Jozi, Jozi 26o 12' 16" S, 28o 2' 44" E. We waited the whole week, for one speech, that of Ben Bernanke at Jackson Hole. Initially the market fell, but we came back after the sell off to end the day in the green. Where we had started. Resources still lagged the broader market, the gold companies had sold off earlier as the anxiety around labour disputes were spreading, Gold Fields reporting an illegal strike. All this whilst the gold price and the associated trader types were seeing prices gyrating, this way and that, folks were just plain confused.
I don't normally do this, but I will take this opportunity to say that the president's comments associated with the Marikana massacre suggesting that the event had not impacted on investor sentiment. On my screens, American commentators were suggesting that the selling of Gold Fields was as a result of the illegal strike. I saw Americans talking negatively about the events. But I guess I am nowhere near politics in this country, I just read the same stuff as you. So therefore it is reality. Folks are selling (someone of course is buying too) the assets because there is trouble associated with a region based on the news they see. Like I often say, I have never been to Escondida, but pay attention to the Chilean labour activity associated with the largest copper mine in the world. There is very little good to have come out of the Marikana massacre, except for realisation that there is the need to improve many things, including awful labour relations between all parties.
Jackson Hole, close to Jackson, Wyoming 43o 28' 31" N, 110o 46' 9" W. Just before he was due to deliver the keynote address at Jackson Hole, Ben Bernanke took a stroll outside, just to show everyone that he had arrived. And he was walking around with none other than Stanley Fischer. Who? Well, Fischer speaks with a Southern African English accent with an American twang, the guy was born in Zambia and lived in Zimbabwe growing up. He studied in the UK and the US, where he was Ben Bernanke's thesis advisor. Let us just say Bernanke and Fischer know each other VERY well.
The most anticipated speech, for a number of months, at least in my world started like a history lesson, explaining what the Federal Reserve's response had been to the crisis. Whilst I was reading the speech, it suddenly struck me that many people were probably leaving the interpretation to others. Such is the hyperactivity associated with the trading around the speech, we all let everybody else read it and interpret it. Not me, I went through the whole lot, Monetary Policy since the Onset of the Crisis, and sort of came away with the same conclusion as everybody else. Something will happen soon, if it needs to happen.
Who interprets these statements? I suggested to a journalist friend who called that I was busy running the speech through my Fedspeak interpretation device. Already I have seen some folks suggest that this was a dovish speech and the Fed will act soon. Others suggest that the economy is not weak enough, and the Fed will only act if needs be. We all read the same thing no doubt, it is just interpreting the words. Which is weird, but that is the nature of central bank communication. In short, the labour market is weaker than the Fed would like, and whilst we have seen a recovery, it is tepid at best.
BUT, and this is often the point that I make, the Fed were acting all the time, not exactly making it up as they went along, but doing the "right thing" as they saw fit. I am comfortable that they will use all the tools at their disposal. And this line is key: "It seems clear, based on this experience, that such policies can be effective, and that, in their absence, the 2007-09 recession would have been deeper and the current recovery would have been slower than has actually occurred." Exactly. I hear some folks shout, "QE didn't work"! How do you think conditions would have been without the relevant Fed intervention? We will never know. But the naysayers can keep on those lines.
Byron's beats looks at a business that looks like a diversified miner, but is actually not as much as you think.
- This morning we got full year results from diversified miner African Rainbow Minerals which showed a 2% growth in headline earnings per share. This is fairly good when you consider commodity price falls over the last year. The share price has not done so well however falling over 16% so far this year. The share took a massive dip last week as iron ore prices fell to three year lows. It is now trading at R142 a share and with headline earnings of R16.15 a historic multiple of 8.8.
Let's look at the earnings mix of this company and see where their exposure lies. I hacked the contribution to headline earnings table from the presentation which paints a very one sided picture and you can see why this stock feel so much last week when Iron ore prices dropped. In fact can you even call this company diversified when Iron ore is responsible for basically all of the profits.
I'm not going to go into any of the operational details because this is not a recommended stock but it does highlight that there are not many options out there when you are looking for a diversified miner. On our exchange there are really only 2, Anglo and Billiton and by now you definitely know which one we prefer. In fact even Anglo is too reliant on their Iron Ore division. That said I still believe that the iron ore market will pick up again as demand remains strong from developing markets and supply plateaus.
The Outlook is very cautious and subdued. Here is what they had to say.
"Demand for ARM Ferrous products is mostly influenced by demand from China. The slowdown in China has been influenced by demand fundamentals from Europe and the US and the deterioration in export markets. China's demand for metals will be dependent on improved regional fixed capital formation, urbanisation, re-urbanisation, rebalancing towards consumer spending and decisive reflationary policies.
Deteriorating global credit and economic conditions could act as a catalyst for further Chinese government stimulus measures, which have remained more conservative than previous efforts. Demand fundamentals in the PGM, nickel and chrome markets are expected to remain subdued in the short term due to uncertainty in the developed markets and over supply. The long-term fundamentals of these commodities are positive with a recovery in the developed markets together with supply side challenges being experienced by PGM producers expected to provide price support. ARM is positioned well financially with a strong cash position. The Company continues to focus on further enhancing operational efficiencies to ensure we maintain a favourable cost positioning to maximise margins in the currently challenging price environment."
Like I said we remain positive about the long term sustainability of the commodities bullrun even though we have hit a speed bump. We continue to add at these depressed levels but of course through the only real diversified miner BHP Billiton.
Currencies and commodities corner. Dr. Copper is last at 346 Dollars per pound, slightly higher on the session. The gold price is off the best levels, 1687 Dollars per fine ounce is where it is last. The platinum price is slightly better at 1538 Dollars per fine ounce. The oil price is 96.36 Dollars per barrel. The Rand is steady to flat, 8.41 to the US Dollar, 13.36 to Pound and 10.57 to the Euro. It is Labor day in the USA today, the end of the Northern hemisphere summer. Well, I had a short swim yesterday, it was very cold. Our market has started a little better here, on what is a quiet day.
Sasha Naryshkine and Byron Lotter
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