To market to market to buy a fat pig. It is D-day, 'Downgrade Day', or is it? Last night Fitch left our debt at one notch below investment grade on a stable outlook, making mention of our low growth and the likelyhood that we will need to borrow more going forward.
The way I understand it, we only need one of the ratings agencies to downgrade us today for our debt to be officially in junk status. Even with a one-notch downgrade today, our debt will still be considered of higher quality than Brazil's. Their 10-year yield is sitting at 10%, and ours is at 9.6%, which means we shouldn't see too much impact from here. Whatever the outcome this evening, expect the Rand and our yields to shift.
If you have email, your inbox over the last week has been spammed by all the retailers you have ever heard of and some that you haven't. It is amazing to see how quickly Black Friday has taken off here. Two years ago there was the odd special. Last year there were massive deals from many retailers, and South African's didn't know how to handle themselves. Remember the videos of people stampeding into Shoprite and Game? This year it looks like every retailer has jumped on the bandwagon, I even see that you can buy cricket tickets at 50% off.
At around 6:00 this morning, I was already seeing queues of people forming, and trying to buy something online is just impossible. Having said that, I tried Naspers owned takealot.com this morning and it was working smoothly, unfortunately nothing on my wish list was on special. Bright subsequently tried to do a little shopping and was greeted with the below, error. Speaking to an IT friend he says many of the smaller and more store-based retailers have just underestimated how much traffic can come through the internet on days like this. I'm sure armed with user number data from this year, shopping online next year will be much easier.
Market Scorecard. Yesterday was Thanksgiving in the US, so their market was closed and will only be a half day of trading today. The only index to report then is the All-share, which was down 0.75%. Naspers had another 4% drawdown yesterday, erasing all the gains made over the last trading week. Tencent is down another 1% this morning, so expect a red Naspers on market open.
Linkfest, lap it up
One thing, from Paul
I'm not really a fan of podcasts. Such a slow way to take in information, via the ears! Mind you, it can work if you are stuck in a car for a few hours?
Thank goodness there is also a transcript of this great conversation between former US Secretary of the Treasury Robert Rubin and legendary asset manager and Yale University Endowment Chief Investment Officer David Swensen.
It has many great parts, but I especially enjoyed his comments about quantitative investing. Clients of Vestact might have heard (usually from some loud mouth around the braai) that owning direct equities and engaging in stock picking is outdated, old fashioned and that you should rather invest in some computer driven, algorithmic, trend following, artificial intelligence, quantitative fund. Yes! With a proprietary black-box system and eye-watering fees. Even when the net returns to investors are bad, you can still feel clever!
Swensen counters with this telling comment:
"I have never been a big fan of quantitative approaches to investment. And the fundamental reason is that I can't understand what's in the black box. And if I don't know what's in the black box, and there's underperformance, I don't know if the black box is broken or if it's out of favor. And if it's broken, you want to stop. And if it's out of favor, you want to increase your exposure.
And so I'm an old-fashioned guy that wants to sit across the table from somebody who's done the analysis and understand why they own the position. And then if it goes against them, I can have another conversation and try and figure out whether the thesis was wrong and we should exit, or whether the thesis is intact and we should increase the position."
Check out the whole thing here (including the video podcast version): A Conversation with David Swensen
Byron's Beats
Amazon has officially landed in Australia. This comes a day before Black Friday with expectations of 30% cheaper products on offer. It's started! How Amazon will change Australian shopping forever - and consumers will be the BIG winners.
But what does this mean for a company like David Jones who is investing heavily in new physical stores in Australia?
Woolworths is all about the amazing retail experience. I still believe there is a place for that. I am a big fan of online retail but the feeling of walking into your favourite store (mine is Outdoor Warehouse) full of potential cannot be matched online.
If you are good at your niche, you will be ok. Having said that, Country Road, Witchery, David Jones and the rest of Woolworths brands can still be sold on the Amazon platform. I am sure Woolies will take advantage of this new avenue.
Michael's Musings
Even though global population is up 143% since 1960, most commodity prices have dropped. What makes that stat even more impressive is that over the same period per capita income is up 163%. Not only are there more people consuming resources but each person is consuming more resources. The massive demand increase has been met with a monster increase in supply thanks to innovation and efficiencies - The Enduring Wisdom of Julian Simon.
"Out of the 15 indexes measured by the World Bank, 10 fell below their 1960 levels. The indexes that experienced absolute decline included the entire non-energy commodity group (-20 percent), agricultural index (-26 percent), beverages (-32 percent), food (-22 percent), oils and minerals (-32 percent), grains or cereals (-32 percent), raw materials (-32 percent), "other" raw materials (-56 percent), metals and minerals (-4 percent) and base metals (-3 percent)."
I love the irony here, using the more eco friendly battery powered ship to transport dirty coal - China's first all-electric zero-emissions cargo ship is going to be used to transport coal. I am aware that the electricity for the ship will be produced by a coal fired power station but that won't always be the case.
Discovery have now launched a new product targeting funding for your children's education. More interesting in this following article though is the cost of education, they estimate at current prices it will cost parents around R2.2 million from crèche to a degree - Private education fees top R2 million per child.
Bright's Banter
The year of the Rooster 2017 should be cancelled and renamed the year of the Crypto. If you think Bitcoin has had a brilliant year, then this is gonna blow your mind! The price of Ether just hit a new all-time high, trading at $410.
This cryptocurrency used on the Ethereum Blockchain (don't ask) is now up 5000% year-to-date from $8. Yes that's 5000% in just under a year...its not a mistake!
The market capitalisation (number of tokens x price of the token) is now $39 billion, a small number compared to the market cap of Bitcoin which sits at a measly $137 billion. The aggregate value of all the cryptocurrencies in circulation is $250 billion according to data compiled by CoinMarketCap.
Ethereum Price Sets A New All Time High
The logical questions to ask is "why are these cryptocurrencies flying like this? What is behind this rally? Can they go higher? Are they a good investment at the current price? "
When you find some inspired, well thought out answers please email it to support@vestact.com.
I think there's a big element of "The Greater Fools Theory" at play here. I buy this thing because there's a greater fool out there who is willing to buy them from me at a higher price than what I purchased them for. Seems legit?
I will end with one of Howard Marks investment adages — "Trees don't grow to the sky, not everything goes to zero"
Happy Black Friday, only buy items you need. Keep in mind there's Cyber Monday on the 27th of November.
Home again, home again, jiggety-jog. Our market is off to a green start, since writing the 'market scorecard' section, Tencent is flat and the Rand has weakened resulting in Naspers opening green instead of red. There is no international data to speak of today. Enjoy your last weekend for November and good luck to the Bokke against Italy tomorrow.
Sent to you by Team Vestact.
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