Aldermore, a relatively new business, that provides loans to small and medium size businesses, fell an astonishing 32 percent on the day. Taylor Wimpey (used to be Taylor Woodrow), a bigger and well established homebuilding company fell nearly 30 percent. It wasn't all carnage, the weaker Pound has some positive implications for several businesses. Obviously the gold producers who felt the strong winds at their backs, as the metal price climbed heavily. ARM holdings, the British software and chip maker soared. Costs in global terms just got cheaper?

Most important, what to do? You could have guessed that our answer would be nothing. Do nothing. In fact, in the great British tradition of doing little in times of adversity, Keep Calm and Carry On. Or in French if you will: "Restez Calme et Continuez", or German "Bewahre Ruhe mach weiter". Anyhows, this is not cut and dried. A year ago the Greeks voted to stop austerity. Did it happen? No. Felix Salmon points this out on Twitter:

Many passionate people around, I saw on CNBC this morning, in an external broadcast, someone shouted off screen as he passed by walking his dog. The hosts, Geoff Cutmore told that fellow to get lost. It made for excellent TV, live, you can't make that stuff up. I would not jump to conclusions immediately. What it has done however is reveal the bad and good side of humans. Sadly.

Quick sticks (hurry up, without delay), market check of Wall Street Friday night. It was a horrible and no good day for stocks. Eddy Elfenbein pointed out that the levels were back at previous Tuesday's level, unlike the Pound which was at a 30 year low. The nerds of NASDAQ fell over 4 percent, the broader market S&P 500 fell nearly three and two-thirds of a percent, the blue chip Dow Jones Industrial Average fell nearly 3.4 percent. And there was a rush to Treasuries. I suspect that for the Fed, this may well be a wait and see approach. Global bond yields across the board were trading at all time lows. Everywhere, meaning developed world.

Down at the bottom end of Africa, the currency was rubbished, the markets (the Jozi all share) were down over three and a half percent by the close. Stock futures in the UK point to another sell off of around one and a half percent. UK Chancellor didn't resign and said that they have a robust plan. Perhaps there will be loads of this today and over the coming days. Or as one of our favourite South Africans (who must be English by now) David Bloom said, this thing is set to linger for some time. Unless of course parliament is dissolved and the Brits get to vote again. Who knows!

---

Linkfest, lap it up

What does sticking on Scuba gear and your approach to business have in common? It turns out that the fear of the unknown, once you get over that, you will do well in almost everything, it goes without saying I guess - What Scuba Taught This Yik Yak Product Manager About Business

Remember when Apple bought a stake in Didi Dache, the cabs company with the hailing app. It is awesome to see the people behind the business - Meet The Woman Behind China's Largest Ride-Sharing Service. Average age of employees, 26! That is either awesome or not, depending on where you are in the technology is awesome spectrum.

Bright liked this and was fascinated by it - "Nitro" coffees and beers are the coolest things to sip this summer. What makes them so creamy?

Every once in a while an insane advert comes along that inspires, and perhaps we need a little of that today. This advert is really worth watching - Michael Phelps returns for one last time. It is what happens behind the scenes that makes you great.

---

Home again, home again, jiggety-jog. Naspers numbers late on Friday evening. Not enough time to have a strong look, also bear in mind that the investor call is this afternoon, so we are not looking at the full picture. We will reveal more tomorrow for all and sundry, what is getting the most headlines is the loss of DSTV subscriber numbers. That will always be the case.

---

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

Email us

Follow Sasha, Michael, Byron, Bright and Paul on Twitter

078 533 1063

Brexsh*t

"As expected, the JSE has opened down 5%. Stocks with big exposure to the UK are taking big heat. Brait is down 15%, Bidcorp down 10% and Steinhoff is down 10%. I bet you guys like Brian Joffe, John Gnodde and Marcus Jooste are salivating at the opportunities presenting themselves. So you should you, so should we"

---

To market to market to buy a fat pig Ouch! The Brits let us down. I must say I was shocked when I heard the news this morning. We all were in the office. I think it is a sad day for humanity as one of the former powers of the globe close themselves in. But I guess that is democracy, the people have the vote and every person's vote counts the same. From David Beckham to Jim Brown who lives off the doll and spends 60% of it on Carling beer and Greggs pork pies.

So what now? The scary thing for most is the knock on effects. French Nationalists are already calling for their own referendum. Frexit? The combined GDP of the Euro Zone is bigger than the US so this will impact everyone.

