Jozi, Jozi 26o 12' 16" S, 28o 2' 44" E. After all was said and done the slightly lower finish to the day was expected I guess. We closed a whole 21 and a bit point lower on the day which is a move of 0.06 percent lower than the previous close. Banks were winners, but resource stocks lost over 1 percent. Platinum stocks continued to slide, down 1.65 percent on the day, Amplats took a pasting as they started the disciplinary process and no doubt the dreaded news of worker firings is coming. It is such a fine line in this country of ours, where unemployment is such a sensitive issue, but the right remuneration is also a huge debating point relative to the past inequalities. But business must also be allowed to create opportunities and the militancy of the unions (or their members, ex or present) is definitely impacting on the business environment in South Africa.
I am a little surprised that all fronts (Government and the unions) have come out saying that Implats are to blame for the wave of strikes at the moment. I kid you not, read in the BusinessDay: Shabangu blames Implats for spreading strikes. I know what Jon Stewart from the Daily Show would say, "are you &*(^ing kidding me?" Because as someone else pointed out on twitter, if this is the case, where were the unions and the minister when Implats made this wage increase announcement earlier? I wonder what Impala management think right now? Should they step back and undo what they have done earlier? They won't.
It is becoming hard to keep the faith here, perhaps it is all part of a cycle that happens in South Africa from time to time. And this morning's "paper" says the following: Strike havoc spreads. I would love to know how it is impacting on your business and what you are going to do about it. And more importantly, are you going to be expanding your business any time soon? Are you going to be opening the doors to new employees? Please send me your bits, we can publish them anonymously. Perhaps I am just feeling like a cranky old pale male Republican, although I do consider myself a liberal. Not too sure how that works, perhaps I just like Milton Freidman because he speaks sense. Or spoke sense should I say, the man died nearly 6 years ago now. Talking of another Friedman, be sure to catch Steven Friedman's (different spelling of surname) piece today in the BusinessDay: The poor don't pose a threat to fiscal discipline.
I am pretty glad that both the Finance Minister and the Reserve Bank Governor are openly suggesting that government heed the ratings agencies warnings. I suspect that we could see a weaker currency for a little while now. All I know is that this combative stance towards business does not help create jobs. It has the opposite effect. AngloGold Ashanti is talking about downscaling.
And if I could be so cheeky to say at the same time, SAA just received another bailout. Or as the BusinessDay puts it, a lifeline: Ailing SAA lands R5bn lifeline from government. If you needed a comparison, Comair made a modest profit for the year to end June 2012. And now has 67 years of unbroken years of profitability, although this one was a squeak. In their results Comair said: "This year saw the highest ever average jet fuel price, being 29% higher than the average for the prior year, and 50% higher than that of 2010." And: "Costs were negatively impacted by the October increase in ACSA tariffs of 70%, and by the effect on maintenance and lease costs of the 11% average weakening of the rand."
On the department of Public Works Annual Reports 2012 segment, you can see that there are only annual reports for SAA from 2008. There is nothing after that. Why? We deserve better, don't you think? I certainly believe in my heart and head that businesses create opportunities for people and not government. And in terms of economic policies, we are heading in the wrong direction. And the fact that government wants to be bigger, have more of a reach, that does not stack up for me. And accountability? None. Or not enough. Yes, perhaps Implats are also to blame for SAA's woes. Ouch, that was facetious, I apologise.
- Byron's beats
This morning we received national cement sales statistics from The Cement and Concrete Institute. Unfortunately the competition commission has only allowed the data to be released a quarter later. So these figures are for the second quarter of the year April to June. Because we do not recommend PPC anymore the fact that it gets sent a little later is not too much of an issue. It is still important to cover however because the construction sector is such an important part of our economy.
The number showed some steady growth yet again as we can now safely confirm a turn in the cement cycle. 2 915 120 tons were sold in the quarter compared to 2 725 421 tons this quarter last year (+7%) and 2 637 349 tons in the first quarter of the year (+6.7%). There were however more trading days this quarter so the daily average was only up 3.5% compared to this quarter last year.
So what does this mean? According to Stats SA last year construction was responsible for 4% of value added to GDP. It was also responsible for 3.4% of compensation for employees around the country. Although it is not nearly as big as it used to be it is still an important sector. When I went to the PPC results presentation at the beginning of this year they stressed that the lag in demand for cement was the housing market which is responsible for half all the demand. It was also where they saw the growth coming from going forward.
Although these cement stats don't tell us where the demand is coming from, for the cement cycle to turn we need the housing market to pick up because it is such a big contributor. Remember that article I wrote last week about how important the US housing market recovery was for the whole economy because of the wealth effect? Well this is obviously the case for our economy too. It is absolutely essential for the housing market to pick up if we want to maintain this economic growth.
Although the construction sector seems to be turning we do not see any buying opportunities directly in the sector. The cement producers look expensive and competition is rife while the builders are still battling with margins and government payments. Our only entries into the market would be through the retailers Cashbuild and BuildersWarehouse (through Massmart) who retail the cement and other building products. These companies are also more geared towards the housing sector which is coming off a low base and due a recovery.
Digest these links.
Housing doing better in the US? Yes is what the answer is. Or at least according to Prof. Mark J Perry: 2012, the year of the housing recovery: CoreLogic's home price index increased 4.6% in August, largest gain in 6 years. His line at the end there is important: "We are finally seeing ongoing increases in the HPI that have now continued for six straight months and are starting to accelerate compared to year-ago levels." Six straight months of gains possibly constitutes a recovery then!
Quite a bit of excitement about US motor vehicle sales yesterday, the winners were Toyota, Chrysler and Honda! Kia and Hyundai also benefitted from greater passenger vehicle buying. The losers were Ford and Nissan, whilst GM was also disappointing. Check it out from the WSJ: Passenger Cars Lift U.S. Sales. A four and a half year high on motor vehicle sales is good right? Yes, I think so.
The US and the UK have been strongly pushing financial reform, but now check it out, Europe Jumps on Bank-Overhaul Bandwagon. The right time? Considering that the landscape looks pretty average right now. Not sure, but this is one of the reasons why we think that the big banks are up against regulation and shareholders demanding that the talent takes less home. Sounds like a bad outcome for the workers and perhaps the shareholders too!
New York, New York. 40o 43' 0" N, 74o 0' 0" W Spain. Again. The rally was scuppered by the news that the Spanish are maybe not that close to accepting (or asking actually) for a bail out from the other nations. Or not as close as Mr. Market thought, the suggestion was that as early as this weekend the Spaniards could be asking Brussels (Berlin?) for some money. That process is going to take a lot longer than everyone anticipated. European speed is not the same as US speed, perhaps because the roads are smaller, the vehicles are smaller and the people are less excitable. And perhaps the people in Europe are smaller too. Ouch! But it is fair to say that Europe is still all the focus, which I guess bodes well for the buyers of equities, such as ourselves. If opportunities present themselves, jump.
Currencies and commodities corner. Dr. Copper is last at 375 US cents per pound. The gold price is higher at 1778 Dollars per fine ounce, the platinum price is also higher at 1676 Dollars per fine ounce. The oil price is lower at 91.37 Dollars per barrel. The Rand is weaker, 8.42 to the US Dollar. All sorts of questions about the currency and its vulnerability at these levels, which does not bode well for consumers, from an imported inflation point of view. Our market is about flat on the session so far for the day. The huge news today will be the ADP report, which is always the precursor to the non-farm payrolls on Friday.
Sasha Naryshkine and Byron Lotter
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