Money with a dash of Funny

Monday, 20 March 2017

Fund my Supercar!

"Well we are at year 9 and the current score reads, S&P 500 is up 85% and the hedge fund industry is only up 22%. As the market adage goes about hedge funds, "a compensation scheme masquerading as an asset class". The push back on underperformance and high fees is starting to be felt in the US"

To market to market to buy a fat pig The All Share spent the whole day in the red on Friday finishing down by 0.38%, this is after having the best day of the year on Thursday. Thanks to the green year so far for the market, the list of companies reaching 12 months high is growing. The most noticeable is Capitec, which is a whisker away from R800 a share. In August 2014 when ABIL was going full throttle towards the wall you could have bought Capitec for around R215 a share! That means you could have almost tripled your money in a little over 2 years. I remember thinking I had missed the Capitec boat when the share reached the R120 - R150 levels, 7 years ago you could have bought the stock for under R100 a share.

On Friday I was on TV talking about the emerging Hedge Fund industry in South Africa, where a peer in the industry was saying that you should own hedge funds for diversification in your portfolio. The logic is that hedge fund returns are not correlated to the overall market and that they generally do better than the market in down years. Owning "insurance" assets to cover yourself in the down years means that you don't have a long enough time horizon. The stock market is not like a car, when you are in a car accident you do need insurance because there is permanent damage to your car. In the stock market, if there is a down year you can either keep your head down (not sell) until it passes or you can go out and buy more assets. So why then do you need "insurance"? Why spend the money on expensive products, which to add insult to injury normally underperform, for insurance that you don't need?!

I must say that I fall into the Buffett camp when it comes to hedge funds. Remember the bet that Buffett has where he bet $500 000 that the S&P 500 would perform better than hedge funds over a 10 year period? Well we are at year 9 and the current score reads, S&P 500 is up 85% and the hedge fund industry is only up 22%. As the market adage goes about hedge funds, "a compensation scheme masquerading as an asset class". The push back on underperformance and high fees is starting to be felt in the US, More Hedge Funds Shut Last Year Than Any Time Since the 2008 Crisis. It is interesting to note that the industry manages more money today than last year but it is being channelled to the funds with better track records and who are cheaper (I assume).

All in all, it is human nature to think that the buy and hold strategy is too simple to get good long term returns. It is at that point when the terms 'derivatives', 'Long/Short' and 'exclusive' get your attention. You then think the higher risk, higher fees and higher complexity will get you better returns. Don't listen to your ego when that happens, in this case simple is better.

Across the seas but not far away, US markets closed marginally down for the day. The Dow was down 0.1%, S&P 500 was down 0.13% and the Nasdaq was up less than a point or 0.0% change. The news for the day came on the data front with Consumer confidence jumps more than expected. The general theory is, the higher consumer confidence the more people spend which is good for growth and company bottom lines.

The next big piece of data is US oil rig count rises for 9th straight week. Thanks to the relatively higher oil price, more and more rigs are being added to the US production system. As you will see below, we are still very far away from the high rig numbers of 2014. It is important to note though, that thanks to technology the current rigs produce more than historical rigs. In 2016 when the rig count was dropping, the number of barrels being produced was climbing.

With the oil price being under pressure, the temptation for OPEC nations to cheat on their quotas increases. That coupled with the speed at which the Frackers can respond should see a cap on the oil price. A low oil price is good for the consumer, less money spent on transport and more money spent in other parts of the economy.

Company corner

On Friday before the US market opened we had the results from a large scale study on the effectiveness of Amgen's Repatha drug which lowers cholesterol. The results from the drug were positive but not positive enough for traders, the stock fell 6.4% on Friday (Amgen is getting whacked after disappointing study results for its $14,000 cholesterol drug). The big thing to note about this drug is that it costs between $8 000 - $15 000, depending on the dosage required. As you can imagine, insurance companies are not keen to shell out that kind of money without proof that the drug has benefits. The main benefit needed is a reduction in the number of people having heart attacks and needing to be hospitalized, which could cost insurers more than the cost of Repatha.

Analysts are expecting the drug to have a huge take up, currently one of the smaller drugs that Amgen creates but expected to be their second biggest with 15% of revenues by 2020. That sort of growth only happens with insurance company approval. One of the biggest positives about the drug is that it seems to become more effective as time goes on, which means that next year this time when the next wave of study numbers is released we should see an even greater impact and effectiveness from the drug. Another factor is that the regulators may list Repatha as a drug option of high risk cholesterol patients, which would basically force the insurers to start using the drug or face being sued by patients for negligence.

Amgen creates many life changing drugs, the reason that we own them. This will be a damper on the share price because it creates a bit more uncertainty about the future but given the vast drug portfolio that Amgen has, this is not a make or break moment. We are still holders here.

Linkfest, lap it up

Why is Facebook worth over $400 billion? The below graph shows you why, they own 5 of the top 6 downloaded apps. App usage means, "eye balls" and that means the ability to sell advertising - The Global Top 10 Android Apps

You will find more statistics at Statista

Sticking with online advertising, as the number of people on the internet grow it becomes harder to know who is real and who is fake, which is a problem for advertisers - The ad fraud issue could be more than twice as big as first thought - advertisers stand to lose $16.4 billion to it this year

Home again, home again, jiggety-jog. Our market is in the green this morning and our currency keeps gaining ground, currently the Dollar/ Rand is around the 12.65 mark! No major data releases today, enjoy the day off tomorrow.

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

Friday, 17 March 2017

Cracker

"African Rainbow Minerals also had a cracking day, as did Lonmin and GoldFields, all up over ten percent on the session. It was one of those rare, rare days. All as a result of a Federal Reserve not minding that inflation gets out of whack, whilst they raise rates at a slow and measured pace."

