Jozi, Jozi 26o 12' 16" S, 28o 2' 44" E. We sank, after earlier in the day threatening to reach and stretch beyond 36 thousand on the all share. The Rand continued to weaken through the day, the negative sentiment towards the country as an investment destination is being scrutinized, whether we like it or not. During the course of the day we saw a local GDP read which we briefly brushed over yesterday, it looked at the bottom end of the range. There was a Spanish GDP read for the second quarter which indicated that the economy of Europe's fourth largest economy continues to contract. The pain in Spain continues to drag on the fortunes of Real Madrid. Yech, not that they are my favourite team in the league. Like most football fans around the world, the genius (and humility) of Lionel Messi attracts me to Barca. I swear to you I might consider supporting a club if they managed to pry Messi away from Camp Nou. And there is an "el classico" tonight. Too late for me. Staying with genius and humilty, Hashim Amla has made us all proud again.
Phew, but that has nothing to do with markets yesterday. The Jozi all share index dropped 0.36 percent on the day, led lower by resource stocks, gold stocks took an absolute pasting, down over four and a half percent. In the New York session last evening, the top three losers out of the Gold and Silver (71 companies in total) segment of basic materials were AngloGold Ashanti, Harmony Gold and Gold Fields. These companies are associated with the country that we live in. And there are talks that the companies in the South African mining sector are being approached directly by the staff, by passing the unions to talk directly to mine management. This is dangerous for all concerned, the workers are looking to leverage off the chaos at Marikana, the unions have clearly not being paying enough attention to their members and the same can be said for the mining companies. Not all companies are the same though, some have much better labour relations than others. But tell that to investors. I am just left wondering what Xstrata are thinking about their stake in Lonmin, there have of course been ongoing concerns that the Xstrata/Glencore deal is on the verge of collapsing. Not forever, but just for now, the commitment is there from both boards, just not the shareholders. Which I guess ultimately is all that counts.
We said that we would take a look at the local GDP numbers, and yes we will. How relevant second quarter GDP is at this point? We are more than halfway through the third quarter, that is what I am pointing out. For the purposes of what I am trying to get across however, this is just fine. For the full download of the release from StatsSA, here goes: Gross domestic product Second quarter 2012. What I am trying to point out is that our economy is diversified. So how is our economy made up? Well, from the release:
"Finance, real estate and business services - 20,2 percent;
General government services - 15,8 percent;
Wholesale, retail and motor trade; catering and accommodation - 14,5 percent; and
Manufacturing - 12,6 percent."
Even to those folks who might not have been paying too close attention, that seems like more than a subtle shift over a decade. Not so? So I decided from the release, to check out the table titled "Quarterly value added by industry and gross domestic product at constant 2005 prices (R million)". This table was hacked, don't stare at it too hard, it might be bad for your eyes.
So what did I learn when I put all the values from 2002 in a spreadsheet (it was a manual pencil thing two decades ago), and then compared it to 2011? Not as much as I would have liked, I tell you. Because the obvious is that manufacturing is a much smaller part of the overall economy than it was ten years ago. Mining and Quarrying are a smaller part of the economy than it was 10 years ago. In constant 2005 prices, mining and quarrying has gone backwards over a decade. Construction has made massive headway, but it is a small part of the economy. Transport, storage and communication and Finance, real estate and business services have been the absolute stand out sectors of the economy over the measured time. I am pleased to say that I come away with the same conclusion, we have a much better diversified economy than we give ourselves credit for. We are not Angola or Russia, who are not too reliant on petroleum exports. We wouldn't mind having that "problem" I guess, but you get what I am trying to say. Our economy has evolved to become more consumer focused over the last decade. Not a "bad" thing either.
BHP Billiton has had some very important news over the last few days, since their results release that has been capturing most peoples attention. First, a rather innocuous piece about the development of the Western Australian Iron Ore (WAIO) operations harbour. Yes, really. It turns out that the aggressive roll out of the Outer Harbour. The work has therefore been "slowed". Now I have never been to Mt. Whaleback where the ore comes from, and perhaps I will never get there. The same is true for Port Headland, the harbour in question. I have however seen pictures of Mars just this morning, it looks devoid of grass, trees and all water sources. There is no life, pretty much like the Arsenal and Western Province trophy cabinets. Ouch. But basically BHP Billiton have decided to step back. Right now, the industry does not need massive expansion. They are big enough to be able to do that.
