To market, to market to buy a fat pig. Right, we are at the start of my favourite season. Cricket season..... I mean earnings season, this time for the fourth quarter of 2012. Every now and again the fundamentals become part of the focus and just for a while we can forget about the intense politicking that has been the order of the day for over two years I suspect. Or is it longer? Three years in April, if you use the Greek debt explosion (implosion?) as your starting point. Or perhaps it is four if you use the Irish debt crisis as the starting point in Europe. I am almost tempted to suggest that the starting point was a lot earlier than that, Bear Stearns was bought for a song (and many unknowns) by JP Morgan Chase in March of 2008.
Or was the crisis telegraphed earlier? I suspect that the first losses related to subprime mortgages that were exposed in October of 2007 were the first signs. If I remember at that time there were a few people bleating when banks started to show big losses. Wiki suggests that by March 2007, just the subprime mortgage market in the US was 1.3 trillion Dollars. And by October of that year adjustable rate mortgages (ARM's) were in deep trouble, with 16 percent either delinquent or in the process of being closed. So, this crisis caused by humans is over five years old. And the European and American politics still continues to come and go.
But like I said, every now and again earnings drive stock prices and we can for a bit forget about political figures past and present. The BusinessInsider has this piece: The 5 Biggest Questions Going Into Earnings Season. Yeah, perhaps the last one is a made up one. Or maybe not!
Jozi, Jozi 26o 12' 16" S, 28o 2' 44" E There is big news this morning, the confirmation has come from, wait for it, AngloGold Ashanti first (for me anyhow), that Mark Cutifani was leaving. Check it out: AngloGold Ashanti Announces Departure of Mark Cutifani. This is sad for AngloGold Ashanti, but I think that this is a very positive development for Anglo American. Anglo American have a nice picture of Cutifani on the front page of the Anglo American website, cracking no more than a grin. The official Anglo release: Anglo American appoints Mark Cutifani as Chief Executive. I think that this is awesome news for Anglo. Anglo stock is up on the news, whilst AngloGold Ashanti is down. There will be a lot written about the skills of Cutifani, but I think the clincher was his no nonsense attitude to the reality that faced the company when he was at the helm. I do not think he will sugar coat anything.
I suspect that he will be tasked with the tricky job of making sure that himself and Chris Griffiths give Anglo Platinum all of their attention. It is going to be a tough road ahead for making sure that the asset is restored to its former glory. It is after all 25 percent of NAV, but less than 5 percent profit contributor. It might be less in fact, I think it is closer to three percent. Another tough job will be making sure than the billions sunk into Minas Rio bear fruit for the shareholders. I am not too sure that Cutifani can speed that process up, but perhaps he could take a more practical approach. Maybe. Let's see, I wish him and the shareholders all the best of luck, everyone in the commodities space can always do with a whole lot of that!
Staying with commodities and gold miners, perhaps the saddest news in a long time yesterday finally came. The economic realities finally had a cause. And that was the fact that Harmony announced: Kusasalethu remains closed until such time as it is viable to mine it safely and profitably again. Sad. When Harmony bought this asset in the year 2000, see this press release: AngloGold Sells Its Deelkraal And Elandsrand Mines To Harmony For R1 Billion, there were over 9000 employees at the mine. From the Harmony announcement this closure impacts around 6100 jobs and livelihoods, and sadly as we well know in South Africa, many other folks are dependent on those jobs.
What happened? How did it get to this? Militancy from labour is to blame. That is the way that I see it anyhow, that is just my opinion. And what has that achieved? Nothing. Everyone is left all the poorer for it. Labour needs to understand that it is an expensive business to run these operations. During the December quarter, the total opportunity cost lost was 325 million Rands. Or approximately 3.5 million ZAR per day. Or, around 575 Rands per employee per day, including the contract workers. That is what the company lost because of illegal activity and stoppages. As per the presentation, two people were murdered, one person injured whilst the mine property was damaged too. And police and security were fired upon with live ammunition. There was complete disregard for both safety and health rules. Graham Briggs cited that as one of the main reasons, they cannot work under such circumstances. So. We wait 60 days under a piece of legislation called section 189 of the Labour Relations Act under which all stakeholders will present their ideas to make the mine work again.
