Money with a dash of Funny: January 2017

Tuesday 31 January 2017

Alibaba Gets Mobile

"As the above image shows, the core business, Chinese e-commerce grew revenue by 42%. The number of buyers that visit Alibaba's sites is rather mind numbing. Over the last 12 months they grew their Annual Active Buys base 9% to 443 million people. A large chunk of buyers are accessing the sites via mobile, with Alibaba Group recording that 80% of their Chinese sales come from mobile devices. "

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To market to market to buy a fat pig We were doing a little low level historical research on matters such as immigration laws, stumbling across things such as Sicilian Americans and another nugget of history, as far as immigration controls are concerned, the Immigration Act of 1924. Josh Brown, the reformed broker stuck together a bunch of posters from yesteryear - To my Jewish, Irish, Asian and Italian friends. Enough said. Read the last two paragraphs.

The reason why this is close to home is that my grandfather was a refugee when he was just a child, orphaned by an ideological war (that worked out for nobody) between communists and imperialists. If only they had been capitalists, and chasing the bucks, instead of each other and cursing each others dumb ideas. If only they had all adopted free market principles and the most efficient person would have ended up winning, bettering humanity. Capitalism may certainly not be the most perfect outcome, it certainly is the best system we have for now. We are all different, we are all the same. As an investor there is nothing that you can do about politics, know that it passes like the tides, it may consume your all and make you mad in the moment. Have a cool head.

Stocks across the oceans and far away, in New York, New York, slipped hard at the beginning of the session, bouncing back in the last half hour of trade. The Dow Jones gave up just over sixth tenths of a percent to close below the 20K mark, now that the territory has been breached, fear not sports lovers. The S&P 500 fell by exactly six-tenths of a percent, the nerds of NASDAQ gave up over four-fifths on the day, energy stocks slipped heavily. Basic materials too. It was a pretty broad based sell off, a jolt for the happy go lucky attitude we have seen recently. The Fed are meeting this week, and there is of course non-farm payrolls a little later, Friday. Perhaps they will be YUGE, perhaps they will not be YUGE, time will tell whether employers are willing and able. Starbucks suggested that they planned on hiring 10 thousand refugees. That is ten thousand jobs, in America. Ah yes, great again.

Locally, stocks were still suffering from cabinet reshuffle anxiety. There was a ruling party press conference that ran in the background for a little. The sell off was pretty broad based, down nearly six-tenths on the All share, financials sank nearly one and a half percent by the close. Banks down heavily too. Gold stocks were the real winners on the day, up over three and a half percent, a stonker as they say in the classics. Afrox had a trading statement that exited the markets, in truth the share price is up only ten percent in five years. It has been tough out there for their products, which at some level are a proxy for the economy.

Company Corner

Last week we had 3Q numbers from Alibaba Group, the Chinese e-tail giant. The company is still growing like gang busters, with revenue up 54% YoY!. The huge growth is not coming off a small base either, with revenues for a quarter currently sitting around $7.7 billion.

As the above image shows, the core business, Chinese e-commerce grew revenue by 42%. The number of buyers that visit Alibaba's sites is rather mind numbing. Over the last 12 months they grew their Annual Active Buys base 9% to 443 million people. A large chunk of buyers are accessing the sites via mobile, with Alibaba Group recording that 80% of their Chinese sales come from mobile devices.

As fast as their core retail division is growing, their non-core assets are growing faster. The cloud division grew by 115% YoY but is still only 3% of the entire groups revenue. What is impressive is the number of users of their cloud operation with user numbers growing by 114 000 users in 3 months to 765 000 users. Despite all the growth the division is still loss making.

Their biggest non-core operation is Digital Media & Entertainment Segment, which grew revenue by 273%. The growth in revenue didn't translate into higher profits, the division made bigger losses for the quarter. Like other companies operating in the segment, spending on content is important. Increasing the spend now means losses upfront but the building of a base for the future.

All the top line growth means nothing if it doesn't drop down to the bottom line. Non-GAAP EPS grew by 38%, so still good growth but not in the league of 54% seen in revenue growth. Where were the increased costs? Alibaba group spent more on improving their logistics network, increased spend on content for their Digital Media & Entertainment segment and then good old share based compensation where there are now more shares in issue.

There is no doubt that e-commerce is here to stay and growth rates will continue to be double digits as internet penetration increases and as more people feel comfortable inputting their credit card details. Sales for their international retail division grew 288% but still only accounts for 4% of revenue.. As Chinese sales begin to slow the international division should carry the slack.

The concern with the company though is their complex holding structure, understanding it can be called murky at best. This structure has also resulted in a probe by the SEC which is still ongoing, SEC probes Alibaba accounting methods, shares dive.

Amazon is still our preferred company in this space, they have a better distribution network, better cloud division and better online entertainment division. The big thing that Amazon doesn't have is the big exposure to the Chinese market and for that a non-core Alibaba position in your portfolio might be worth it.

Linkfest, lap it up

Starbucks is always pushing the next technological boundary, as far as it can go, from a food ordering point of view. This is interesting - Starbucks Debuts Voice Ordering, Allowing Customers to Place Orders 'On Command'. Now if your daughter's name is Alexa and you want coffee, you may need to think differently about how you ask her if she wants a cup. The role of Chief Technology Officer is pretty new, from late 2015 to date, Gerri Martin-Flickinger has been in that role. Watch the associated video where the woman orders and pays for multiple items, pretty impressive.

Staying with Starbucks, nice message from Howard Schultz - Message from Howard Schultz to Starbucks Partners: Living Our Values in Uncertain Times:

"We are in business to inspire and nurture the human spirit, one person, one cup and one neighbourhood at a time - whether that neighbourhood is in a Red State or a Blue State; a Christian country or a Muslim country; a divided nation or a united nation. That will not change. You have my word on that."

It looks like the consumer wasn't too concerned about the VW emissions scandal. VW was crowned the world's largest car maker in 2016 beating Toyota, who held the title for the 4 consecutive years before that - It's Official: Volkswagen World's Largest Automaker 2016. Or Maybe Toyota. The numbers are a bit murky though and depending on how you define "largest automaker" Toyota could still be defined as bigger than VW.

Money is just a tool to speed up the exchange of goods and services. Barter is slow and inefficient, money solves those problems by being a common medium. Due to money just being a medium of exchange it doesn't need to be backed by anything. Having it being backed by something like gold means that your currency fluctuates with the supply and demand of gold, which is very disruptive to an economy - The History of Money Explained in One Infographic

Home again, home again, jiggety-jog. Japanese markets have sold off heavily, stock futures are pointing to a lower start across the way, down around one quarter of a percent. I am guessing that we will be led a little later by these moves, Apple reports tonight, that is good, I am all for focusing on companies. This happens to be the biggest in the world, expectations are for 76 million iPhones to be sold.