I also read an interesting mainstream piece, Kloppers Sees Long-Term Price Decline For BHP's Commodities. Not that good I guess. BUT. This is important, the company makes these strategic calls from time to time, and just two days ago there was an announcement from the company: Sale of Yeelirrie uranium deposit. With Germany and Japan rethinking their nuclear plans in the short term, this is a longer term strategic plan from the company. Or, as part of the broader Olympic Dam pull back, this asset was acquired in the WMC transaction, perhaps non-core is the answer.
Things change. They never stay the same. I read yesterday that the processing power of the average smartphone in your pocket has more processing power than the US president had access to three decades ago. Read that again. Your smartphone is better, quicker, more powerful a tool than the most powerful super computer three decades ago. So this means that your smartphone is better than the most powerful guidance system known to man when Apollo 11 landed on the moon, courtesy of the Apollo Guidance Computer. Byron's beats explores the smartphone platforms today.
- "The rate of iOS and Android device adoption has surpassed that of any consumer technology in history. Compared to recent technologies, smart device adoption is being adopted 10X faster than that of the 80s PC revolution, 2X faster than that of 90s Internet Boom and 3X faster than that of recent social network adoption."
This is from the following article posted by Flurry Blog which looks at the growth levels of software installations based on the tracking of 200 000 applications which run on 640 million mobile devices around the world. This ensures that software is being actively used and is not based on hardware sales.
Click on the link, there are some very informative graphs which show some distinct patterns. Let's discuss the ones I picked up on which should have some significance to us as investors. Firstly there is a distinct lack of Africa anywhere in this article. Not even on the fastest growing scale. China with a 401% growth rate was top of the list which included all four of the BRIC nations but sadly no South Africa.
I see this as a positive though. We are still coming off an extremely low base and companies like MTN and Vodacom are certainly not ex-growth when it comes to data consumption because more smartphones obviously means higher data usage.
The other important shift was one we have seen in most consumption patterns, a huge shift into the developing world. Last year July the US was responsible for 52% of IOS and Android app sessions. In the very short space of a year that has dropped to 36% with the rest of the top 10 contributing the next 36% and the rest of the world only contributing the final 28%.
We agree with the conclusion of this article, that there has never been a better time in the history of technology to be a software developer. But I would go further in saying that there has never been a more evolutionary technology shift than what the smartphone has provided us. I know that is a big statement when you consider what the internet, electricity, TV, cellphones etc have done for us but the smartphone has taken all of these life changing technologies and put them in the palm of our hand.
How do we benefit from this as investors? We continue to like MTN who look to provide this data to a very under-connected Africa. In New York we like Apple, Cisco and Google (in that order) who are all benefitting from and evolving this massive shift in technology and massive shift in the way we live our lives.
New York, New York. 40o 43' 0" N, 74o 0' 0" W. Perhaps the minds and efforts of the street are elsewhere this week, the last real week of summer in the Northern Hemisphere and some folks are away, whilst the Republican convention is also on the go. Mitt Romney was officially endorsed as the Republican presidential candidate to take on the incumbent in early November. Everyone got to know Mitt Romney's wife and hear what a swell guy he is, perhaps the only disappointment was the Chris Christie speech. Or so that is what I could tell from the folks that I follow on Twitter, who were watching it real time and tweeting about it. As a politician I think Christie is tops, he is one of those few guys at that level that can get away with that sort of brashness, people love that approach. Like he says in his speech, which you should watch, because one day this guy might actually be the president of the USA, "she spoke the truth, bluntly, directly and without much varnish, I am her son". That is who he is. Entertaining. I changed my mind about the Twitter folks after having watched this speech. But for all of that, I am still doubting whether or not Mitt Romney is the guy to beat Barrack Obama.
Currencies and commodities corner. Dr. Copper is last at 342 US cents per pound, taking a little tap today. The gold price is just a touch lower, at 1664 Dollars per fine ounce, the platinum price is down from the recent highs, last at 1512 Dollars per fine ounce. The oil price is lower at 95.57 Dollars per barrel. The Rand is slightly weaker, last at 8.41 to the US Dollar. We are lower here to begin with today.
Sasha Naryshkine and Byron Lotter
Follow Sasha and Byron on Twitter
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