What is next? Eeeek! The event that everyone is now talking about post the US elections is the fiscal cliff. Paul said that was a stupid name, because that implies barrelling over the edge, Henri Charrière style. You know, the guy who wrote the book Papillon, which recounts his 14 year imprisonment under what can only be described as cockroach conditions. But, as in many stories, this recount of history is disputed. Paul suggested a few names, we can pick that up later. I chuckled a little to myself when I actually saw a countdown clock to the fiscal cliff on CNBC, which was up to the second, 54 days, so many hours, minutes and seconds. The drama of it all! The countdown to midnight of the last day of the year when automatic spending cuts will kick in and tax breaks will expire. Hold on a second here...... I thought that we all wanted the US to address their spending issues? More on this issue later, the only thing affecting US markets yesterday. OK, perhaps Greece too. Markets in the US fell over two and one third of a percent last evening, on these concerns and uncertainty.
Jozi, Jozi 26o 12' 16" S, 28o 2' 44" E. Stocks closed the session lower, industrials were worst hit. The Rand did firm to levels not seen for a few weeks, commodity prices took a bit of heat over the last few days too. I suddenly wondered if Mr. Market was expecting a stronger Dollar (and by extension weaker commodity prices) as a result of a Republican victory. Yes, the fellow who basically called half the nation sponges and was pictured with 100 Dollar bills in his mouth, admittedly years ago, how would that guy do with changing demographics in the US. Oh, and let us not forget the "binder issue" for women voters. Having said that though, there are still many people who support the Republican parties, their values need a rethink, right? Locally we have the same issues I think, but what constitutes liberal here?
Barack Obama has global appeal. But I can assure you that on the television stations that I watch there are many detractors. And some of them are pretty vocal. It always helps to keep a cool head, but right up there with Hugo Chavez on my list of nutjobs is Donald Trump. He is clearly good enough at what he does to have got that self importance elevated to major visibility. But the stuff that he spews, yech, really? Check it out, a whole lot of people who were upset: The Craziest Things Tweeted By Conservatives After Obama Won.
But, as we said earlier, the real issue now turns to what is known as the fiscal cliff. I have nine new emails that refer to the event from the overnight collection. Fiscal cliff sounds a lot more dramatic than the real name, the BUDGET CONTROL ACT OF 2011. Yes, you too can download this piece of US law. Question time, how many people who are completely beside themselves because of the looming spending cuts and tax increases have actually read this long law? Not me, I skimmed through it. Could it be then that this is almost always the case? You bet.
I was surprised with the reaction of the market yesterday, it is known that Wall Street are not keen on the current democrat dispensation. I am guessing that Wall Street likes the House! A couple of links you may have to read in order to get the sense that politicians understand the time constraints here, first (subscription only, sorry) the WSJ piece with a strange sort of title: A Question of When, Not Cliff. Then the FT, subscription only too, New battle follows hard on Obama win.
What I quite like about the US looming compromise on both sides of the aisle is that everyone on the hill wants to spend time with their family for the holidays, and would prefer to be there rather than bashing out a deal until the last minute. I suspect they will, there is momentum here on both sides to get this done. Cullen Roche suggests that this is going to take a little time: The Fiscal Cliff & Market Uncertainty. Roche signs off on the short post: "The market hates uncertainty. And that's what the fiscal cliff creates. A resolution on this is increasingly important for understanding market directionality and economic directionality. Unfortunately, we won't know the answer for several weeks and maybe even months"
I would say that we need to sharpen our pencils. I am starting to wonder whether Wall Street is or was projecting their view on the elections and on the fiscal cliff. And the broader economy. I recall a post titled Election Day Thoughts, from Josh Brown in which the second paragraph makes you swear you could be somewhere else: "I think I speak on behalf of all Americans when I say that, regardless of who wins, we can only hope for four years just like the last four - rife with financial corruption, naked kleptocracy, legislative ineptitude, natural disasters, class warfare, metastasizing poverty, a hollowing out of the middle class, rising costs of living, lower wages, doping professional athletes, unlistenable popular music, ballooning debt, manipulated bank lending rates and taxpayer-supported asset prices that no one trusts anyway." I had to read it a few times. Makes you wonder, right?
- Byron's beats
If you are a regular on social networks I am sure by now you would have heard that Grand Parade Investments, a Western Cape based holding company, are bringing Burger King to South Africa. First and foremost I want to mention that yesterday, before the announcement was released, the stock was up 6%. The news must have leaked and people took advantage. Not good for market efficiency but I guess these things are almost impossible to hide. So far today the stock is up 2.7%.
