Jozi, Jozi 26o 12' 16" S, 28o 2' 44" E. Another Monday and yet another record high for the all share index, in part the recent rally has been driven by those stocks that have stood on the sideline for the better part of the year, resource companies. Whilst the broader market might be up 12 and one quarter of a percent year to date, as at the last evenings close, the resource stocks collectively (the big ten) are off six and a half percent. Driving this market higher have been the retail stocks, up over thirty percent year to date and banks and financials have weighed in with 20 percent plus increase. Industrials have also led the markets higher, collectively up 25 percent. The big losers this year, so far, have been the platinum miners, down nearly 20 percent year to date, whilst the gold companies together are off 15.6 percent. It certainly has been a mixed bag around here.
There is a local GDP read for the second quarter today, the forecast that I got from the FT suggested that year on year we should expect between 2.6 to 2.8 percent growth. And the quarter on quarter growth is expected to be around more than three percent, but less than four percent, the range that I have seen is 3.2 to 3.9 percent. That represents a fairly wide range. In fact the release has come in meeting expectations somewhat, check out the early release: Gross domestic product - Second quarter 2012. We will go into greater detail on this one tomorrow.
New York, New York. 40o 43' 0" N, 74o 0' 0" W. Apple surged to another all time high, as the market participants were acting favourably towards the Samsung ruling. Although some folks are suggesting that the real winners in this potential ban on Samsung products might well be Nokia and Microsoft. And another loser alongside Samsung could be Google. Ironically the share price of Apple surpassed that of Google yesterday. The relative market caps are miles apart though, the hefty 218 billion market cap of Google sits in the large shadow of Apple's 633 billion Dollar market cap. Wow. The Apple share price topped 680 Dollars for the first time, there are many folks that still think that the company offers a lot of value at these levels. And to end the conversation off on the two tech titans, the last five years has seen the Apple share price up nearly 400 percent, whilst Google has looked more like a Sunday afternoon pie thrower, sending down ill placed full tosses and long hops that send the close fielders scurrying. And of course the outfielders fetching. Cricket terminology. Over five years Google is up a mere 30 percent. Guess who is smiling.
A long dated deal was finally closed (money still not in the till, but closed for all intents and purposes) when Dollar Thrifty agreed to be bought by Hertz Global for around 2.6 billion Dollars. These are both motor vehicle rental companies. Thrifty.com still lists OR Tambo International airport as Joburg International. But then has the search option as OR Tambo. That aside, both stocks advanced around eight percent. It is rare that both sets of shareholders are pleased with an announcement like this, but obviously there are cost savings involved. The combined entity will now cover around one quarter of the combined US rental market. Also gaining momentum was competitor Avis, the stock was up on the basis that this time around they would NOT be bidding for Dollar Thrifty. Although the competition hurdle still needs to be cleared.
Another set of shareholders both welcoming merger news was Hudson City Bancorp (stock up 15.7 percent) who agreed to be acquired by M&T Bank (stock up 4.6 percent) for 3.7 billion Dollars. Deals in them old mountains I tell you. In the tech space IBM paid handsomely, all 1.3 billion Dollars and a more than 40 percent premium for a listed business called Kenexa. Kenexa still makes no money, but the business is rapidly expanding in the business software space. Of course. Kenexa supplies human resources with valuable software aimed at staff retention and growth of their skill-sets. IBM sank over a percent. Like I said, they probably overpaid in the short term. IBM is undoubtedly the granddaddy of the tech sector. The business has a complex and longer dated history than any other tech company of size that I can think of. And the name suggests that, International Business Machines, that has stood since 1924. Check out the IBM company history.
But perhaps the reason why the markets are seemingly "going nowhere" this week is as a result of the closing weeks of summer vacation for the Northern Hemisphere. And perhaps because of all of the posturing ahead of the Ben Bernanke Jackson Hole speech, that is on Friday. Are we set for a week of low volumes, or as the bears like to call it, a sign that there are sharks in the water. Here is one of my favourite posts of the day that dispels that myth: A Low Volume Bull. See, don't get anxious about the lack of conviction. I never get excited about the low volumes, because the high volumes of yesteryear just might not be around nowadays, if you know what I mean. Be that as it may, the Ben Bernanke is goin' to Jackson, to be that big-talkin' man (see the lyrics on this Christmas tree bit -> JOHNNY CASH LYRICS - Jackson). And that gets Mr. Market another reason to find another event that is all the focus this week.
Currencies and commodities corner. Dr. Copper last clocked 344 US cents per pound, lower on the session. The oil price is falling a little, even though the news is that tropical storm Isaac shut down 78 percent of all Gulf of Mexico production. At least for 36 odd hours, as it makes landfall (Louisiana coast) later tonight in the US, or early Wednesday morning. Isaac could be upgraded to a hurricane, a category one over the course of the day. The national hurricane centre website is a wealth of information for all the weather nerds out there. I remember reading somewhere that the weather is the best ice breaker subject, because everyone has an opinion. The oil price last traded at 95.35 Dollars per barrel. The platinum price is weaker at 1533.7 Dollars per fine ounce, the gold price is also lower at 1662 Dollars per fine ounce. Of course the anticipation of more Federal Reserve easing is to some extent buoying the precious metals sector. The Rand is weaker at 8.42 to the US Dollar. US futures are marginally lower, and that follows a negative session from Wall Street overnight. We should start lower, perhaps another cushion from a weaker Rand will protect us a little.
Parting shot. Another myth is that the Federal Reserve actions since the financial crisis began have proved to be worthless, and have only resulted in an eventual loss to the US taxpayer. This is not true. In fact, this post will perhaps help you deal with that idea. And although it was a long and painful road, the Fed made a marginal profit out of the sale of their AIG shares. On behalf of the US tax payer. Check it out: U.S. monetary policy since the financial crisis. The most amazing part of the post is the graphic, the thinking that the Fed will never wind these programs down, that part always cracks me up. The Fed will do what they have to, in order to stabilize the economy in the short term. I am no armchair critic, I am grateful that they did all they could during what may well turn out to be the biggest speed bump that we ever experienced. Or not. Right now there is a crisis brewing somewhere, there always is.
Sasha Naryshkine and Byron Lotter
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