To market to market to buy a fat pig As we suggested yesterday, it was going to be a monster day for stocks and that was the case. As a collective, stocks closed up just over two percent by the time all was said and done. Financials added two percent, industrials a percent and a half, perhaps held back by a firmer Rand. The local unit reaching the best level to the US Dollar in around a year and a half. The real action however was in the resource stocks, up over three percent by the end of the day. Kumba added over ten percent, Anglo and AngloGold Ashanti added six and a half percent, Amplats nearly five percent. There were only three stocks amongst the majors in the red, Steinhoff, Reinet and Old Mutual, all with listings offshore! Most of the majors were a percent to more stronger on the day, 75 percent of the ALSI 40 was in that bracket.

African Rainbow Minerals also had a cracking day, as did Lonmin and GoldFields, all up over ten percent on the session. It was one of those rare, rare days. All as a result of a Federal Reserve not minding that inflation gets out of whack, whilst they raise rates at a slow and measured pace. That is "good" for metal prices, that is not too good for the Dollar, and by extension better for the local unit, the Rand. In other words, a Fed that is not worried about inflation, means that there is a good chance of lower inflation here and that may mean rate cuts later in the year. Divergent central banks and their respective policies. And positive too for yields in emerging markets, as long as the currency factor can be taken out a little. Risk versus reward.

Remgro released results post the market close last evening. We had seen a trading update a week and a bit prior, so we knew what to expect. The stock now trades at a pretty big discount to their intrinsic net asset value, which currently is 257 Rand. The stock closed last evening at 225 ZAR, this represents an over ten percent discount. Headline earnings per share, excluding once-off costs (related to the Mediclinic rights issue and listing in the UK) and option remeasurement was up slightly, the dividend was also up slightly, both just less than 5 percent. There is and was a case to be made in the past that this was a better investment than a unit trust, I think that I stand by that. Far cheaper, and pretty diverse, more nimble. Investments in food and booze, banking and financials, insurance, industrial holdings and healthcare investments.

I would prefer to hold a business that had a whole lot of unlisted vehicles like Unilever South Africa, Kagiso Tiso, Total and NATREF. Otherwise the argument could be made that it is far easier to then own their best listed assets, in this case we own Mediclinic. That said however, Berkshire is a perfect example of a business that holds huge listed and unlisted companies and is well diversified. Again, if you have astute managers, who identify the opportunities and you can invest in them through one vehicle, why not? I agree, far better to own one listed entity such as this, than an expensive mutual fund. The stock is down around one percent this morning.

Across the oceans in a chilly New York, New York, stocks were flat to mixed. The Dow jones Industrial Average lost 15 odd points, the broader market S&P 500 lost 0.16 percent by the time the trading day ended, it was only a less than one point gain for the nerds of NASDAQ that saw them close higher amongst the majors. Healthcare stocks took some heat after the Trump budget revealed more for guns and less for medicine and the arts, less for education, agriculture, labour and more for security and veterans - read the Washington Post What Trump cut in his budget. I guess that was the mandate that he was elected on, Americans who voted for him feel unsafe.

Financials and technology stocks did OK, Oracle added over six percent on a day, the company had earlier printed results that were decent enough (after the bell Wednesday), for the watchers and expectant crowd. Missing on the top line and beating on the bottom, as they say on the Street. I am not too sure that this is the greatest and best business to invest in, they certainly have a wonderful product, we can attest to that around here.

There was an IPO from a Canadian business, for outdoor-wear. Canada Goose, heard of them at all? In what has been a very mild winter with a bad winter storm here at the end of the North East winter. Perhaps the timing was excellent, the stock was up over 25 percent. 60 years of work in the making, it is a reminder that a life's work can only result in true riches for another generation. Perhaps it is less than that, Bain Capital (over $75 billion of assets under management), the private equity folks, have come to market here to extract value. Bain will own 57 percent after the IPO, no doubt they will extract more.

The grandson of the founder, Dani Reiss will be there too, he is only 43. This is not too dissimilar to a much bigger sized business, Columbia. Family still very much involved there though. It is a "luxury goods" business, Canada Goose. There are some people who do not like their fur, some jackets sell for 700 to 1500 Dollars a pop!!! Whoa. It looks very interesting at face value, they have plenty of scope to grow across the globe, PETA does have a point about their stuff. Yip, if you don't like fur, don't even begin to look at this one. Valuations look quite rich, double that of Columbia, Canada Goose is on a higher growth trajectory. Speculative though, at the extreme luxury end, it is better to own Richemont and LVMH.

Company corner

This fellow, Horace Dediu, writes incredibly well. With interest to us mostly is his writing on Apple, this is a really cool article that starts "Apple is doomed. So are you. As mortals we are used to the idea of death." Titled Gravity, it really is worthwhile reading to the end. Horace explains how there were 8 separate events in the 43 year history of the business, where they were doomed and bound to fail, as per the graph. Moments where the iPod and the iPhone were doomed, the stock was sold off 40 percent as a result, multiple times. There were of course moments in their history where the company really was on borrowed time, Steve Jobs brought them to the pinnacle with the iPod and then the iPhone.

They really do make wonderful products, at the end of the day the company has enough internal innovation and enough demand for their core product to keep going. And a war chest second to none, their cash pile is nearing (if not there already) one quarter of a trillion Dollars. That is more cash than most business sizes in the mega cap listed environment. And just recently, the company attracted another fabled investor, Warren Buffett. Buffett is twice the age of the business, he must have been familiar with their products for most of his adult life, he must have seen Steve Jobs as a hard charging young man that was trying to change the world.

It is notoriously difficult to predict which business will be the next first mover in technology, what Apple have done better than everyone else is bring the next big thing later and better, apart from their first product that is. It is also difficult to think of many businesses that have four decades of business relevance with essentially just a handful of products (6 really), and currently one huge success. As the company is secretive and keeps their cards close to their chest, we may have to wait for what CEO Tim Cook (At the AGM) referred to "not visible" products that could become a priority. We remain long, knowing that product development is a multiyear "thing".

The share price may fall another 40 percent tomorrow, anxieties around the "next big thing" not emerging. We continue to accumulate and hold. And watch.