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

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Monday 30 January 2017

JNJ Handling the Pressure

"JNJ suggests that this will add 35 to 40 cents EPS immediately. And it will "use" a lot of external US cash, this company is in Switzerland. The expectations are for growth rates to be 1.5 to 2 percent above the long term consensus. I think that this is good for JNJ, which is the only reason we really "care" to pay attention here, even though they paid a lot."

To market to market to buy a fat pig Stocks locally were sold off as a Bloomberg story permeated through the market, a cabinet reshuffle was on the cards again. Although little evidence, other than a strained relationship between the head of state (and cabinet) and some ministers who have not backed the head of the land, the market liked this news like a hole in the head. Sell it was the answer, and by it I mean mostly financials. The top five down in the ALSI 40 were Barclays Africa, FirstRand, RMI Holdings, RMB and Capitec. So what to do in times of uncertainty? The same thing as always I guess, nothing. We always tell you that you cannot change politics, the level of the exchange rate and nor can you change the central banks processes. So worry about the one thing that you can change, what you own and for how long. I plan to own stocks long after multiple dispensations have come and gone and have put their political stamp on matters.

At the bell, the all share index had fallen by four-fifths of a percent, resources were up nearly half a percent, benefitting from a weaker currency, as a result of the political rumour mill turning. Banks as a collective lost over three percent on the day. Liberty Holdings. Ooofff. That was a pretty bad trading update, and unfortunately the advantage of shareholders knowing would have been a better outcome. We were actually having a look at the shareholder base of Liberty Holdings, and around 90 percent is owned by institutions, the anchor shareholder of over 50 percent is Standard Bank of course. Individuals own a mere 2 percent according to my reading of it.

The stock closed the day down nearly 11 percent, and based on the big hit to earnings, looks marginally expensive at these levels. The market as ever is trying to factor in future earnings after this cupboard sweep and may well be thinking that at this time next year (with an improving outlook), that "things" may be on a more steady keel. That light looks a little dimmer. See the BusinessDay take - Liberty update leaves sector reeling.

Over the hills and across the giant seas, stocks were mixed again, the nerds of NASDAQ marginally higher by one-tenth of a percent, with the other two majors, the broader market S&P 500 and the Dow Jones marginally lower. Energy stocks took some heat, I noticed that the weekly rig count saw accelerated additions, meaning that more of the frackers are really comfortable at these price levels. Government pieced together organisations (you know what I am talking about) have very little sway over private institutions.

Starbucks took some heat after their guidance disappointed, the stock was around 4 percent lower on the session. Alphabet (the holding company for Google) lost over a percent on the dat, at the opposite end of the spectrum JNJ and Microsoft enjoyed a day of gains. Amgen also had a good day, their numbers are expected a little later this week, on the second of February. Of course there is the small matter of Apple's numbers after market tomorrow, those are always highly anticipated. Expectations are for around 76 million units (iPhones) to be sold in the last quarter. Jeepers, that is roughly 826 thousand units a day, or 34.4 thousand phones an hour. Wow.

Company Corner

JNJ shelled out a sizeable amount of money last week to acquire a business called Actelion, the presentation casts it as a Unique & Compelling Value Proposition. In short, JNJ are buying the Actelion business for 30 billion Dollars, to "Expands and complement (the) Janssen portfolio with leading, differentiated in-market medicines for pulmonary arterial hypertension."

PAH (pulmonary arterial hypertension) should be read simply as a type of high blood pressure that occurs on the right side of the heart. In the arteries that supply blood to your lungs. As my readings reveal, this is very different from having "normal" high blood pressure. To read more about it, check the piece: Pulmonary hypertension (PH) or pulmonary arterial hypertension (PAH).

As the presentation puts forward, 65 thousand patients are currently being treated with these Actelion therapies, and those generated 2 billion Dollars of annual sales in 2015. Quite quickly you can see at 15 times annual revenues that this isn't a cheap acquisition, and in fact, since the news of the potential acquisition broke (last year October), the stock has been lit. Actelion is up (in Switzerland) 103 percent over the last 12 months. And the founder of the business (Jean-Paul Clozel), has hit serious money, 1.5 billion Dollars to be exact.

Even 6th grade math will tell you that he owned 5 percent of the business. Wait, there is more, however. Clozel is going to run an R&D business that will be spun out from the acquisition, a business that could be worth 1 to 2 billion Dollars. That business, call it "Actelion risky" will hold all the experimental treatments (not yet approved) of the existing business. That business, the riskier one will have an initial 16 percent shareholder ship by JNJ, with an option to acquire another 16 percent (to lift it to 32) through a convertible note. i.e. they are going to fund the business in different manners. The former Actelion shareholders will hold 84 percent of the R&D business, which is why it is compelling for them. I have seen others suggest that the pipeline of the R&D business is pretty pedestrian at best, which is why it was good not to tag that whole lot along. Everyone gets want they want?

JNJ suggests that this will add 35 to 40 cents EPS immediately. And it will "use" a lot of external US cash, this company is in Switzerland. The expectations are for growth rates to be 1.5 to 2 percent above the long term consensus. I think that this is good for JNJ, which is the only reason we really "care" to pay attention here, even though they paid a lot. Expectations are for this year that earnings are likely to be 7 Dollars a share, at 16x forward earnings, the stock is well priced and we continue to accumulate on weakness.

Linkfest, lap it up

As the spectre of a trade war looms due to countries becoming more nationalistic and pushing back against globalisation, Josh puts certain job losses into perspective - The truth about trade. As Sasha points out, putting up a wall and charging Mexico 20% import tax isn't charging Mexico for the wall, it is charging the US consumer for the wall. i.e. The consumer will pay the elevated costs as we do for instance with the motor vehicle industry here (and chicken). Clothes and shoes too.

When Gates and Buffett talk it is normally worth listening to. They are some of the smartest people around, so if you have an hour to spare here they are on the stage together talking about the future - Bill Gates and Warren Buffet at Columbia University.

Would you eat a plastic bag? Of course not you say. Wait, there has been a breakthrough, so much so that you can "drink" the plastic bag after having dissolved it in water - Finally! A Plastic Bag That's Safe to Eat.

This is quite "enlightening". The chap in the picture is Art Cashin wearing the Dow 20000 cap. The story points to what we often say, the S&P 500 is the "most important" of all the indices, the Dow has had 133 constituents in 120 years, and is "slow to change" with the times. Nonetheless, it is important - Wow 20,000?

Home again, home again, jiggety-jog. Happy new year of the Chinese kind, the year of the monkey is now a thing of history. Being the year of the monkey explains a lot. We are now into the year of the rooster, in fact it is the fire rooster.

