Jozi, Jozi. 26o 12' 16" S, 28o 2' 44" E. We were a whole lot worse at one point, we will discuss in detail the views about the jobs data a little later. The Jozi all share index closed 35 points lower, or 0.11 percent lower to end at 33107. So, things are not that bad, when you compare us to some developed markets, some chatter this morning about certain Japanese stocks being at multiple decade lows. Sony last traded at these levels in 1980. Yech. And for the technical folks the TOPIX is in bear market territory. So that is Japan. Spain is awful, Italy is not that good, Greece is a disaster, so my point is, we should not feel that beat up, our market is not that bad at all. We are three and a half percent higher as of close of business Friday. But that includes being held steady here somewhat by a weakening currency. If you have a look at our exchange when compared to the FTSE, which has a very similar makeup from a resources exposure point of view, the FTSE is down five and a half percent. We are still some distance above the lows of early October when we were talking about the US debt ceiling, remember that? And the FTSE is nearly 12 percent lower since the middle of March. Over the same time the S&P 500 is down nearly nine percent. And ourselves? We are only down just over three and a quarter percent. Why? The weakening currency has helped the dual listed stocks, and to a lesser extent some of the local miners.
These Cadiz results are hard to read. Because, the company is very different now than what it was a couple of reporting periods ago, as they sold 60 percent of their securities business. But, investors get a once off 50 cent dividend from that sale, the way it should be, not so? I mean, the money belongs to shareholders. As Cadiz says, Unit trust funds under their management increased 29 percent. Total assets under management are about the same as twelve months ago at 41.6 billion ZAR. So what is the market valuation for those assets, because that is roughly how it is done in our industry. 456 million Rand is what the market values Cadiz at, which is cheaper relative to some of their peers in the market. Do you think that the discount is applied because of two things that we could think of a) The market loses interest when earnings are patchy and the going is tough and b) The big derivatives business means that you should apply a higher discount. Perhaps that is the case. But here is a practical example, Coronation is just over 8 billion Dollars in market cap, and at the last results had 296 billion Rand under management. So the ratio that is applied is 2,5 times greater in favour of Coronation. Not an exact example, because there are many differences between the two companies, but a fun comparison between the two.
The numbers are messy because of these once offs here, there is a new boss in the form of Fraser Smith, who succeeded Ram Barkai, who has gone to pursue other interests. He is a long distance swimmer, Barkai, perhaps he is going to do something different, like swim to St. Helena. Is this the sort of business that you should buy? I always think not, because often they are a proxy for the market anyhow. And perhaps some of these companies are too closely correlated with the markets. But as Paul said, when they listed the business back in 1999 they saw themselves as the financial services giant of the future. Decent job, good people that work there, whether or not it makes investment grade for the conservative portfolios, that part I think we answer with a no.
Byron's beats are back! He has a look at the current state of the globe. Light reading, with great conclusions!
- We have gone through a patch of negative data with a lot focus being pointed towards Europe and the US. However some of the news from the developing markets, in particular the BRIC nations (our supposed saviours) has not been great either. This is understandable, the developed markets are big trading partners with these countries.
Jim O'Neil the man who coined the BRIC phrase addressed the issue in his latest note. Here is the PDF, it's definitely worth the read but if you strapped for time, I'll try summarise it for you.
He's come up with some amazing stats, this in his opening puts developing market growth into perspective. "As readers will be aware, in recent weeks, I have attempted to put the Euro Area crisis into what I thought was an appropriate global context. I have pointed out that in 2011, China's nominal $GDP rose by 1.3 trillion, equivalent to creating an economy the size of Greece every 11½ weeks and an economy the size of Spain in not much more than a year. The BRIC countries collectively contributed around $2.2 trillion, not too far off the equivalent of another Italy."
He covers all the BRIC nations as well as Europe and the US but I want to focus on what he says about India and China. First of all India. The country has experienced negative economic data of late. But as Jim mentions, India has thehuge potential with its demographics and a fairly mature democracy. It seems like some consensus is required with regards to policy makers which sounds similar to Europe. Fortunately it is a lot less complicated than the European situation for obvious reasons. The issue seems very fixable while the economy is still expected to grow above 7%.
"India's leaders also suffer from another commonality with much of Europe in that they cannot seem to get anything done. Hopefully, the sizable nature of the recent disappointments will finally force some of their key policymakers to start making some decisions. The reversal of some of the mistakes made in late 2011, particularly in regard to foreign direct investment, seems key to me."
And then there is China which Jim says is still the beacon of light. As we so often say, Jim also thinks that the Chinese economy is going to shift to a more sustainable consumer based economy.
"In terms of comparisons to 2008/09, I think it unwise for people to expect another big infrastructure based stimulus, for two related reasons. First, the 5-year plan assumes China will grow by 7.0 pct. This year, Premier Wen suggested real GDP growth of 7.5 pct would be likely. At the moment, the “slowdown” looks to deliver real GDP growth above this level. Second, policymakers want to engineer an era of better-quality growth based on higher consumption and lower energy-consuming and polluting production as I have talked about repeatedly. Therefore, past fiscal solutions designed to support investment are not going to dominate. We are much more likely to see more specific steps to encourage consumption, especially if they tie in with other goals, as well as efforts to ease financial conditions. In this regard, news earlier this week that the government is stepping up measures to subsidise the use of more energy-efficient cars is more typical of what is likely to occur."