Linkfest, lap it up

What? Do you think that the McDonald's Twitter password was ronald, all lowercase? Their Twitter account was compromised last evening, sending out a tweet about the number one in the US, saying that he had small hands and is a "disgusting President". This should not happen, better encryption should lead to safer tweeting, surely fingerprints are better? McDonald's tweets go rogue with 'tiny hands' jibe at Donald Trump. Embarrassing for all, nobody wins here.

Often we do not realise the testing that goes into a specific product. This article from Co.Design explains internal testing in the notoriously secret Foxconn factories - Exposing The One Part Of Apple Design You'll Never See.

This is pretty amazing. Only when you see all of these graphs will you believe that the world is invariably getting better - Five graphs that will change your mind about poverty. One of our favourite websites. "From 1820 to 2015, the number of people in extreme poverty fell from over a billion to 700 million, while the number of people better off than that rose from a mere 60 million to 6.6 billion."

Home again, home again, jiggety-jog. Stocks across Asia are lower, US futures are lower. Happy St. Paddy's day. Here are some guidelines from last year - Guinness Tells Beer Drinkers: Keep Your Head And Embrace The 'Stache. Good luck with that sportslovers!

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

Thursday, 16 March 2017

Yellen ain't quitin'

"Whilst the actions of the Fed are beyond the control of the long term equities investor, and anxieties will always remain around "what the Fed does next", in time the present actions fade into market obscurity. Remain invested in quality at all points in the cycle."

To market to market to buy a fat pig Fed raises rates to 0.75 to 1 percent, that sort of range. Not that it was unexpected, this was for Mr. Market the most expected rate hike since the one two Decembers back. The tweet of the day belongs to Brett LoGiurato, who is the editor over at The Business Insider. He looks like an older Dennis the Menace. You have to be both a tennis fan and a markets fan, I had to explain this to my eldest daughter, she then "got it".

There was nothing to be afraid of, even though 2061 years ago Caesar was stabbed by his fellow politicians. Nowadays that is more figurative than literal, right? From fearing the Fed and their punchbowl removal, there was little for Mr. Market. You can read the statement here -> Press Release. Some important lines for those of you who think your are good at Fedspeak.

"The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation."

There was a single dissenter, i.e. a single fellow that didn't want rates to go up. He is the youngest voting member, you will recognise the name and face from the financial crisis, one of the architects of TARP, the Troubled Asset Relief Program. Neel Kashkari is his name. Kashkari always reminds me of Sylar from the program Heroes, except he has no hair. I suspect that Kashkari is destined for great things, for the time being, finance Twitter is mocking hime for being too millennial. Not fair, he was born in the early 1970's.

The "dot plot" pointed to a long term rate of around three percent, in other words, 8 to 10 more hikes from here on out, reaching that level beyond 2020. Bearing in mind that we are on track for another two rate hikes this year.

Thanks for all of that. Thanks to the Fed, Roger and Janet and Neel. We are stocks people. We own equities. We own companies and a fractional participation in their long term profitability. That is what we do around here. We try and identify the best possible choices (in a sea of plenty), and from that we try and stay the course i.e. the favourite holding period is forever. Often in retail clients, their biggest mistake is to get spooked when the going gets tough and to hurry into the market when it is nearing a cyclical peak. And then to suggest that the equities market is not for them. Reminder, if this was very easy, then everyone would do it, and the valuations would always be out of whack. Like always.

The other change that buoyed stocks and saw bond yields lower, was that the Fed were willing to see inflation expand for a while. This is seen as accommodative for the US economy, by extension stocks, and not really that helpful for the US Dollar in the short term. That is why you see commodities higher, Rand stronger and stocks on fire. Session end the Dow Jones had added just over half a percent, the nerds of NASDAQ clocked in a three-quarters of a percent gain, whilst the broader market S&P 500 added 0.84 percent on the day.

Whilst the actions of the Fed are beyond the control of the long term equities investor, and anxieties will always remain around "what the Fed does next", in time the present actions fade into market obscurity. Remain invested in quality at all points in the cycle.

Back home, where the sunlight is shortening and the inevitable winter rolls around, we were completely flat on the day, up 0.01 percent by the time the closing bell rolled around. Some retail sales data showed that it is getting increasingly tough out there, perhaps the worst has past, January and February seem to have been tough on the retail market. Resources were a bright spot, having rallied around half a percent on the day, I am expecting much more today, judging by the current prices and the reaction to a "dovish" Federal Reserve. The Rand is seeing a lift this morning, as a commodity producer and as an emerging market with a "reliable" capital market, this is good for us. Perhaps a lid can solidly be put on inflation and the consumer will no doubt look in better shape, come the second half of the year.

Sun International was absolutely caned. The stock was taken out back and thrashed. Down nearly 15 percent on the session. This was not as a result of men in togas with daggers, rather a trading update, coupled with a business update. The results themselves will be released towards the end of the month, the company expects half year earnings to be 35 to 45 percent lower than the prior financial year, diluted headline earnings per share.

There are loads of moving parts in there, including a 208 million Rand impairment charge of the Carousel asset, remembering that historically some of the assets were placed away from the cities, as a result of apartheid and agreements with the "governments" in these territories. With new legislation and no "homelands", South Africans can partake in entertainment and lose money far closer to home. I am kidding! Slot machines are every bit entertainment as going to the movies, it may not be your "cup of tea", it is what it is. I suspect that the opening of the Menlyn Time Square will be good for the group, time will tell whether or not they are able to attract tons of business. This has traditionally been a sector that we have not invested in.

Company corner

The big news clanging around is that Anglo American are getting a new investor, in the form of Anil Agarwal. Agarwal is the founder and chairman of Vedanta Resources, according to Wiki, he controls the business through his investment vehicle Volcan Investments. Sounds almost superhero like. He sounds like a bit of a scrapper, the Carl Icahn type, rather than a polished high society fellow, like Bill Ackman. We need all these people. He has been around for 4 decades, he has done the hard yards.