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

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Friday 27 January 2017

Caffeine Injection

"Not only are the company a coffee experience destination, by adding rewards members via their excellent technology platforms, they lock you into the daily routine, they aim to continue to stay abreast with the changing patterns of consumption. Having partnered with WeChat (TenCent owned platform) in China, more Chinese customers can gift each other, or pay, using their existing infrastructure. This is key to finding the right partners and speeding up the payment process, which means getting your coffee quicker. Productivity gains through technology enhancements. "

To market to market to buy a fat pig Stocks in Jozi lifted marginally, up by nearly three-tenths of a percent at the bell. Resources were a marginal drag, down a percent in total, although Kumba topped 200 bucks at one stage, up 4 percent on the day. One year, up 512 percent, three years, down 54 percent. Amazing to think that the stock has delivered those types of returns and once again goes to the core of the cyclicality of the mining business, and how hard it is to call.

Amongst the majors, the Sasol share price was sold off more than a bit, perhaps the idea of a "steadier" Rand and oil prices hovering here for the time being point to a re-rating of some sort. Although as a veteran journalist said to me yesterday, Sasol are always at pains to say that they are a chemicals business. Some negative commentary around the banks saw the share prices fall, Nedbank down one and a half percent. a Lonmin output report saw the share-price shaft sunk, down 23 percent on the day. The stock is down 95 percent plus (plus a heavy and very deep rights issue), and whilst the near death experience has been averted, it remains to be seen how long the company will take to return to profitability.

Across the oceans vast and wide, stocks in New York, New York were mixed by the close. The Dow set another all time record, 20100, up 0.16 percent on the day. What is in an index that is calculated and not led by market participants? Well, the WSJ weighed in with an interesting one yesterday - We're Already at Dow 30000, You Just Don’t Know It. Does that mean that my Dow 36 thousand hat is in a "better" place. Or does it mean that we should (and often discussed) pay more attention to the S&P 500.

That index (the S&P 500) closed down 0.07 percent, whilst the nerds of NASDAQ nearly squeaked out a gain, coming up a point and a bit short of break even. Hopefully we will be driven by earnings through this period in the market and not distracted by rhetoric, see Trump's Economic Approach Starts to Take Shape by Mohamed A. El-Erian. Talking of earnings, let us dive straight in here, GOOGL and SBUX!

Company Corner

The company formally known as Google, Alphabet, reported their numbers for the fourth quarter and full year after the market closed last evening. Google still exists, it is just a business division. For the time being, the other businesses (aptly named "other bets") which includes a whole host of interesting opportunities, is unprofitable and contributes next to nothing on a relative basis to revenues.

It may sound a little strange, and I was having this conversation with a client yesterday about this very point, if you can find an investment that has a founding principle of doing good in the world, that venture may well be staffed with exceptional people that offer an amazing product, and by extension the profitability of such a business will be a foregone conclusion. You will obviously recall the "An Owner's Manual" for Google's Shareholders, which was released at the IPO. You can access the archive of Founders' letters

That letter is always worth reading again, at least once a year. Remember that the same fellows write a similar letter each and a every year. They (Larry and Sergey) suggest that the time horizon for judging whether you are onto something is three to five years. I think that is a fair shake of how one should see any of their newer investments, the "other bets" segment. Herewith the whole group for the full year revenues and income (money received):

Ruth Porat, the CFO who returned to California after some time on Wall Street, said (for the quarterly part) that "revenues (were) up 22% year on year and 24% on a constant currency basis. This performance was led by mobile search and YouTube. We're seeing great momentum in Google's newer investment areas and ongoing strong progress in Other Bets". For the quarter, non-GAAP diluted earnings per share clocked 9.36 Dollars a share, up sharply from a year prior, shy of the street estimates though, the street had pencilled in 9.64 Dollars of earnings per share.

Reported revenues for the quarter were much stronger than the market had anticipated. To put into perspective that this is primarily a "Google" business (all the advertising revenues via the web), that division clocked quarterly revenues of 25.8 billion Dollars, other bets in total increased markedly from last year, still a small contributor, 262 million Dollars for the quarter. That "other bets" sucks so much cash that the operating loss amounted to 1.088 billion Dollars, down from the 1.2 billion for the comparable quarter last year. The core Google business reported operating income of nearly 7.9 billion Dollars.

The market is not too "impressed", the stock is down just around two percent after hours. The long term story remains intact, expectations are for revenues to increase in the high teens this year, to top 90 billion Dollars. In all likelihood, 2018 could see revenues top 100 billion Dollars for the first time. Earnings growth is likely to be in the low twenties percent for this year, EPS may clock somewhere in the region of 41.5 Dollars a share (Bloomberg has 41.26 Dollars), meaning that the multiple (price-to-earnings) is around 20x forward, the PEG ratio is around 1.25 times. That is certainly good value for a company of this magnitude. We remain buyers of what is a business that is always at the cutting edge of innovation, I suspect that "other bets", which may top revenues of 1 billion Dollars this year, is just starting.

Starbucks is another business that reported numbers after the bell yesterday. The headline says it all - Starbucks Reports Record Holiday and Record Q1 FY17 Results. Revenues rose 7 percent to 5.7 billion Dollars, a strong showing in both China and decent enough in the home market. What is also being highlighted is the number of US rewards memberships, which rose 16 percent to 12.9 million folks. Earnings per share grew 11 percent to 51 cents, margins increased by ten basis points, which is always good to see as a shareholder, moving in that direction. The company has a fairly generous dividend policy, 25 cents a share is the current quarterly dividend payment, up from 20 cents previously.

251 stores were opened during the 13 week period in North America alone (currently 5415 stores in total), 303 more in China! Across the rest of the globe it was 95. The expectations across the group are for 2100 new stores to be opened. On a longer dated look, the company expects that by 2021 another 12 thousand net additions, by that time the network would top 37 thousand stores. Currently it is 25,734 as at January 1. That is pretty sizeable, the group are up to over 1000 stores in South Korea (I am guessing 0 in North Korea), over 2500 stores in China (in 118 cities) and now 1245 stores in Japan.

The business in China will be their largest business in the coming decade or so. What is quite amazing is that there are fewer stores in the traditional coffee drinking countries than you may think, 58 in France (the whole country), 161 in Germany, 101 in Spain and of course, zero in Italy, for now. I don't feel so bad for the 3 that we have here, Taste Holdings are doing a good job!

Not only are the company a coffee experience destination, by adding rewards members via their excellent technology platforms, they lock you into the daily routine, they aim to continue to stay abreast with the changing patterns of consumption. Having partnered with WeChat (TenCent owned platform) in China, more Chinese customers can gift each other, or pay, using their existing infrastructure. This is key to finding the right partners and speeding up the payment process, which means getting your coffee quicker. Productivity gains through technology enhancements.

