To market to market to buy a fat pig. Yesterday we received abetter than expected GDP read for the 3Q. The seasonally adjusted, annualised 3Q number showed growth of 2%. I prefer the simpler and less processed number of a simple year on year growth, which came in 0.8% higher than last year this time.
The biggest contributors to the growth came from sectors that are big employers of unskilled labour, much needed in South Africa. Unfortunately 0.8% growth is well below the number that we need to help our debt levels and employment situation. We are in desperate need of an uptick in business confidence to help our economy get back to its potential of growing at 5% a year. The South African Chamber of Commerce & Industry is publishing the number at 11:30 today, which will give us a better idea where confidence is lacking.
Market Scorecard US markets have been in the red for three days in a row. I can't remember the last time that happened? The Dow was down 0.45%, the S&P 500 was down 0.37%, the Nasdaq was down 0.19% and the All-share was down 1.06%.
Company corner
Michael's Musings
Whoa! Last night Steinhoff announced that Markus Jooste has stepped down as CEO (Steinhoff announces investigation into accounting irregularities and resignation of CEO), with Dr Christo Wiese taking up the role of Executive Chairman on an interim basis.
The bigger problem though is the new accounting irregularities that have come to light and the possibility that they may need to restate prior years' financial statements. The result is that the audited financials have now been delayed indefinitely.
Jooste joined Steinhoff in 1988 and became the group's CEO in 2000. He is a Steinhoff lifer, and only 56 years old. So for him to be asked to step down, the new irregularities found are not around the subjective interpretation of tax laws, it will be something far more significant.
The saving grace for the company is that they have Wiese to take the reigns and the old Pepkor CEO, Pieter Erasmus will be assisting.
As the Buffett saying goes:
"In the world of business, bad news often surfaces serially: you see a cockroach in your kitchen; as the days go by, you meet his relatives"
One of the reasons we owned Steinhoff was because of the management's ability in sweating their assets. That has now changed, management has turned out to be a liability. The stink of the current scandal will probably hang around the company for years to come. You need to ask yourself, what will the company look like when this finally blows over? Will their huge store base still be relevant in an age of online shopping? We have been wrong in owning Steinhoff, expect more details on the matter later today.
Linkfest, lap it up
One thing, from Paul
Vestact leads clients towards direct equity portfolios. We don't hold bonds, cash, property or other asset classes in your account, either here in South Africa or in the US.
Equities are partial ownership claims against the assets and future profits of living, breathing companies run by human beings who take decisions that sometimes work out well and sometime work out badly.
Owning shares is better than having cash in the bank or owning government bonds, as over time we earn higher returns, because we assume equity risk. In economics, the equity risk premium is defined as the "excess return that an individual stock or the overall stock market provides over a risk-free rate". This excess compensates investors for taking on the relatively higher risk of the equity market.
This works both ways. When companies thrive, their share prices go up. In 2017 we have enjoyed great gains in Naspers, Discovery and Richemont. However, we have had also had a number of disappointments, companies which have had setbacks related to poor acquisitions, soft demand for their products or investor fatigue. The stocks have gone backwards this year: Steinhoff, Mediclinic, Brait and Famous Brands. We have to take the rough with the smooth. Over time, we should come out on top.
Home again, home again, jiggety-jog. Anything Wiese related is being clobbered this morning, Brait is down 4%, Shoprite is down 4%, Star is down 15%, KAP is down 15%, PSG is down 2% and Steinhoff was down over 50% on the open. International data out today, we have non-farm payroll numbers from the US and then the US crude oil reserves.
Sent to you by Team Vestact.
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