Here is the announcement from stock exchange news - Volcan Investments Ltd announces an investment in Anglo American plc. It is a little complicated:

"Volcan Investments Ltd ('Volcan'), announces today that it intends to make an investment in Anglo American plc shares of up to 2.0 billion Pounds. Volcan intends to finance the investment in Anglo American plc shares through the issuance by Volcan Holdings plc (the 'Issuer'), a wholly owned subsidiary of Volcan, of a mandatory exchangeable bond, led by J.P. Morgan as Sole Bookrunner, on or around 11 April 2017 ("Closing Date") that will be secured by Anglo American plc shares. Volcan and the Issuer intend to purchase the Anglo American plc shares in the market via a combination of purchases from investors in the mandatory exchangeable bond and on market purchases, subject to certain conditions, until or close to the Closing Date."

Well, good for Anglo American, whether or not this is the "right time" in the cycle, Mr. Agarwal is getting a discount. In May of 2008, Anglo American's LSE price was 35 Pound Sterling, they are currently 12 Pounds, having rallied 131 percent over the last year. Agarwal, good for him, I suspect that South African investors may well warm to this chap, if he is right about Indian infrastructure requiring a "lot" of resources over time, he may well be the right man. Board seat, useful insight, good for the business. Now, let them just close the nitty gritty of the deal.

Tesla announced that they were raising money - Offerings of Common Stock and Convertible Senior Notes. 1.15 billion Dollars in total. Musk himself will be buying 25 million Dollars of common stock, effectively ten percent of the offering (of common). This is not unexpected, we have continued to see suggestions that the company needs to raise money. As they say in what is a very short release: "Tesla intends to use the net proceeds from the offerings to strengthen its balance sheet and further reduce any risks associated with the rapid scaling of its business due to the launch of Model 3, as well as for general corporate purposes."

1.15 billion Dollars, relative to the market cap of 43.33 billion Dollars, 2.65 percent dilution. It is perhaps less than the market expected. The stock is actually up around two percent after-market, then again I am not always sure what is happening in the background, with a large short interest (over one quarter of all the shares outstanding), and such divergent views on the successes of the business. We will maintain that Musk is a doer, and a dreamer and someone who has been able to execute all the way through from vision to current. Reusable and cheap rockets? Yeah baby. Charging stations and cheaper electric vehicles, with driverless technology? That is him my friends, he has been the guy that has been able to put this all together.

Linkfest, lap it up

Looking back it is no surprise seeing which companies did the best, we were all part of the winds of change that helped sectors become dominant forces - The Ten Best Stocks of The Last Ten Years. The key line that stuck with me is below, basically holding a stock during volatility is harder than spotting the opportunity in the first place.

"I will have to do the most work on 'holding' them. It does not take as much work as you might think to spot winners. These stocks spend a lot of time on the 52-week and all-time high lists."

Wow, this material looks like it could revolutionise industries from agriculture to medicine to transport - Graphene: The Game-Changing Material of the Future. The only problem is that currently it is prohibitively expensive. So was steel though.

Home again, home again, jiggety-jog. Sanity has prevailed in the Netherlands elections. Great country, wonderful people, I know a lot of good people from there, they are terrific, OK? Not all of them, the pushback against right leaning folks has meant that the Euro has caught a bid. We should enjoy a positive day of "relief" and higher commodity prices, perhaps cue "fireball" in the background and fade it in with your best DJ skills.

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

Tuesday, 14 March 2017

Rategate

"Of course the Fed meet today again, the middle of March, the "ides" in which Julius Caesar was murdered by his fellow senators. The politics of 2000 years ago was less civil I suppose, although ..... Janet Yellen and her cronies will deliver their prognosis, the market is expecting a rate hike here."

To market to market to buy a fat pig Stocks were up and down, closing at the weakest point of the day as the closing bell rang. In cyber-land of course, there are no more bells here. As impressive the entrance is at the JSE building, it is also perhaps a let down to those that may have expected a throng of people. In the age of the machine, you can be wherever you need to be, as long as you have a reliable internet connection. That second part is very important. It was pretty much a broad based selling of the market, Bidcorp was down sharply, the biggest loser inside of the majors. Perhaps the weakening Pound Sterling to the US Dollar, the Brexit discussions in the UK parliament are quite some sight, with old stuffy people shouting "hear, hear" and almost disagreeing in unison. It must be part of the parliamentarian 101 course.

Shoprite, Tiger and Amplats were amongst the winners on the day, Discovery shares also hit a 12 month high, as did Capitec and Santam, as well as Advtech. Banking, insurance and education, some things you cannot live without. There wasn't too much going on in terms of the majors and their news day, Bell equipment had a rather sad looking trading update:

"The expected decrease in results is due to fraud and mismanagement in the Company's subsidiary in the Democratic Republic of Congo (DRC), as previously communicated to shareholders; to continued depressed conditions in the markets and industries in which the Company operates, and to the strength of the Rand in the second half of 2016."

If your "Africa strategy" is to just stick to being headquartered in Jozi/Durban/Cape town, then I am thinking out loud that you are not alone. The boom and subsequent bust of many an African economy as a result of fluctuating fortunes in mining and commodity prices has taken many by surprise. And unfortunately many were seeing a bright new bold future. We will get there, it will just take a little more time than we thought.

Choppies, the Botswana based and JSE listed supermarkets chain is in the best place to tell you about the future of retail across the region. Along with Shoprite of course, who are the real big daddy here. Botswana, South Africa, Zimbabwe and Zambia, as well as early stages in Kenya and Tanzania, that is where Choppies operates their 200 odd stores. Half year revenues of 4.7 billion Botswana Pula is nearly 6 billion Rand, this is not exactly huge, nor is it small. And it is growing. One to watch. Market cap is 4.33 billion Rand, the stock has been hammered, down 38 percent over the last 12 months, no thanks to the stronger Rand. Mr. Market liked what they saw yesterday, the stock was up over six percent post these results.