Unfortunately for us as a developing economy, we are considered risky. The Rand went from R14 to R15.17 to the dollar in no time. As I type this the Nikkei is down 8%, the Hang Send is down 4.4% and all futures point towards big pull backs. The market does not like uncertainty and this will create exactly that.

But all is not lost. From what I see on the box most European commentators whether it be French, German or Spanish feel that this will pull them together. You know the old saying, what doesn't kill you makes you stronger. And it is times like these where pulling together is crucial. Another old saying comes to mind, Ironically it came from Winston Churchill. "Never let a good crisis go to waste." There will be plenty of opportunities. Gaps to be taken. People are resilient, look at European history (Roman Empire, Napoleon, Both World Wars) and you will see that this is a mere flesh wound. Actually not even, maybe an infected blackhead on your nose.

People flow like water downstream (full of quotes today). Talented immigrants will go to Amsterdam, Berlin and Milan instead. Business opportunities that the UK miss out on will be filled by other hungry entrepreneurs. There is a huge amount of talent in Europe. Where Britain loses, others will gain.

I hope the UK position themselves as a business friendly financial hub, similar to Hong Kong. There are of course benefits of going it alone. How it will actually all work remains to be seen. But as usual we recommend you stick the course, ride the wave. This is the nature of the beast.

Linkfest, lap it up

Interesting to see how the spending habits of the consumer has changed over the last 50 years. Thanks to technology advances and mass production, the cost of food has dropped significantly - 49 Years of Income and Home Values

Education is the next industry to have a major shake up. One thing that will push it there is that education will just get too expensive for very little return on the investment - Student Loan Delinquencies are Sky High. Recently I spoke to the head of HR at one of our banks, they were saying that people with degrees still need to go through substantial training, with the trend being; the higher the education achieved the harder they were to train because the candidates felt they "knew everything already".

The AEI blog always explores controversial topics, this one is right up there with sensitive topics - The great CEO-worker 'pay gap' is nothing but a union-built myth. The point made was that if the CEO was paid nothing and that cash was used to supplement rank and file employees, those employees would only receive a very marginal pay increase.

---

Home again, home again, jiggety-jog. As expected, the JSE has opened down 5%. Stocks with big exposure to the UK are taking big heat. Brait is down 15%, Bidcorp down 10% and Steinhoff is down 10%. I bet you guys like Brian Joffe, John Gnodde and Marcus Jooste are salivating at the opportunities presenting themselves. So you should you, so should we. God save our gracious Rand.

---

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

Email us

Follow Sasha, Michael, Byron, Bright and Paul on Twitter

078 533 1063

BREMAIN FTW

"I tried to think of other recent major events that the market was fixated on and also had countdown timers. Who remembers the US fiscal cliff? How about the end of QE? Then most recently, lift off from the FED? All these things received more than their fair share of media attention, which is a monster that feeds itself."

---

To market to market to buy a fat pig Ding, Ding, Ding! The countdown timer to the vote has reached zero (Vote countdown), tomorrow we will know what the future of Britain will look like. This tweet from Keith sums up our view well.

I tried to think of other recent major events that the market was fixated on and also had countdown timers. Who remembers the US fiscal cliff? How about the end of QE? Then most recently, lift off from the FED? All these things received more than their fair share of media attention, which is a monster that feeds itself. The more something is spoken about, the more other people talk about it and so the cycle continues. Oh! I almost forgot to include Grexit and the Scottish Referendum to the list. There is always something to worry about when it comes to investing, focus more on the companies and managers than the noise.

As mentioned yesterday, our CPI number came in better than expected at 6.1% yoy and lower than the previous read of 6.2%. The big contributors to inflation was food and non-alcoholic beverages sitting at annual inflation of 10.5%, water up 9.8% and then electricity up 11.2%. Here is a further breakdown of the food and non-alcoholic category, doesn't make for great reading if you are trying to eat healthily:

Jozi, Jozi had a very strong day yesterday, with the All Share finishing the day up 1.1% lead by financials and retailers. My guess is that our lower than expected CPI read lead people to believe that when the MPC meets next month, interest rates will stay the same. Keeping interest rates low should help in getting some growth out of our economy, with retail and financials being at the fore of that growth.

US markets started the day in the green yesterday but as the day went on they moved towards the red, with the S&P 500 finishing down slightly by 0.2%. According to the internet, it was due to people feeling more anxious about the Brexit vote because it is finally here. Markets generally move and then people find reasons after the fact, for the market moves. Solar City only finished up 3.3% yesterday and they are down 2% after hours which tells you the market does not think the proposed merger will go through. For Tesla, the stock was down 10.5% wiping more off their market cap than what they are looking to pay for Solar City, which tells you what Tesla shareholders think of the proposed merger.