The flagship roastery in Seattle (Paul visited it recently and sent us some pictures) looks absolutely beautiful, a true destination of sorts, see the pictures - Roastery & Tasting room. Coffee truly is a global drink, one that is multicultural, whether you are loading up on an espresso in Italy or drinking condensed milk infused coffee in Vietnam, the social interactions and friendship building (or you quick caffeine fix) at a place that feels homely, is important.

The product is quality and really appeals to the up and coming (and established) middle classes across the globe. In a way it is the same experience whether you are aboard aircraft carrier USS Harry S. Truman (staffed by sailors), or in the Louvre (missed that one) or at the Tower of London, your fix is almost always around the corner. Aircon and Wi-Fi too, right? Their in-home reserve business (bring your beans back home) will no doubt grow over time too, with more "home" solutions. A consistent in-store experience is key to customer retention, as are the prime locations. And of course the rewards program, which is real.

It is always worth noting that Howard Schultz, the current CEO and founder steps into an executive chair position, Kevin Johnson steps into the CEO role; you will recall that we wrote about it in December - Schultz shuffles over, COO holds the coffee cup now. The company announced two days ago that they have strengthened their non-executive management team, the executive chairman of the LEGO brand group, Jorgen Vig Knudstorp joins, as does President and Chief Executive Officer of Sam’s Club Rosalind Brewer (name made for the job) and Satya Nadella, the CEO of Microsoft. Wow. That is a pretty strong team. Technology, logistics and distribution and global brands, all there, dare I say it .... Like a boss.

The company is still around 110 million shares away from completing their buyback program, having acquired 7.6 million shares in the last quarter. There are 1.46 billion shares in issue, that is a buyback of 7.5 percent of all the shares in issue. Over time, of course to a certain extent that is diluted by stock based compensation. Starbucks is a great brand, the guidance may have disappointed to the downside, hence the stock has sold off nearly 4 percent after-hours. We continue to favour (in this space) what we think is an exceptional brand with superb products that consumers are desperate for. The stock trades on a pretty demanding multiple, 27 times forward and we are confident that they can meet the lofty expectations of the investor community. We definitely accumulate on weakness. If congestion is a big problem (as reported), solving it with technology is a huge win in the future.

Linkfest, lap it up

I can associate with this. My little girl has a name similar to the Amazon Echo speaker assistant, Alexa. What happens when your name happens to be the same as the "assistant, Alexa? According to the WSJ, the 39th most popular name in the US. Alexa, Stop Making Life Miserable for Anyone With a Similar Name! You now know why Apple called their assistant Siri, it sounds like a real name, yet I have never met or seen the name.

Does your Wi-Fi stink? I mean the speeds and the ability to access at "all angles" in your office or home. Here are some devices and tips from an exceptionally detailed Bloomberg piece: The End of Terrible Wi-Fi Is Near. I want you all this weekend to stick your wifi in the middle of your house now!

We will have more on this in the coming days, a major deal announced by JNJ yesterday - J&J to spin off Actelion R&D unit into new biotech in major M&A deal.

Real life usage turning into the conversion of a sceptic is not new for Apple products, it is *nice* to see this type of write-up though - Comment: Going from a skeptic to an every day user with Apple Watch Series 2. Battery life is key here, I am very sure they will get it right.

Home again, home again, jiggety-jog. Stocks across Asia are a mixed bag, Hong Kong markets off a little, Japanese markets up. The futures market is marginally lower. Forget the wall and who is going to pay for it, who eats the strawberries, the avos and who drinks the tequila? Who goes where for holiday?

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

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Thursday 26 January 2017

20 000!

"You can check out another *nice* milestones piece, from the first time the Dow crossed 1000 points in 1972 to present day. 1000 point milestones of The Dow, and then a table for ease of use The Dow's milestones. Just inside of 15 years to double from 1000 to 2000 points. From 2000 to 4000 took less than 8 years. From 4000 to 8000 took only two and a half years, those were the go-go days my friends. From 8000 to 16000 took over 16 years."

To market to market to buy a fat pig It is YUGE, it is amazing, everyone is amazed. I have a lot .... a lot of friends who think this is the biggest, the best and the greatest milestone of equity markets. This is tremendous, I have seen thousands (of points) of milestones, this is unbelievable. We are not weak, stupid or losers, nor are we morons, we are smart, very, very smart. Amazing, huge, tremendous. 20 thousand finally arrived for the Dow Jones Industrial Average, the index of 30 of the chosen stocks has more than tripled from the dark days of March the 6th 2009. That is right, tripled from then. To double from when the index first crossed the 10 thousand mark, on the 29th of March 1999 took 6513 days (including the starting and ending day). That is not tremendous.

Who else other than the people who are responsible for the data to celebrate and give you a whole lot of facts - The Dow and the world around it, then and now. Cher was a believer, Justin loved himself, like Cher. What a coincidence! The best fact of all is that Bill gates was the richest on the Fortune 400 back in 1999, he still is. What is hardly believable is that he is worth less on paper today than he was back then, in part as he has given some of that wealth away. To needy causes.

You can check out another *nice* milestones piece, from the first time the Dow crossed 1000 points in 1972 to present day. 1000 point milestones of The Dow, and then a table for ease of use The Dow's milestones. Just inside of 15 years to double from 1000 to 2000 points. From 2000 to 4000 took less than 8 years. From 4000 to 8000 took only two and a half years, those were the go-go days my friends. From 8000 to 16000 took over 16 years.

See how the components have changed over time - Ins & Outs. The last shuffle was done March the 19th 2015. What I find most incredible however is that there was a single fellow, by the name of Arthur "Pop" Harris, who spent 40 years on the job as an employee of the Dow Jones News Service, calculating the level of the index, on the hour every hour. From this section on the special of Dow 20 thousand - How the Dow Works:

Whilst GE has been in the Dow most of the time since 1896, Pop Harris was more synonymous with the Dow for four decades. We all learnt something new today, at least I did. Lastly, scroll through the Sizzlers and Fizzlers. If you have been invested for a decade or more, scroll through the Top Daily % Losses and also Gains, see if you recognise those 5 moments, out of 40 in total. 12.5 percent of all the top highs and lows happened in that post Lehman period, another reminder that those were dark (very) days. 2008 was also the third worst year, percentage wise, on record. That bleak year saw the Dow sink 33.84 percent. The S&P 500 had a shocker that year too, down 38 and a half percent. 2008 was bad, very bad.

OK, history lesson over. Dow 20K has been reached, breached and is now a new level. 20068.51 was the closing level last evening, the intraday all time high is 20082. 2 minutes into trade was when the milestone was reached. As some dumb graph pointed out, each 1000 points added from here will reflect a smaller percentage gain. Last question, is it cheap or expensive? It does not matter what the level is, what are the valuations? Well, luckily there are resources for that - P/Es & Yields on Major Indexes.

The "other" indices also hit all time highs. True story. The nerds of NASDAQ closed up nearly a percent to 5656, the broader market S&P 500 added four-fifths of a percent to 2298, which is two points away from the Goldman Sachs 2017 target. Which means very little to me, market strategists. Eish, one shouldn't be like that.