Briggs suggested that the mine still has a life of over 20 years, but I suspect that this is just a way of appeasing all stakeholders for the time being. The December quarter was awful for the mine. There is a conditions for production to commence in the presentation that suggests just general guidelines to following the rules and a peaceful workplace. Violence is no way to solve burning issues. Unfortunately the precedent has been set, and for better or for worse AMCU think that this is the best way to get their grievances heard. Phew. As per the Harmony announcement: "Management is of the view that the status quo concerning production and labour strife will remain, as it has exhausted all possible avenues to achieve normal production and cannot find a solution to the current state of lawlessness prevailing." I am guessing that this is not the last of this happening in South Africa. Outrage anywhere? I have not seen it yet.
He is back ladies and gentlemen! Byron returns to our screens with this piece today. Socialism. Not for us.
- Byron beats the streets Over the holidays I went to the Seychelles for 8 nights. It was a fantastic trip and the place is unrivalled in its beauty. Being a finance piece I want to convey what I picked up about the economy of this group of islands which as a country has the smallest population of any African state. To understand where we are coming from let's first look at the demographics which I have gathered from Wikipedia.
The population consists of 86 525 people who live on the 115 islands. Nearly 80 000 of those people reside on Mahe, the biggest of the islands and where we stayed for 5 nights. In 2011 the size of the economy amounted to $2.2bn. It has the highest Human Development Index in Africa but also the highest income inequality in the world. That is probably skewed by 4 or 5 wealthy families who own lots of land and hotels.
Tourism employs 30% of the population while agriculture, which used to employ 33% in the 60's before tourism became so prominent, now only employs 3%. So how do you govern a country which is high in demand with tourists and has such a small population? Naturally, in order to get the votes you will let the people benefit from the land they live on in a socialistic type state. It is a lot easier when the pie is the size of the land and you could fill up soccer city with the entire countries population.
Schooling is free and the literacy rate is well above 90%. Land is being redistributed at very cheap rates for the local Seychellois people. How do they fund this? They are busy reintroducing VAT but the majority is raised from big import duties which is ultimately shifted onto the consuming tourists who eat and stay at the restaurants and hotels which are over inflated in price because of these duties. The majority of goods are imported which makes everything expensive.
This has also created a very lazy mentality amongst the local people. Who can blame them, no one is poor and there are no incentives to create wealth. There is a big drinking problem and a growing drug problem amongst the youth. Indians and Bangladeshis have to be brought in to do all the labour because the locals refuse to. There is a huge sense of entitlement and the lack of entrepreneurial drive makes me believe that any progress will be slow.
What is my point here? If you cannot successfully run a socialist state which consists of 87 thousand people with good assets at your disposal then how are you going to do it with 50 million? Unfortunately human nature requires incentives. Without goals we become lost, lazy and stagnant. As a tourist destination I highly recommend it. The country also has huge opportunities because if you work hard your competition is low. You have to form a partnership with a Seychellois to buy assets there however.
Digest this linkfest.
Whoop, whoop! Finally the only person I suspect who was able to answer the literal 1 trillion Dollars (coin) question has answered it. Yes, and it was on the Pragmatic Capitalist website. And, the guy who did it was the fellow who was responsible for the law being written in the first place. At least that is what we are led to believe, the comment left on the story This Bill to Close the Trillion Dollar Platinum Coin Loophole Should be Passed...IF... is from none other than Philip N. Diehl, the 35th Director of the United States Mint.
In short, it is possible. The mechanism from the blog comment is simple: "Moreover, the accounting treatment of the coin is identical to the treatment of all other coins. The Mint strikes the coin, ships it to the Fed, books $1 trillion, and transfers $1 trillion to the treasury's general fund where it is available to finance government operations just like with proceeds of bond sales or additional tax revenues. The same applies for a quarter dollar." Amazing, isn't it! And I suspect that this is the answer that everyone was looking for.
Like the fellows over at Calculated Risk, we have always suggested that there was NOT going to be a breakup of the Euro Zone and that all members would stay inside of the zone. As of now, this is still true, just over the weekend I saw that Latvia was preparing for full membership, Poland was still thinking about it whilst the Czech Republic was still there and wanting to join, they just had no date as of yet. Check this post: Question #10 for 2013: Europe and the Euro. It is amazing how quiet everyone has gone. The leaders of Europe must be very pleased with the fact that the Americans are having all their "issues". Cullen Roche has a similar view, in this post: Euro Crisis Risks Eliminated?, but one certainly gets the sense that there are many challenges that lie ahead.
Crow's nest. Regulators have softened on the Basel III rules, which I suspect is a good thing. Anglo is giving our broader market a lift of sorts to be about flat on the day. Futures are marginally lower. But hey, it is earnings season.
Sasha Naryshkine and Byron Lotter
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