Over the seas and across the oceans, stocks finished better than at the beginning of the session, they still registered a losing session. The broader market S&P 500 was down one-third by the end of the day, as were the nerds of NASDAQ, with blue chips, the Dow Industrials, down one-fifth by the close. A monster storm has dropped a blanket of snow over the North East of the US, not completely rare for this time of the year, rather late nonetheless. Our guy in New York sent us a picture of an empty subway, on his way to work. There was nobody else there, indicating that many had just stayed away, or were unable to make the commute to work. Extreme weather stopped work is better than the dog ate my homework.

Nike had a good session, the company reports numbers next week on our holiday, the 21st of March. It is outside of the "normal" reporting period, they have a slightly different quarterly reporting cycle. The market went cold for a while on the US sales portion of their business, which is around half of all their sales. The stock has rallied hard this year, up nearly 13 percent after being one of the "dogs of the Dow" last year. We will watch and report back next week on the company. Tesla was another stock that had a ripping session, some of the same old recycled news of the Tesla Model Y sent the stock up nearly five percent. The Model Y will no doubt be a hybrid vehicle, somewhere between the falcon door X model (the SUV) and the not yet in production Model 3.

Of course the Fed meet today again, the middle of March, the "ides" in which Julius Caesar was murdered by his fellow senators. The politics of 2000 years ago was less civil I suppose, although ..... Janet Yellen and her cronies will deliver their prognosis, the market is expecting a rate hike here. And there is no anxiety. Which is weird, that is just the point we are at in the cycle. Stronger growth and labour additions, inflation is just starting to creep in, business confidence is soaring. Time to inch the punchbowl closer and closer to the edge of the table, right?

Linkfest, lap it up

It was Pi day yesterday, the month of March followed by the day, 3.14. If you ate a pie, then good for you! My father in law loved: "Pie are squared (Pi.r.2) but cake are round". The Business Insider had a pretty cool video - A mathematician gave us the easiest explanation of pi and why it's so important. Math, never gets tiring.

Thanks to economics US power production is getting cleaner. The Fracking revolution has resulted in a huge drop in natural gas prices, lower prices mean that people are now using more of the cleaner energy source - Energy milestone: Nat gas has surpassed once-dominant coal as fuel source for electric power - and it's here to stay.

I can't think of the last time I drank a "fizzy drink", it is a trend that is gaining momentum globally. Instead we pay a huge premium for what is normally just filtered tap water - Soda Loses Its U.S. Crown: Americans Now Drink More Bottled Water

Home again, home again, jiggety-jog. Markets in the East of the world, where the sun rises first, are mostly down slightly. All eyes on the Fed tonight, we "know" rates will rise but what will Yellen have to say?

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

Dude Where's My Driver

"I for one can't wait for an autonomous vehicle to drive me around, freeing up precious time to do more important functions. Our investments in this area include NVIDIA and Tesla of course, fringe positions away from the core. Having said that though, Alphabet/Google and Apple have had varied success with their own projects in automated driving."

To market to market to buy a fat pig Stocks in Jozi rocked yesterday. Poor folks riding the "Argus", as I guess it will affectionately be known, those clips of people trying to go into the wind were at some level funny, at another level scary. What happens if riders had turned and had 100km winds at their backs. Definitely the right decision in the end, an expensive exercise. Ai shem, "sorry", as we say in these parts. Stocks as a collective rallied over a percent, the resource stocks were "particularly active", at the top of the leaderboards was Steinhoff, Anglo and Discovery. At the other end of the spectrum was Standard Bank, Reinet and AB InBev. It was mostly a day for the bulls.

There was a decent set of results from Rand Merchant Investments, the name change away from Rand Merchant Insurance tells you that they are looking for investments outside of Discovery and Outsurance. The company makes some interesting observations about the current operating environment and what could happen:

"South Africa is experiencing a tough macroeconomic environment, characterised by high inflation and weak growth, resulting in pressure on the disposable income of consumers. Ratings agencies share the view that more needs to be done to improve South Africa's growth prospects. A downgrade to sub-investment grade could result in higher interest payments, a weaker Rand, higher cost of living and subdued confidence, giving rise to higher unemployment and lower investments. Against the background of an increasingly complex regulatory environment, local growth in new business volumes and profit at RMI's existing investments are expected to be affected."

The shareholder base of this business is Remgro at 30 percent, Royal Bafokeng at 15 percent, the PIC and Allan Gray at 8 percent apiece. The company owns 25 percent each of Discovery and MMI holdings (created through the merger of Metropolitan and Momentum in 2010), 84 percent of Outsurance and 100 percent of RMI investment managers. They recently (Feb) bought a nearly 30 percent stake in a UK listed short-term insurer, Hastings Group, for as much as half a billion Pounds. On an earnings basis, as per the last full financial year, Discovery contributes 30 percent, Outsurance 47 percent and MMI 23 percent.

RMI is the single biggest shareholder in all of their investments. That is the way they like it. It is a small team of significant investments, the market cap is around 64 billion Rand, I think at last count there were around 7 odd employees. Really. The stock, as far as I can tell, is trading at about a fair price. Anyhows, we own the best investment in their stable, Discovery! Nice business, strong team, I think that they are going places.

Stocks across the oceans and far away were mixed by the close, a couple of sessions ahead of what is expected to be an interest rate hike by the Federal Reserve. Nobody seems freaked out at all, the stars are aligned, if one was to borrow a horoscope view. You know, there are only 12 kinds of people in this world, and it matters what day you were born on, you see? What gobbledygook. I suppose I shouldn't be like that, each to their own. Session end the Dow closed marginally down, one-tenth of a percent (led lower by mostly Intel, see below, Chevron, GE and Merck also contributing), the nerds of NASDAQ managed a gain of nearly one-quarter of a percent, the broader market S&P 500 ended the session a little better than where they started.