Company Corner

JnJ reported their full year and 4Q numbers on Tuesday before the US market opened. Off the bat the market wasn't impressed with the forecasted numbers for the coming year, with the stock dropping 2%. The drop highlights how stock prices are current expectations of future profits.

Onto the numbers, sales grew by 2.6% to $71.9 billion for the FY, most of the growth came from the US where sales grew by 6%. On the international side, sales dropped by 0.9% mostly due to a stronger dollar. Earnings grew 7.6% to $18.8 billion for the FY. Thanks to less shares in issue EPS was up 8.5%. So not a small company by any measure. The reason for small top line growth but stronger bottom line growth is due to cost cutting on the "selling, marketing and administrative costs" segment.

The main thing that I think is attractive about the company is that it is 3 businesses in one company. Their main business is their Pharma division which had sales of $33.5 billion, growth of 7.4% and profits of $13.1 billion. Next in line is their Medical Devices business which had sales of 25.1 billion, small growth of 0.9% and $8.1 billion in profits. Then lastly is their consumer division which had sales of $13.3 billion, growth of 1.5% and profits of $2.6 billion. The strongest growing segment of the consumer division was Beauty which grew at 9.4%.

JnJ is one of those companies that ticks all the boxes. It covers healthcare, it covers new technology, it covers consumer products and it is an international player. Given its huge size the growth rates are never going to be eye watering but its size brings diversity and stability. Courtesy of the company here is how shareholders have done over the years. Still a buy in our books.

There was an industry insider who answered our message two days ago - Expect Analysts to Expect

"The reason for the beat/miss part that makes all the big headlines is that as you know valuation is ultimately driven by expectations of future cash flows, of which future earnings estimates is a driver (well at least a proxy). The "market's expectations" of earnings estimates will hence drive the share price. The market's expectations are a function of analysis, discussion with management and debate within the industry (for example between the sell side and the buy side) hence while far from perfect, are as close as the collective can get to future expectations based on "reasonable" assumptions.

I think the point is that the market is pricing in the average of expectations, whether the company likes it or not and whether they are right or not and therein lies the relevance of actual vs expected. Therefore I think it's fair to define the actual result as a beat or a miss because that's what it is, relative to expectations (because expectations, like it or not, are effectively "in the price").

I think where I agree with you strongly is on a lot of market commentators relying just on whether it's a beat or a miss and not looking at the underlying reason which is obviously way more important. If Apple miss earnings because a one off drought in China that hurt disposable income in a big region or something i.e. a one-time impact this would be irrelevant (despite the big headline MISS) vs. if volumes are in what looks like a structural decline clearly the tone of the story/headline should be different.

As a disclaimer I am in the industry hence do the excel earnings rodeo. And I'll be the first to admit getting it 100% right is a rare experience!

To which I replied:

1) Your profession is one that requires exceptional insight, you cannot be in your position without being at the top of your game. Your skills in actually picking the stocks is underutilized in the investment game, more research analysts should be portfolio managers is what I am trying to say.
2) I know that ultimately it depends on what the market is willing to pay today, based on the news we have, and the ability to predict (as much as three years forward) what sales, margins and earnings are likely to be, that is how the price is set.
3) Some stock prices are perpetually cheap or expensive, and applying one earnings litmus metric across the board is wrong. Luckily in recent years I have seen a change away from this practice. This then makes it harder to predict which stock in which industry is relatively cheaper or more expensive.

You are amongst the smartest people in the industry and are forced to stick your proverbial member on the block, and all the industry cares about is what price you set. I would prefer a third party independent view of what they think the company is likely to do over a longer period of time, thus setting yourself up for fewer potentially embarrassing moments, that need not arise.

Some stocks that the industry gets wrong almost all of the time include (by no means comprehensive), Amazon, Facebook, Capitec, Tesla ... there are many. Anglo recently? Naspers? The market gets it right and wrong almost all of the time. Setting yourself a target price over 12 months seems more like a lottery to me. Smart people forced to conform to a norm, with a multitude of unknown factors.

Enjoy, these too and fro emails are always useful to the general public! He replied, I shall leave it there:

"Agreed re:12 month targets and I think most of our clients largely look past these anyway and are generally more interested in long term thematic views. In fact the feedback we're getting as an industry is that we shouldn't even bother with results notes but focus on long term thought pieces, which makes more sense to me as well. The 12 month target obviously does try and capture the long term themes as most of us use a DCF for valuation (well we do certainly) rather than multiples but clearly trying to pinpoint an exact price on an exact date is going to be more than a little tricky. I think it's more the media that likes the beat/miss story which I guess is what a lot of Vestact's client base see (and panic over I'm sure!) hence all the more reason for your explanation in today's newsletter I suppose."

Linkfest, lap it up

Tired of traffic? If you are Elon Musk, commuting sucks so much that you plan to build a tunnel - Elon Musk says he's going to tunnel under his SpaceX factory soon. Does this fellow ever stop? Does he have large adrenal glands? One thing is for sure, he plans to continue to mix it up.

We have talked often about lower paying, labour intensive jobs under pressure from technology, this is another example - Is This Sewing Robot The Future Of Fashion? Fanuc are reportedly the largest seller of industrial robots, a Japanese listed business with a market cap of 4.6 trillion Yen, 39 billion Dollars nearly. Interesting, yes or no?

Do you use Facebook Messenger a lot? If so, expect ads like Instagram coming to your phone soon - Facebook begins showing sponsored posts in Messenger with small test in Australia and Thailand. We like Facebook a lot and continue to believe that they will monetise all of their platforms.

This happened so quickly, it almost takes your breath away. What are malls likely to look like in developed countries over the coming decades? Mall Owners Rush to Get Out of the Mall Business. We typically avoid these businesses for our clients.

Home again, home again, jiggety-jog. All we need now is a Roger vs. Rafa final (Venus and Serena are head to head Saturday)! T20, don't want to talk about that.

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

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Wednesday 25 January 2017

Smashing Stryker

"What is clear to me, and to many, is that this continues to be a growth industry. Many more people can enjoy something that was only available to richer people of yesteryear"

To market to market to buy a fat pig Yesterday was decision day on rates, for the local market. Expectations were for no change, and that is exactly what happened, the SARB decided to leave the repurchase rate at 7 percent. Which means that for your debt, you get that rate plus what the bank adds on top of that, i.e. the prime lending rate. For each 1 million Rand in mortgage debt currently, you are (at 10.5 percent, which is the "par" rate), you are likely to be paying 9,983 Rand a month.

Nearly 10 thousand Rand a month on each one million Rand of mortgage debt, provided of course that you are paying over 240 months, which is 20 years. If you shorten that to 180 months (slash off one quarter of the time), your cost of servicing the debt rises to 11,053 Rand a month. An extra 11 odd percent per month to shorten the duration of the loan by 5 years.