---

Linkfest, lap it up

If a computer can know what sound an object will make when hit, then it can better 'understand' how hard the material is - MIT researchers built an AI that predicts what the world sounds like. There are some very clever people out there!

Good to see regulators catching up with technology. The next step is to set up regulations for automated drone flight - New FAA rules mean US companies can fly drones without a pilot's license

When people talk about Warren Buffett they normally only think about his time at Berkshire Hathaway but hardly ever mention his achievements running his investment partnership. Have a read about what he achieved before his Berkshire days - Going Out On Top

Here is a look at the last 100 years of political history and then financial history. It is good to remember how things have changed - No One Knows What Will Happen

---

Home again, home again, jiggety-jog. Our market is slightly in the red this morning, European markets are mostly in the green though. The Rand has been strong lately, currently trading in the $/R 14.50's, expect some currency and market volatility as more information comes out of Britain.

---

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

Email us

Follow Sasha, Michael, Byron, Bright and Paul on Twitter

078 533 1063

Tesla City

"Given how integral battery packs are to solar power and vice versa, the merger makes sense on that level. You would be able to get energy from the sun, store it on your Tesla power wall and then charge your car when you get home, none of this using electricity generated from coal fired power stations to run your 'clean' electric vehicle."

---

To market to market to buy a fat pig Taking the focus off of Brexit/ Bremain was Janet Yellen speaking on Capital Hill to congress, no major market moving statements though. So the current roadmap still reads one, maybe none, rate hikes this year. Going back to the end of 2008 when interest rates were dramatically slashed, no one would have forecast that between then and now there would only be one 25 basis point hike in rates. Before now it was unthinkable that interest rates would be so low for so long and that some bonds now have negative yields. Trying to forecast the future is nigh on impossible. The US markets were marginally green yesterday, the DOW up 0.1% and the S&P 500 up 0.3%.

The JSE All Share closed down 0.15% yesterday, pulled down by resource stocks, Harmony and Amplats both down around 7%. The oil price is back above $50 a barrel after US data showed that reserves are decreasing instead of increasing, which indicates the supply glut is coming to an end. Also on the oil front BHP Billiton Takes Steps to Boost Oil Output, where they are now tapping wells that were previously drilled but unprofitable at the depths of $30 a barrel of oil. If oil stays above $50 a barrel new wells will be drilled, highlighting why oil is going to struggle to get much higher than $50 a barrel for the foreseeable future. The introduction of shale oil allows companies to drill and start operating a new well in weeks, compared to older technology where it took months to get a new well off the ground. Conclusion, supply can keep pace with demand.

---

Company corner

There will be big movements on the 'renewable energy' stock front today, thanks to Elon Musk. Waking up this morning we were greeted with the news that Tesla Makes Offer to Acquire SolarCity Given the huge cash burn rate of both companies, this will be a pure script deal. The current proposal is:

"Subject to completing due diligence, we propose an exchange ratio of 0.122x to 0.131x shares of Tesla common stock for each share of SolarCity common stock. This proposal represents a value of $26.50 to $28.50 per share, or a premium of approximately 21% to 30% over the closing price of SolarCity shares, based on today's closing price of SolarCity shares and the 5-day volume weighted average price of Tesla shares."

Given how integral battery packs are to solar power and vice versa, the merger makes sense on that level. You would be able to get energy from the sun, store it on your Tesla power wall and then charge your car when you get home, none of this using electricity generated from coal fired power stations to run your 'clean' electric vehicle. The other advantage is that it makes it easier for Musk to keep an eye on both companies with the creation of what Seeking Alpha called the "ultimate alternative energy conglomeration".

Why has the Tesla share price dropped 12% on the news?. Solar City does not make money selling solar panels, they make money off the financing of the solar panels, which is risky due to most of the loans having 20 year pay back periods. Also Solar City like Tesla, is currently loss making so the need to raise cash going forward will need to be stepped up. All in all Tesla buying Solar City increases the risk factor of the company but also increases the potential for up side.

---

The big news out yesterday on a tech front was from Facebook. Their Instagram app reached the mile stone of 500 million monthly active users (MAU), the more impressive number is that they now have 300 million people using the app daily. The user growth has been amazing since Facebook bought the app for $1 billion back in 2012, the app only had around 30 million MAU back then. Mark Zuckerberg's vision for the potential of the app was amazing, people back then could not understand how an app could be worth that much. The great thing about the app is that it is easy to use and people seem to connect better with images. For Facebook having such a 'sticky base' that is growing quickly means strong revenue streams from the app. In the last set of results, Instagram had over 200 000 businesses advertising on the platform and the estimation from analysts is that revenues will be around $1.2 billion this year.