Grand Parade are mostly involved in the gaming and leisure sector with a 25.1% stake in SunWest who own GrandWest Casino and Table Bay Hotel, a 25.1% stake in Worcester Casino and 100% of its subsidiary GPI slots who own and service outlet driven payout machines. So I guess this will fit their theme of leisure and outlet servicing, it is certainly a lucrative industry at the moment. In the announcement they state that another one of their wholly owned subsidiaries, Utish Investments has entered a JV with certain subsidiaries of Burger King Wordwide to form Burger King South Africa (BKSA). BKSA will hold the master franchise and have exclusive rights to develop and expand the brand in South Africa.
I think this is fantastic news for Grand Parade who have a market cap of R1.5bn and managed to really improve cash flows in this last financial year. R335 million was generated in the year ending 30 June 2012 which clearly helped in the bidding process to bring this well known brand to South Africa. Why is this good news? If you have seen my previous pieces on Famous Brands, Yum! Brands and McDonalds you will know that I love the sector, especially in the developing markets.
The dynamics of households are changing. Both men and women, mothers and fathers are working harder and longer hours. There is less time to cook dinner. It is an opportunity cost, sacrificing time to cook in order to work or at least relax after a hard day. Because more women are entering the jobs market there is even more incentive to get fast foods at least once or twice a week to relieve the pressure.
This is within the existing middleclass household. Here in South Africa and the rest of the developing world we have an emerging middleclass too. These people are new to the joys of fast food which is not only tasty but also very affordable. Cheap luxuries that many of us take for granted but what a newly liberalised salary earner would appreciate will push sales in our major cities.
On the back of this I feel there is certainly more room in the South African market for another competitor. Food courts in our shopping malls would welcome a big brand like that coming in and spicing up the mix. (Is that a pun? Not sure). So i wouldn't be too concerned with them finding good locations. And hey as consumers competition will certainly benefit us, those King Steer Burgers were looking pricy.
Digest this.
It may have been low on the agenda, but it certainly did not pass under the radar: Greek Parliament passes new austerity package with tiny majority. This Greek vote was tight, there are not many times when politicians vote to cut their own pay, their pensions and their benefits? Not often. Labour reforms voted through. All this to receive the next tranche of aid. Bother. But my point is just simple, now that the Europeans have made it clear that those in the inner circle will be told how to do it, and transform, they will be willing to give the next tranche of aid. So you mean Greece are still in the Euro zone? What happened to Grexit and all that? Cheap talk, headlines and once again far from where we settled eventually.
There is a point that almost everyone misses. Or at least I think so. Let us take Spain for instance, the last few years have been awful. But what about the last twenty or thirty years? Check out the Google tool: Spain GDP. From 1980 to 1990 the economy doubled from 226 billion Dollars to 520 billion Dollars. More than double over ten years. And then the period from 1990 to 2000 saw the economy stagnate, and by the year 2000, the Spanish economy had only managed to grow to an annual output of 580 billion Dollars. It must have been a fairly tiring ten years for their economy. But then came the Euro, starting 1 January 2002. And by 2008, the Spanish economy had been catapulted to a figure of 1.6 trillion Dollars GDP. Last year it was 1.5 trillion.
But that sounds so much better than 1980, or even the year 2000. On a per capita basis, GDP per capita was 8,808.82 US Dollars (constant 2000 Dollars) in 1980, current it is 15,511.93 Dollars per capita. If you look at the current US GDP per capita measure it is much higher. 32,244.18 Dollars in 2011, 6,036.57 Dollars in 1980. And savings? Well, in 1970 absolute savings in Spain were just over 10 billion Dollars, now that is 320 billion, a 30 plus fold increase. Much worse than the 370 odd billion in 2008. But that is my point, we all suffer from recency bias. For the average person in Spain, their life is much better over the last thirty years. Heck, democracy was a foreign concept for 40 years under Francisco Franco from 1937 to 1975. So, all I am saying is give them a break, they were once rulers of the world. That fell apart. Their lot improved an enormous amount. Too quickly. But the idea that they can do nothing to solve their problems is wrong, check this out: Spain Said to Consider Palace Sales to Raise Cash. The Spanish government owns 40 thousand properties in the province of Madrid alone. Wow.
Crow's nest. The ECB meet today. They are expected to cut rates soon. Not now, perhaps in December. Markets have turned for the better. We have been saved from the selling somewhat!
Sasha Naryshkine and Byron Lotter
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