What is even more amazing however is if you shorten the duration to 10 years (or half), the amount payable is 13,493 per month. You pay an extra 35 percent for ten years (per million Rand mortgage) and you can halve the time spent in mortgage debt. Wow. If then you flip it around and invest that 13,493 Rand a month (161,916 Rand a year) for ten years, and earn a very modest seven percent per annum, you will not only have your house after 20 years (and whatever that is worth), you will also have nearly 2.4 million Rand with which to compliment your retirement savings. Such is the power of paying mortgage debt down quickly, and then saving that money.

Of course most people should do this, they don't. Live happens in between. I used the Nedbank Loan Repayment Calculator and the MoneyChimp Compound Interest Calculator to arrive at these numbers, loose and fast, an indication I know, nonetheless it is pretty useful.

You can read through the South African Reserve Bank's Monetary Policy Committee statement and see if you are any the wiser after. You can even read (flip the table 90 degrees to the right) the Selected forecast results: MPC meeting January 2017. Please, though, do not use these assumptions and forecasts when buying a slice of a listed (or unlisted) business. A business works through these cycles, they are not roadblocked by them, growth and credit that is. The good news for the outlook is that the firmer Rand to the basket means inflationary concerns have abated. And that there has been some rain, more food at cheaper prices.

Stocks in Jozi, Jozi by the close were mixed, the overall market gains were driven higher by resource complex, which was up another 1.85 percent. The ALSI closed up 0.57 percent, comfortably above the 53 thousand point mark. Amplats, South32 and Kumba were having a stonker (noun - something which is very large or impressive of its kind) of a day, all up over five percent apiece. There were new 12 month highs for Anglo, BHP, Glencore, Capitec (again) and Tiger Brands too.

Across the drag (size of universe speaking), stocks in New York, New York had an impressive day. A record for the nerds of NASDAQ, that index closed at 5600 (and some change), up nearly nine-tenths of a percent. The broader market S&P 500 added two-thirds of a percent, whilst the Dow Jones Industrial Average managed a gain of 0.57 percent on the session. Dow 20K watch is back on the cards, the index is now only 88 points from that milestone. Alibaba had a good day after results that impressed all and sundry, AT&T and JNJ not so much. We will look at some of these, as well as Stryker, who reported after-hours. We will have all of the wraps, starting below.

Company Corner

Stryker reported numbers post the market close. In a recent JP Morgan healthcare conference, a couple of weeks back, the company gave a great breakdown of all of their business divisions. As "they" say in the classics, a picture is worth 1000 words, download it here: 35th Annual J.P. Morgan Healthcare Conference Presentation.

It is a business that is well diversified across different segments, hip and knee replacements are becoming increasingly minor procedures (if there is such a thing). Let us take a dive in - Stryker reports 2016 results and 2017 outlook. Net sales for the year were up nearly 14 percent, reported net earnings were 14.5 percent up on the year to 1.6 billion Dollars. Decent enough margins, they are selling everything from bone cement to hospital beds to complicated surgical equipment. Spinal implants, that looks next level!

The bionic man of yesteryear is to a certain extent a reality today, although these are the products that you are grateful for, you are less likely to rush out and use (get) them willingly. Whilst a hip and knee implant will change your life for the better, and lift the quality of your life, you do not want to get to the point in which you need them, if you get my drift.

Guidance for the year ahead was decent enough, the company expects earnings per share for the full year to be between 6.35 to 6.45 Dollars for the full year (1.40 to 1.45 Dollars in the first quarter). That compares to the 5.80 Dollars on the same metric, that being just reported for the full year to end 2016. At the closing price of 121.5 Dollars last evening, the stock trades just shy of 21 times earnings historic and on the company guidance in the midpoint of the range given, just less than 19 times.

Hardly a bargain, on a PEG ratio basis (Price to Earnings over Growth rate), it is closer to 1.8. Which again, is not "cheap", nor is it wildly expensive. Which is why I guess the market hardly budged after-hours on these numbers, if the company is likely to produce 10-15 percent earnings growth, the market is happy to rate the stock on a 19 multiple forward. With a dividend yield of only around 1.4 percent, you are certainly not buying this one for the income.

What is clear to me, and to many, is that this continues to be a growth industry. Many more people can enjoy something that was only available to richer people of yesteryear, from that same conference presentation that we spoke of above, the growth in Stryker revenues has been a sight to behold, this is from 1979 to last year:

The company continues to make acquisitions, they have now integrated the MAKO business into theirs wonderfully well (acquisition done back in 2013), having sold their incredible robotic arms that deliver bespoke knees and hips to their "customers". Check them out - Robotic-Arm Assisted Technology. There are 381 of these worldwide, so far, with 333 of them in the US. With their bigger business and bite sized acquisitions, they are able to roll out these products at a faster rate. We expect the company to continue to look at these, as and when they arise. The company spent roughly 15 percent of their market cap on acquisitions over the last three years.

This is a growth business that you are buying on a fairly "cheap" forward multiple. The growth thesis is also contained inside that their international presence is fairly limited, they are predominately a US based business, so there is plenty of scope to tap rich developed and richer middle income people in developing markets. We remain buyers of what is a great business with superb leaders, I like Kevin Lobo. Defensive in nature, growth in future.

Linkfest, lap it up

Our mottos around here include "keep on keeping on" and "be optimistic". It is natural that I would like a website that is full of Human Progress. This article link below deals swiftly with the doomsday prophet Paul Ehrlich, who delivered a speech nearly 5 decades back. Like Malthus who went before, we were all going to starve to death: "The battle to feed all of humanity is over. In the 1970s hundreds of millions of people will starve to death in spite of any crash programs embarked upon now. At this late date nothing can prevent a substantial increase in the world death rate..." And that is just the prologue, you can read the whole book here - The population bomb. So he is an idiot, right? As this article points out, people still want to hear him, and real policies were enacted - Paul Ehrlich Addressing Vatican Conference on Biodiversity. It is a real pity that we give bearish views so much substance. Stay long food businesses like Tiger Brands.

I suddenly figured yesterday when Paul asked for a "free link" (not a subscription one), that many of you would not have been able to incorporate the Byron Wien Announces Ten Surprises for 2017. No worries, follow that link there to the "free" resource. Point 6 is a little extreme? With all going on, who actually knows nowadays though, right? Like we said yesterday, point three is one I "like": "The Standard & Poor's 500 operating earnings are $130 in 2017 and the index rises to 2500 as investors become convinced the U.S. economy is back on a long-term growth path. Fears about a ballooning budget deficit are kept in the background. Will dynamic scoring reducing the budget deficit actually kick in?" Stay long, ignore the "noise" is essentially the mantra.