Hey, Bill Ackman and Pershing Square (his investment vehicle) finally bailed on Valeant, around 11 bucks a share. Paulson and Co. (John Paulson, the fellow who made a killing out of the housing crisis) is now the biggest shareholder, almost alone. Is this investment, as they would say in garden cricket a "six or sticks?" Valeant traded down 10 percent last evening, the market cap is now 5.6 billion Dollars, trading at roughly the same levels (after market) as back in September 2008, at a current 52 week low. Some suggest the loss for Ackman was about 2.8 billion Dollars, from the 257 Dollar highs in the middle of 2015 to current levels, the free fall has been dramatic. The company suggested a new path ahead, enabling them to focus on new investment opportunities. The fund has only around 11 billion in assets now, don't feel too sorry for him. Check out the BusinessInsider graph - The collapse of Valeant, as told by its stock chart.

At the same time, his short in Herbalife still is in focus, I saw that Carl Icahn's investment vehicle owns nearly one-quarter of the business. Two diametrically opposed views on the same company. Ackman is short one billion Dollars worth (at the time), Icahn owns one quarter of 5 billion Dollars. This is Spiderman up against Batman, we all know that Buffett is Superman. Whether or not Ackman thinks that this is a pyramid scheme or not, I would not be making investments against the health and wellness space, that seems against the grain of the way the world is moving. These battle lines were drawn a while back, the "winner" will no doubt emerge in time. Is Pershing perishing, as Michael put it?

Have you ever heard of the business, incorporated in the Netherlands, called Mobileye? The business has been around for a long time, 17 years of technological advances have lead us to the point where driverless cars are possible. The business is being acquired by chipmaker Intel for 15.3 billion Dollars - Combining Technology and Talent to Accelerate the Future of Autonomous Driving. As per their website, Mobileye is "the leading supplier of software that enables Advanced Driver Assist Systems (ADAS), with more than 25 automaker partners including some of the world's largest."

If you had any doubt whatsoever that driverless technology was just some sort of fad, then this should dispel that immediately - "Mobileye's vision safety technology for ADAS is deployed on over 15 million vehicles and counting, making today's roadways safer for all." The company has worked in collaboration with Intel before, promising a fully autonomous BMW by 2021. The company has trademarked Road Experience Management. I for one can't wait for an autonomous vehicle to drive me around, freeing up precious time to do more important functions. Our investments in this area include NVIDIA and Tesla of course, fringe positions away from the core. Having said that though, Alphabet/Google and Apple have had varied success with their own projects in automated driving.

Linkfest, lap it up

Talking shorts and longs, how does this all stack up, do you think? Shopping mall debt, is it too risky? Bloomberg reports Wall Street Has Found Its Next Big Short in U.S. Credit Market.

Biltong is now a science. Today, Maxine Jones will receive a Phd in Food Sciences - Stellenbosch student has a doctorate in biltong. She is suggesting that biltong has guidelines. Noooooo ..... not regulation.

Social media sites are still growing like gangbusters, here is the user breakdown of each main site - The Key Differences in Demographics for the Top 7 Social Networks

Home again, home again, jiggety-jog. Brexit is closer. The Scottish independence referendum 2.0 is also on the cards. The Fed start their 2 day meeting today. I am sure people will get excited about that. Markets are mixed to begin with.

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

Monday, 13 March 2017

It's all Politics

"Quite. There are ruling party elections later this year. There are multiple European elections this year, some concluding soon, the Netherlands and France, Germany towards the end of the year. US policy changes, regulatory rewinds (Obamacare) and tax reforms could all bode well, or badly for global equity markets, depending on the way that you view it. We shall see."

To market to market to buy a fat pig It was a strong showing on the local equity markets on Friday, stocks as a collective added nearly three-quarters of a percent, the strongest sector being industrial stocks, as a collective those were up one and one-quarter of a percent. Moving the needle in the positive direction was Kumba, a stunning 6 percent plus move on the day, to add to all the other wild moves recently. If you managed to get a volatility contract in Kumba, let me know, ok? I suspect that many would be loathe to write such a tricky contract. Vodacom, Naspers, Woolies and Discovery all advanced more than two percent, in the losing column were some property of the UK kind, Hammerson and Intu. Aspen and Bidcorp also lost some ground.

It was of course jobs day in the US, we will talk about that in a bit. That did spur the local market on. There were some results from RMB Holdings for their six months to end December, the business will be listed for 25 years at the end of this year, that is one quarter of a century. The company is essentially a holding business for FirstRand and has a small property and a private equity business. For the most part, as a 34 percent holder of FirstRand, this is the vehicle chosen by the founders to dictate control over the financial services empire. The outlook segment for such a big beast is perhaps too simplistic, easier to understand than the unknown-unknowns of Rumsfeldian proportions:

"Based on the FirstRand outlook and current macroeconomic conditions, the group expects economic growth to pick up in the second half of the year. Global and local political uncertainty imposes downside risk."

Quite. There are ruling party elections later this year. There are multiple European elections this year, some concluding soon, the Netherlands and France, Germany towards the end of the year. US policy changes, regulatory rewinds (Obamacare) and tax reforms could all bode well, or badly for global equity markets, depending on the way that you view it. We shall see.

Another business that released a SENS out of the blue, Tongaat suggested that they would see sugar production "grow significantly over the next two years, in the recovery from drought conditions of the past two years." The stock popped nearly four percent on the news. Over ten years however, the stock is up only ten percent.

It was jobs time Friday, the first full month of the Trump administration. Was it going to be YUGE, and tremendous or just inline with the market expansionary theme that has played out over the last 18 months or so. Of course much of the anxiety stemming back from the second half of 2015 has been around the Fed rates cycle, ever since the taper tantrum, coupled with a commodity price slide of epic proportions. Inflation is non-existent. Labour market, seems to be strong, and the theme continues. The only two issues are a lack of wage growth and the participation rate, i.e. people earnings more on a hourly basis and the number of working age folks in the labour force, bearing in mind that people study and they are not always fully employed. Or employable, they may lack the skills needed in the current economy. Not everyone knows how to Snap, or 'Gram, you know!