It's good to know that we are not the only people still positive about global growth. Like we have mentioned before, yes Europe is in trouble but there is still a lot of growth being created out there. Just because it is coming from a different source does not mean it has less of an effect. To conclude his letter he says that now presents a fantastic buying opportunity. In fact he says this could be close to one of the best buying opportunities in a long long time. We agree.
New York, New York. 40o 43' 0" N, 74o 0' 0" W. Global concerns hit markets Friday, I am pretty sure that a good US jobs report would have helped offset some of the poor data during the week, but that was not to be. Weekly nonfarm payrolls fell well short of estimates and the futures markets, which was already a percent down, lost almost another percent immediately. There were very few ways to sugar coat the report, and I had to admit that the glum faces on the screen told the story. Republican and Democrat politicians that came on the screen both looked fairly upset, although inside the Democrats were probably trembling and the Republicans were smiling. This is after all, an election year. I think Josh Brown (The @ReformedBroker on twitter) got it right when he said that Mitt Romney's smile (or was it grin) could be seen from outer space.
The actual number registered 69 thousand, the unemployment rate ticked up to 8.2 percent, that headline would be seized by the mainstream press. Suddenly, before our eyes the gains of 2012 had disappeared, as the Dow Jones Industrials had their worst drop of the year. A decent jobs report might have actually led to a rally, but during the week there had been poor GDP data from the poms, poor jobs data from the Europeans, very average PMI data from the Chinese as well as an Indian GDP miss. Although give me above five percent growth and I will be happy with that miss every day of the year.
At least the poms get somewhat of a reprieve with a four day weekend, all around the celebrations of the Queen Elizabeth II's Diamond Jubilee. The Telegraph ran a series of pictures through her reign on the throne, my personal favourite was one where she was firing a machine gun in the pouring rain. She was kitted in her finest of course, and a soldier in his military fatigues held an umbrella over her whilst she let rip. Amazing. Ending here quickly, the Queen has reigned over the United Kingdom for a series of 13 Prime Ministers, the first of which was Winston Churchill. 60 years is a long, long time. Only three years and 100 odd days as of last Saturday, and she would have been the longest "serving" British Monarch ever. In the modern era, and by modern and British monarchs, I mean from 927 AD roughly. It always amazes me how significant people think the monarchy is, but do yourself a favour and see their lineage and how they got there in the first place. Queen Elizabeth II would be a person you sort of knew if her father had not been in line when his brother abdicated. Just saying, I am pretty sure that there are many more examples.
But we are not here to learn about old history, we are here to see the one unfold in front of us. And in this case it was the worsening jobs data. At the same time the yields on the US ten year treasuries had been falling to record lows again. There was a fellow who compiled a list of folks who said recently (last two years) that this was an awful investment, for all the obvious reasons. Jim Rogers, Nassim Taleb, Bill Gross, all looking I guess more than a little wrong at the moment. Hey, we all get it wrong, but the first two on the list had such enormous conviction. And Taleb is a narcissist. He stopped his Twitter account just over two years ago, luckily the Business Insider preserved what they refer to as his completely obnoxious tweets. Examples include: I now take a hot bath after reading emails from businessmen or journalists; I then feel purified from the profane until the next email No, really. And then another classic We are better at (involuntarily) DOING out of the box than (voluntarily) THINKING out of the box. Thinking is just ornamental; for show-off Wow. This guy is amazing. He is truly clever, fluent in multiple languages and is highly qualified. But dare I say it, completely arrogant and pig headed. He is still telling everyone to short the pants off US treasuries. Quite. So far, very wrong.
Meanwhile, Jim Cramer, that crazy guy perhaps has the best suggestion yet, calling on Treasury Secretary Tim Geithner to literally issue 500 billion Dollars worth of debt at these crazy low yields. I guess Jim has a point, when next, in a generation or two are you going to see rates this low? So how do you even begin to look at these jobs numbers and say, well, there is a ray of sunshine here. The ever optimistic Tom Lee from JP Morgan said that these were the best employment numbers he had seen in 13 years, for the month of May. What? Well, that was the Business Insider response too, check it out: This Was The Best May Jobs Report Since The Year 2000*. Tom has been accused many times for being too bullish.
Well, I am guessing that he might be right on a couple of things. The Chinese are going to do something of some sort. But the one that I think is going to be most significant is that I think the Europeans are going to do something different and "special". The project was designed for fiscal integration at some stage. I suspect that time might be on us already. Italian Prime Minister, Mario Monti is urging his fellow leaders in Europe to do more. And by that, he means Germans and to a lesser extent the French. I wait for that outcome, because I think that will place the concerns about Europe and contagion further down the feeding chain.
But what does all this mean for folks who hold equities? Well, I found another amazing chart from Scotty Barber. Take a while to look at it and tell me whether or not you can decipher this or not. But, at first glance, equities look cheap.
Quite. So, someone ought to tell someone, but in our case we shall just encourage folks to add at these levels, when they can.
Currencies and commodities corner. Dr. Copper is lower at 334 US cents per pound, the gold price has gone nuts, up at 1617 Dollars per fine ounce. The platinum price also has had some buying support as the Dollar has weakened, 1428 Dollars per fine ounce last. The oil price is last at 81.44 Dollars per barrel. The Rand is steady, last at 13.17 to the Pound sterling, 10.68 to the Euro and 8.57 to the US Dollar. Looking a little weak again here this morning. And meanwhile the Europeans are working on a grand plan while the poms sit out for two days as they celebrate the Queen having sat on the throne for 60 years. Wow.
Sasha Naryshkine and Byron Lotter
Follow Sasha and Byron on Twitter
011 022 5440
No comments:
Post a Comment