You know that a sport has gone main stream when universities have teams representing them and competing at a national level. Tencent owned, League of Legends is moving out of the realm of only being played and followed by 'nerds', to a more mainstream following - Big Ten Universities Entering a New Realm: E-Sports. Stay long TenCent and Naspers!

Home again, home again, jiggety-jog. Markets across Asia are all up. Japanese markets are up a lot. TenCent is up nearly a percent and a half, that matters to us down here. Like a lot.

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

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Tuesday 24 January 2017

Expect Analysts to Expect

"Another thing that always amazes me is that the media outlets suggest that a company tops or misses earnings expectations. Whilst this is true, delivery versus expectations of earnings and revenues are reality, who really "missed" here? The company had real life customers using their services, whether they are subscribing for streaming music or buying refrigerators. Perhaps a more accurate picture would be if the analyst community misses what the company posts."

To market to market to buy a fat pig Markets locally caught the up-draught from Wall Street Friday, stocks here in Jozi, Jozi added nearly a percent on the day. Resources had a cracking day, up over two percent and now have a one year return (the Resources 10) of nearly 52 percent. 10 years? Believe it or not, whilst there have been index shuffles and changes (there was no Glencore in the index 10 years ago, and South32 was still part of BHP), the index is down nearly 21 percent. 5 years? Down over 35 percent. The bounce back from depressed levels has been breathtaking, the proof will be in the earnings and whether the commodity prices can stay at these levels. I am sure that there are plenty of governments around the world, in economies that haven't progressed beyond pumping oil, or digging holes in the ground to extract minerals, that continue to hope for high prices. Whilst South Africa isn't entirely reliant on higher commodity prices, they are certainly VERY helpful.

Hulamin rallied to a 12 month high off of a trading statement, bouncing off depressed levels. Since the stock unbundled from the previous structure (From Tongaat Hulett), the return for shareholders has been a desperate minus 78 percent. June 2007 to present. Sigh. Whilst the manufacturing and supply of aluminium is a critical business for the global economy, transport, construction and packaging (tin foil and cans), being an investor in these businesses is tough. Heavy capex, consumers squeezing you all the time, cyclical at the best of times. Like airlines and construction, businesses to admire and be thankful for, as an ordinary retail investor, give it a skip. There is of course money to made through the cycles, otherwise these types of businesses would have a problem attracting long term capital, they may be too long to bear for retail investors.

Leading the charge in the ALSI top stocks column was Amplats, with an incredible nine and one-quarter of a percent gain, Kumba rose nearly seven and a half percent, Anglo clocked three percent. Pretty much all stocks large and in charge, the ALSI around 5-6 odd percent from the all time highs. A move northwards in industrials, the prices of which are largely dictated to by a weaker Rand to the Pound/Dollar/Euro will see us through to that level. For the time being, you get the sense that the Emerging Market outlook is a little more favourable than in the last couple of years. Perhaps the yield hunters are back, the whole idea that rates will remain lower in the developed world means those in fixed income have to eke out returns hedging the currency risks. Lucky we are not fishing in that pond.

Across the seas and oceans, stocks on Wall Street bounced off their midday lows, alas, not enough to squeak into the green. The Dow lost 0.14 percent, the broader market S&P 500 gave up just over one quarter of a percent. The nerds of NASDAQ fell a little short of break even, not by much. Energy stocks were the losers, materials (resource) stocks were YUGE. Alphabet (The parent company of Google and "other bets") added nearly two percent, ahead of their earnings which are this Thursday, post market. Excitement levels are rising. McDonald's had numbers that showed whilst US comparable sales fell, they bested expectations (see below on that), the stock sank around three-quarters of a percent. The dividend is as predictable as the burger form, the same year in and year out. McDonald's belongs to a select bunch of stocks that have an unbroken history of paying higher dividends year after year, in their case that streak goes back to 1976, when the company first started paying dividends.

QUALCOMM sank nearly 13 percent, Apple is suing the business for 1 billion Dollars, see the Reuters story - Apple files $1 billion lawsuit against chip supplier Qualcomm. Eish, that is getting ugly. See Barron's too - The Biggest Loser: Qualcomm Tumbles 13%. Apple added a little on the day. Remember that they have results a week today after the market closes. I don't think that I am going to sleep tonight, or for the next week. Just kidding!

I am not too sure whether to go down that slippery slope, what Mr. Market expects or not from the analyst community. I think that those incredibly talented people have a tough old job. It is one thing to analyse a business and figure out whether over the next three years that they are likely to continue to sell their products and services at a higher click than before, all the while improving margins steadily. It is another thing entirely to then predict what the stock price is likely to be. This year. And then the next. There are a whole multitude of factors beyond your control. Stock analysts, most of who are exceptionally smart and supremely talented, are forced to stick a price target on the company. Regardless of the short term market moves, these folks are then held accountable by how close they are.

Another thing that always amazes me is that the media outlets suggest that a company tops or misses earnings expectations. Whilst this is true, delivery versus expectations of earnings and revenues are reality, who really "missed" here? The company had real life customers using their services, whether they are subscribing for streaming music or buying refrigerators. Perhaps a more accurate picture would be if the analyst community misses what the company posts. Potatoes/potatoes, tomatoes/tomatoes, Fred Astaire and Ginger Rogers (as well as Ella Fitzgerald and Louis Armstrong) would agree to call the whole thing off. It is what it is, and I should just get over myself. It is not the obligation of the company to meet, beat or definitely not fall short of analyst expectations. It is the job of the analysts to get close enough to the company real numbers. What is your take on this matter?

Linkfest, lap it up

I found this on Quora - Why are casino carpets so ugly? The answer is pretty simple, it refers to the Gruen transfer or the Gruen effect. This fellow, Victor Gruen, is basically responsible for having built the first indoor air-conditioned shopping centre - Southdale Center. The basic premise is that the floors are designed to be so unappealing that you keep your eyes on the machines. What other practical applications can you think of? With the internet era having dawned on us, Amazon is the modern day shopping mall.

What? I had a double take when I read the headline, surely not? The headline reads Pokemon Go unleashed on game-mad South Korea six months late. The reasons are pretty simple: "Pokemon Go relies on Google Maps to work. But in most of South Korea those functions have been limited by the government, which is technically still at war with North Korea, for national security reasons." Nintendo stock is up 46 percent (in Japanese Yen) over the last year, the last decade has been disappointing, the stock is down just over 25 percent. In that "entertainment" space, we like Naspers' holding of TenCent, which have the biggest online platform in the world, League of Legends. The TenCent share price (in Hong Kong Dollars) is up 42 percent over the last year. Naspers? One year return of nearly 15 percent.

This is always a good read, at the beginning of the year, from Byron Wien - Byron Wien: Trump Will Pivot to Moderate Stance. The one that catches my eye is that Wien expects the S&P 500 to return 130 Dollars in earnings, and sets his "target" at 2500 points on the index. It is what it is, and that is his opinion.