---

Staying on the tech front, Tencent to Acquire Majority Stake in Supercell from SoftBank for U$D 8.6 billion. In total Tencent will own 84% of the company, valuing it at $10.2 billion. Pre-tax profits last year for Supercell were $960 million meaning Tencent paid a low double digit multiple for the company, time will tell if this was a good purchase. The huge risk here is that their current stable of games become old and they don't come up with new games to keep the user numbers and revenues up, currently there are over 100 million people a day who play supercell games.

I don't fully understand the gaming culture and the numbers of people who watch gamers game. If I consider how many people think I am mad watching a full day or two of test cricket I can understand how one persons entertainment is not the same as another. Here is a video watched 3.6 million times of clans playing on iPads battling each other, Clan War Finals: Sweden 1 Star vs. Glory China I, the game has a strong following.

The line in the announcement that stood out to me was:

"In parallel to the transaction, Tencent and Supercell have entered into marketing and publishing arrangements regarding the distribution of games developed by Supercell in China."

This allows Supercell to have access to Tencents distribution network and access to their huge user base. Tencent will get new content to push to their users and increase revenues. Win-win for both companies (and Naspers).

---

Linkfest, lap it up

Why are Facebook and Alphabet worth so much? - The next gold rush: mobile advertising. It is because they are dominant players in the advertising space on mobile devices.

There are always many moving parts when it comes to markets and demand & supply. On the supply side of oil there have been a number of disruptions which when resolved could add a further cap on oil prices - This chart breaks down the crazy amount of oil production disruptions in 2016

This seems like a novel idea with some good intentions, where the idea is to create incentives that make management more long term in thinking and so too investors. Increased regulation will ultimately mean that trading costs increase though - A group from Silicon Valley has a serious plan for creating a totally new US stock exchange.

---

Home again, home again, jiggety-jog. Our market is well in the green this morning, with retail doing even better with a lower than expected CPI figure out. Our yoy CPI came in at 6.1% compared to the expectation of 6.4%, still out of the SARB required band but heading in the right direction. Hopefully this means no interest rate hike at the next meeting.

---

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

Email us

Follow Sasha, Michael, Byron, Bright and Paul on Twitter

078 533 1063

stEUpid

"The travel stocks all got a boost, I guess it goes without saying that fewer barriers = more people experiences, i.e. more travel. If you make it hard for people to travel to and fro, they are less likely to do it. Remaining in the EU, with greater travel is good for these travel stocks. The British banking stocks (we are sea hopping a little here) also caught a serious bid, Royal Bank of Scotland was up over 7 percent, Lloyds added over 8 percent, whilst Barclays added six and three-quarters of a percent."

---

To market to market to buy a fat pig It is the shortest day of the year. Of course for us in the Southern Hemisphere. Before you think it is a big deal, the bigger deal is that it is the Summer Solstice (the longest day of the year) for the folks in the Northern Hemisphere. Only 800 million odd people live in the Southern Hemisphere, roughly 10 percent of the global population. Excuse their excitement about the weather on Twitter and Instagram and all that, ok? The moon is the one constant, full here and there and everywhere. Lovely. So lovely that best we return to the markets, right? Which were pretty lovely if you were a bull, pretty mid winter Game of Thrones-like if you were bearish in nature. I don't watch that series, I am told I must. I know enough from my colleagues and the inter-webs to know that it is a big deal, and winter gets pretty cold in that fictional land.

Markets yesterday roared ahead as a new poll suggested that Bremain would be the order of the day, the flotilla would consist of Britannia ruling the waves along with their European peers. Polls are about as reliable as (insert your own biased view on a dodgy profession). As the recurring character, the Colonel (not Mustard or Sanders) in Monty Python would say - "Stop that! It's silly!" If you have forgotten or don't remember, (or haven't seen Monty Python - eeekkkk), then see the last part of this clip - Too Silly - Monty Python. It is exactly that, the polls swinging markets from this tree to that tree, lurching and pitching in the Brexit storm has all been rather silly for me to watch. Yet we sit here and pay attention, as it is important for markets, should the event happen.