The official release is known as the Employment Situation, and is normally released on the first Friday of the month. Unless, as was the case this last time around, the Friday fell too close to the end of the month prior. The number beat expectations, by around 35 thousand, there was one commentator on CNBC that guesstimated correctly, well done everyone for guessing, sticking your neck out there, and then not worrying what the revised number was relative to the report.

It sure is a volatile read. I suspect, armed with this knowledge, the Fed will proceed at their next interest rate meeting (the Federal Open Market Committee as they are known), that takes place this week, concluding on the ides of March. Beware my friends, beware the ides of March. The reason why there has been little reaction is, as the this Bloomberg article points out, alignment for once - Fed, Economists and Investors Show Rare Harmony on Rate Outlook.

The upshot of it all was a stronger market to begin with, that saw a rally fizzle around midday, only to end back up where stocks started. The broader market S&P 500 added one-third of a percent by the close, the nerds of NASDAQ added nearly four-tenths of a percent by the end and the Dow Jones added just over one-fifth by the closing bell. All the major sectors were in the green by the time the day sounded "clang", representing a broad based rally of sorts. Snap fell over two percent. I am guessing that the stock will continue to be volatile, earnings will be the only thing that ultimately matters here in the end -> Snap's 'Long-Term' Investment Value & Share Structure Seriously Questioned.

Down here in the Southern Hemisphere, only 10 percent of the global population live. As such, our winter and summer changes are less exciting than the ones north of the equator. Today the US "starts" an hour earlier. As the New Yorker magazine points out, in this article titled Can we fix daylight-saving time for good?: "Scientists have found that, on the Monday after daylight saving starts, heart attacks and traffic accidents are more numerous, judges dole out harsher sentences, and employees are more likely to "cyberloaf" on the Internet. After daylight saving ends, making sunset earlier, street crimes are more common, as are traffic accidents involving wildlife, because that's the peak migration time for deer and elk."

The only good thing for us is that markets start one hour earlier. i.e. The US markets open an hour earlier in our day, we get to "have direction" from the US markets. 15:30 local Jozi time.

Linkfest, lap it up

You have definitely heard of the raging bull bronze statue, that clocks in at just over three thousand kilograms. Less known, and one is not to blame for a "lack of knowledge", is the "Fearless Girl" statue, that is a little over 113 kilograms, or a well built scrum half of the modern era. It may, or may not be a permanent sculpture. I suppose it is easier to "move", being smaller. What it stands for however is very powerful, see this AP piece via CNBC - Behind NYC's 'Fearless Girl' statue are 2 corporate giants. I hope it stays.

This comes via the weekend Abnormal Returns email. My physiotherapist (for a recent ankle injury, courtesy long distance running) told me this, short bursts would increase your fitness markedly. The New Scientist has an interesting article - Best anti-ageing exercise is high intensity interval training. HIIT (high intensity interval training) is the new acronym, OK? Stay young, exercise in short bursts. We continue to think that businesses like Discovery, Cerner will benefit from changing behaviour, whilst Nike and Under Armour (and their competitors) will all benefit from a change in humanity, i.e. more exercising in free time.

Talking about free time and your Wi-fi connection, this Bloomberg article makes some interesting observations about how cheap data means people no longer look for "free" Wi-fi - A World Without Wi-Fi Looks Possible as Unlimited Plans Rise. Seems like it was going the other way, until the mobile providers hit back.

The competition for your eye balls is heating up. It is all about content and sport is a huge player in content creation - Facebook in Soccer Streaming Deal With MLS, Univision. Interesting to note that the article points out that Facebook will have access to different camera angles. I think the future of sport broadcasting is where the viewer has more control over what angles they want to watch the matches from.

There is no doubt that the more education you have the more you earn. One of the graphs in the following research paper - Fourteen Economic Facts on Education and Economic Opportunity, even shows that since 1980 if you didn't have tertiary education, your earnings have gone backwards. The research also shows that early stage development has a huge impact on where you end up later in life.

I personally would not put my money in Bitcoin, it is a commodity that swings on sentiment, unlike a stock that has management growing earnings for shareholders - Why Bitcoin lost 15 percent of its value in a few minutes.

Home again, home again, jiggety-jog. Good thing, daylight savings ends in the US. In the UK and Europe it is two weeks time. As for us, no daylight savings of any sort.

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

Friday, 10 March 2017

Lodging Profits

"Airbnb will possibly achieve 2.8 billion Dollars in revenues this year. The company trades at roughly 11 times revenues, if you are using that metric. Priceline, the listed entity that owns Booking.com amongst other platforms (see recent note - Priceline 4Q & FY numbers - still strong growth), trades on 8.5 times revenues, with a multiple of 40 times. Not cheap, although, growing like gangbusters."

To market to market to buy a fat pig A mixed bag for stocks across the oceans and deep blue seas, stocks in New York, New York ended marginally better after a see-saw day. The Dow Jones added all of 0.01 percent by the time the closing bell clanged, the nerds of NASDAQ double that, whilst broader market S&P added 8 times the Dow, falling short of one-tenths of a percent. Yes, at face value it was an average day. Crude oil WTI, fell below 50 Dollars a barrel for the first time since December, rumblings of a brave face photo opportunity with Russia and Saudi, and perhaps all OPEC members not really able to make good on the quota cuts. Funny that, a cartel can work until real competition sends them packing. By that time they are so inefficient, they lose market share. The oil price did pick back up again, energy stocks closed in the green.

Snap Inc. lost a little ground, the stock is such old news and will be listed for a week now. Ha ha, nope, I am kidding. Just like Evan Spiegel's fiance, Miranda Kerr, who asked why Facebook keep copying Snapchat. Oh no, that is real. Why is that important? Facebook through their multiple platforms, WhatsApp, Instagram and of course Facebook, are bringing their users similar, if not identical features that Snap has. Interesting. In the old days it was Facebook that was being "copied". See - Facebook's Clones Attack Snapchat.