Home again, home again, jiggety-jog. Stocks across Asia are mixed. Again. Japan down, Shanghai and Hong Kong are higher. We have started mixed ourselves, the markets across the oceans are also likely to be "mixed". Consolidation? Perhaps. Earnings are likely to be all the focus today, and that I like. Of the ones that are important to us include JNJ and Stryker.

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

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Monday 23 January 2017

YUGE

"OK, the first YUGEST day in office, Trump's markets started with the Queen of Spades. Presidents are judged by their performance in office by how the economy did, how the labour situation changed, how the equities markets did. Whether George Bush (junior) likes it or not, he inherited an economy and a stock market that trended lower"

To market to market to buy a fat pig Trump is in. This is YUGE. Or perhaps not. He has got off to a flying start. Or not? He was inaugurated Friday. He is probably still exploring all the rooms and trying to find the hairdresser that the French president had at his beck and call. Or the bathroom, and wondering why there wasn't enough gold plating. And mirrors. No, stop it. This article was from this morning - Dollar Declines, Gold Gains With Industrial Metals: Markets Wrap, starts this way: "The dollar slumped after Donald Trump in his first days in office offered little news on his plans to boost growth while stirring concerns over protectionism."

Huh? The guy just had tea with the outgoing president on Friday, he has already done a few things. As Barry Ritholtz points out Friday, in his article titled Love Trump? Hate Him? That's No Way to Invest; "Yes, Trump as of today is president. Your personal view of him -- either positive or negative -- is irrelevant to how you should be managing your investments." Thanks Barry. My thoughts exactly. Presidents and political movements come and go, and sure, protectionism and insular thinking is a huge negative for us as a collective (humans - all shapes sizes and apparently colours), the force that is global trade has started. Some suggest that China may come closer to Europe. Who knows. I ain't changing my mind on the companies that I own, that should be your mantra.

OK, the first YUGEST day in office, Trump's markets started with the Queen of Spades. Presidents are judged by their performance in office by how the economy did, how the labour situation changed, how the equities markets did. Whether George Bush (junior) likes it or not, he inherited an economy and a stock market that trended lower. He had some, if not much control. Humans spend and consume based on how they see the current and the future. For instance in 2009 nobody wanted (nor would the banks give them) finance for a car or house. That has real current economy implications, for jobs and consumption. To follow on from Larry Summers at Davos last week, nobody really knows what to expect. Let us all just own the same stuff, and like the much loved urban plant, the yesterday, today and tomorrow shrub (Brunfelsia pauciflora), keep on keeping on. i.e. Do nothing.

For the record, as per this image below (courtesy MacroTrends - Stock Market Performance by President). Bill Clinton and Ronald Reagan during their time in charge had the same stock market performance over their respective presidencies.

By session end on Wall Street Friday, the Dow Jones Industrial Average added nearly half a percent to close at 19827, still trying to grind higher through the month of January. The broader market S&P 500 tacked on just over one-third of a percent, whilst the nerds of NASDAQ ended at 5555 (and a few decimal points), up 0.28 percent. Healthcare lagged again. GE had numbers that fell a little flat of expectations. I was having a look at both Airbus and Boeing on Friday, incredible businesses, they make the most amazing "stuff", I am always struggling to know if these are investable or not. I think the cyclicality of it all is what worries me. Too many peaks and troughs in-between, and you have to "time it" a lot more. Earnings galore this week. Starting with McDonald's, Halliburton and Yahoo! today. JNJ tomorrow! Later in the week, Alphabet (Google) and Starbucks.

Back home, where the sun shines and the rain is arriving, not quite with the ferocity we want, dam levels are ticking up. We have become dam level watchers - Rand Water Dam Levels. In the same way that you have no control over politics, you have no control over currency levels and equity markets. All you have control over in the equities market is what you can own and for how long you can own them. The stock price of the companies owes you nothing.

As the market signed off for the week, stocks were lower on the day, all major sectors lower. The Jozi all share ended the day down seven-tenths of a percent. Astral, Tongaat, Capitec and Adcock once again clocked new 12 month highs, that tells you something about the state of the economy, or at least what investors are thinking. And the good news was that there was not a single 12 month low on Friday, that tells you something too. I was also having a look at the cost of borrowing, for the government, and that (notwithstanding the best efforts of certain folks) is flat over three years. The inflationary environment and outlook may well be improving sports lovers.

Linkfest, lap it up

The Chinese President is not everyones cup of tea, which is of course an art form in China (the making thereof). He did make some great points in his Davos address last week - President Xi's speech to Davos in full. Superb speech, masterful and to the point about protectionism and how globalisation has definitely helped eradicate poverty in China. One point I did not agree with is how Xi referred to politicians being humble, 50 people in the Politburo have wealth of around 100 billion Dollars, when compared to the around 2 billion in the Congress top 50 in the US. Something close to that. It felt all right, until that moment in the speech. Anyhows, we remain long Naspers, who will continue to (through their TenCent holding) benefit from liberalisations in the Chinese economy.

When Jack Ma gathered two dozen of his closest friends to tell them of his plans for Alibaba, only one thought it would work. There is a lot to be said for execution and persistence, Alibaba reports before the market opens tomorrow, the expectations and the bar has been set pretty high. A nice interview with Jack Ma from last week at Davos - Alibaba billionaire Jack Ma gave a politician-like performance at the World Economic Forum. Jack is superb!

OK, we know that Davos will continue to flow (as Lloyd said to Harry - "A place where the beer flows like wine"), this is another excellent interview done by Alec Hogg - MTN's Stephen van Coller, disruptor. I see the evolution of the service providers in Africa offering all sorts of payment options to their consumers. We hang in there with MTN.

As discussed last week in that piece on the Oxfam report, there was bound to be someone who crunched the numbers harder than I ever would, they perhaps have more resources at their disposal. In this Visual Capitalist report titled The Oxfam Report is Important, But There's More to the Story, they point out that if the top 8 liquidated their holdings and gave it to everyone (on the planet), each person would have 118.39 Dollars. How do you change the world with that? Again a graph explaining why Trump and Brexit gained so much traction, see below. The overwhelming feeling is to remain long consumer stocks, such as Nike and Starbucks, Richemont and Famous Brands.

Home again, home again, jiggety-jog. UK GDP Thursday, strap yourself in, there were some pretty crappy (can you say that?) retail sales numbers last week from that region. I am guessing that all the focus this week will be on the new Trump administration and what they can do in a rush. They need to put their best foot forward and act on their promises. Not the personal ones of course, like releasing tax returns. Across to Asia, Japanese stocks are lower, Chinese stocks are flat to marginally higher. The US futures markets are pointing in the direction of being modestly lower. Earnings, I said that .... excited.

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