Stocks locally roared, the Jozi all share added 1.71 percent by the time all was said and done. Those stocks with a distinctly British flavour (as the French say, rosbif, or any other variation of that) rallied hard. Mediclinic, Capital and Counties, Discovery and Old Mutual all "caught a bid" as they say in trader speak. There were a few stocks in the red, gold stocks sagged as the safety allure of the precious metal waned, less disasters = less excitement for gold. There was some very company specific news for MTN, we covered that yesterday and we will flesh it out a little lower. There was also country specific news weighing on MTN too, see lower.

Over the hills and far away in New York, New York, stocks lost a little fizz towards the end of the session, nonetheless, the green was still firmly on the screen. Both the Dow and the nerds of NASDAQ closed the session around three-quarters of a percent better, the broader market S&P 500 was a little less than that, Utilities were the only sector marginally in the green, laggards somewhat. The travel stocks all got a boost, I guess it goes without saying that fewer barriers = more people experiences, i.e. more travel. If you make it hard for people to travel to and fro, they are less likely to do it. Remaining in the EU, with greater travel is good for these travel stocks. The British banking stocks (we are sea hopping a little here) also caught a serious bid, Royal Bank of Scotland was up over 7 percent, Lloyds added over 8 percent, whilst Barclays added six and three-quarters of a percent.

Bremain rules. We don't have long to wait, I wonder what the results are likely to yield however, in terms of the conversation overall. If you want a humorous view of it, then check out Last Week Tonight with John Oliver: Brexit. He is great that guy, excuse the profanity! It is fun to watch how John Oliver debunks the Brexit crowd, and in the end, his view is that it is no more than far right views. As you can see, even an "exit" means free movement of people and goods.

---

Company corner

MTN in the news yesterday, firstly the Appointment of New MTN Group President & Chief Executive Officer was met with major excitement by Mr. Market, a man with a lot of experience and deal making activities, here he is - Robert Shuter. As you can see from a well maintained LinkedIn profile, Rob is currently Chief Executive Officer Europe Cluster at Vodafone. He was head of Investment Banking at Standard Bank once upon a time and for a long while was Managing Director for Nedbank Retail, before moving to Vodacom as the Chief Financial Officer.

Scroll down a little more, and you will find that Rob is a runner, as well as a competitor in other sports. Over to his Twitter account - @ShuterRob, his short bio is: "4 great passions family, business, health/running and storytelling. Proud husband and father. #LCHF #barefootrunning" Low carb, high fat and beach running is the way I read those hashtags. Perhaps he could do with a whole lot more followers! Do your best and follow Rob, OK? The market seemed to love the appointment, check the intraday graph that I got from Google Finance -

So why then does the price fall away like that? There was another separate event, something that we knew was happening, yet did not know what the quantum of the draw down would be. And in case you are very confused, then look no further than the Nigerian Naira to the US Dollar. That rate used to be fixed by the central bank, at a level of around 200 to the US Dollar. Except that there was a parallel market as it was called, the real rate of what people trade on the streets. See this Bloomberg story - Nigeria's Naira Slide Deepens Even as Central Bank Sells Dollars.

MTN has their biggest business in that country, the impact of lower Dollar revenues (even though in Naira it would be stable) would have to be factored into models. The rate, as you can see, went to around 281 Naira to the Dollar. In a day. The good thing is that the "parallel market" strengthened too, which means that the official rate will likely be the real rate in the end. Whilst this is painful for the people of Nigeria in the short term (it is arguably been set by the market already), from an official inflationary point of view. As hardcore capitalists, we welcome the liberalisation of the Nigerian economy. In the end the people benefit from a free and fair market.

---

Linkfest, lap it up

If you have been confused lately due to sporting events where there is an Irish rugby team which represents the whole Ireland island but in the football there is Northern Ireland and the Republic of Ireland, here is an explanation of how the United Kingdom countries work - England vs Great Britain vs United Kingdom Explained

As the amount of free time that people have diminishes and as having access to fast food increases, so has peoples spending on going out - No one cooks anymore. This is a trend that Famous Brands has seen and are gearing up for going forward.

The growth coming out of Facebook is amazing, four of the top 5 apps downloaded globally are theirs - The Most Popular Apps in the World

You will find more statistics at Statista

---

Home again, home again, jiggety-jog. Markets in China are mixed, the mainland is lower and the Hong kong markets are higher. Japanese markets are up over one and one-quarter of a percent. Stocks in Europe have started lower after the ripper yesterday! Loads on the go, perhaps we will probably leak a little into the actual vote. Oh, and you want to know why the internet was broken yesterday afternoon? Look no further - Telia engineer error to blame for massive net outage.

---

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

Email us

Follow Sasha, Michael, Byron, Bright and Paul on Twitter

078 533 1063