Talking of money being raised, Airbnb, who do not plan to go public any time soon, raised another 1 billion Dollars, giving it a valuation of around 31 billion Dollars in this current funding round. Uber is apparently worth 70 billion as per their last funding round. You can actually get some deep dive data on private business, for a price, over at PrivCo. Got a spare 199 Dollars to get information on Airbnb?

Oh wait, there is a Santa Cruz Sentinel article for that - Airbnb raises another $1 billion, with no IPO in sight. See the metrics there? Airbnb started with 4 people in 2008, now they employ nearly 3000 people. The company actually makes money and is (unlike Snap) not "pre revenue" (a little unfair to Snap).

Airbnb will possibly achieve 2.8 billion Dollars in revenues this year. The company trades at roughly 11 times revenues, if you are using that metric. Priceline, the listed entity that owns Booking.com amongst other platforms (see recent note - Priceline 4Q & FY numbers - still strong growth), trades on 8.5 times revenues, with a multiple of 40 times. Not cheap, although, growing like gangbusters. At the same time, Priceline raised over 1 billion Dollars (1 billion Euros), check it out - 0.800% Senior Notes due 2022.

We like the sector, experiences trumping "things". The story of Airbnb is pretty amazing, with the initial goal to make a few bucks. See, I was wrong on "if money was the starting point, you wouldn't succeed". Perhaps Airbnb won't ever make more than a few bucks?

The original email from Joe Gebbia to Brian Chesky reads as follows:

"brian, I thought of a way to make a few bucks - turning our place into "designers bed and breakfast" - offering young designers who come into town a place to crash during the 4 day event, complete with wireless internet, a small desk space, sleeping mat, and breakfast each morning. Ha!"

In Jozi, where the weather has been "funny" and almost unseasonal, stocks were cold as a collective. The all share sank three-quarters of a percent to end the day below the 51 thousand mark. A three year return for the ALSI shows around 7 percent. That is it. Resources on the day sank over two percent, Kumba down nearly 7 percent on the day. Iron ore prices have sunk recently, after having doubled since last June. It is also (the iron ore price) half of what it was in September 2011, as ever, it depends on where you draw the line in the sand.

At the opposite end of the spectrum, Steinhoff gained after having been beaten down over the last few sessions, the weaker Rand has had something to do with that. Read, weak commodity prices = weaker Rand. The same could be said for Russia, or Saudi or Australia. So .... if you have been wondering why the currency has been so strong, look no further than better commodity prices. Now ... the Gold price is below 1200 Dollars an ounce and sliding platinum prices.

Company corner

Some more on the Aspen H1 results from yesterday. Make sure that you watch this fabulous interview (that lasted longer than initially planned) - Aspen H1 normalised HEPS up 6%. Self inflicted (supply chain) problems in South Africa, those have been fixed and a turnaround is afoot. An interesting question, when asked about why own Aspen today, at these levels, he gives an answer which I suspect a shareholder should expect. He said that 40 reporting periods of increased earnings, time and time again, tells you something. And he tells of how the business was harder at the beginning, cap in hand sitting in front of the bank manager. In some ways he says, it is easier to run a bigger business. Interesting perspective, not too dissimilar to those of Phil Knight of Nike in his book, Shoe Dog.

Paul actually saw both Stephen Saad and Gus Attridge in the foyer of the JSE yesterday and chatted with them. Not too much different to what Stephen said there. I will tell you something about this guy, he was asking Paul about his family and his running regime (Paul looks fit). That shows you the fellow genuinely cares about other people around him. I have heard a story too of him flying locally on coach and helping fellow passengers stow their luggage in the overhead compartments (there is always a fight over those, right?), from another client of ours. I wonder if the person sitting next to him knew that he would on paper be a Dollar billionaire?

After listening to him yesterday, we are very happy that the business here is in the "right" hands. They have had to close all the transactions and make sure that shareholders finally see the fruition of the hard work. A big base in a "good space". They will push and look for opportunities, including in infant nutritionals in China (baby formula), they are advanced in their thinking about entering China directly. We continue think that this is a fabulous business, with boundless opportunities. Whilst we are going to continue to "wait" and be patient in a stronger Rand environment, I think the stock represents a great opportunity now.

Linkfest, lap it up

I was talking to a client a week or so back, we were interrupted by her pool people at the gate. She disliked her pool. How about this low maintenance option? Recycled shipping containers in Aussie are being used as fibreglass pools - Shipping container pools.

The smart home is already a "thing". In some instances, Nest, a subsidiary of Google is a market leader. They are, according to Mark Gurman writing for Bloomberg, working on something new - Alphabet's Nest Working on Cheaper Thermostat, Home Security System.

An online clinic that reverses type 2 Diabetes? Here already. Although in their infancy, this business is looking to shake things up - Virta Health Launches to Reverse Type 2 Diabetes as New Study Demonstrates Reversal Possible Without Surgery. Their outcomes so far have been pretty amazing, Preliminary 6 month trial data shows 87 percent of patients reduced or even eliminated insulin and they had on average 12 percent weight loss over 6 months.

This is one of the best articles that I have read in a long time, via Paul, it does require a subscription though, you may be able to get your "free FT" articles - The problem with facts. The telling line "Once we've heard an untrue claim, we can't simply unhear it." What a research paper cited in the piece is that only 4 percent of people read "seriously". Finally. I understand Facebook .

I think this headline says it all - Despite Modi's anti-corruption drive, 70% of Indians must still pay bribes for basic services. Is it still wrong if society just assumes that a bribe is part of the price of a good?

All the stock markets in the world? Check this out, via our pal Prof. Perry at AEI

Home again, home again, jiggety-jog. Stocks have started better here in Jozi, again the Rand is marginally weaker. Non-farm payrolls today. Exciting stuff sportslovers.

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