To market, to market to buy a fat pig. Markets closed at record highs, well at least the S&P 500 on Thursday evening. It was awesome to get the little notification and to watch it real time. A historic moment no doubt for all concerned. We closed out the quarter not so well, I guess all things considered, but that is largely due to our market being skewed to big companies that carry a primary listing elsewhere. I cannot stress that enough, our market is definitely not a reflection of the local economy. But, most equity markets are exactly that. Even the S&P 500 which is supposed to reflect the US market, but because of massive multinational companies listed in the US, 46 percent of sales of all the companies were foreign. In other words, outside of the US, and that number was in 2010. In the year 2000 that number was only 30 percent. So, even though the levels of the broader market went nowhere really, the sales growth outside of the US was massive. Of course many technology companies carried a much higher percentage than even that, selling more outside of the US than locally.
But it was not just Thursday that the Americans were working and setting new highs, it was yesterday too. We were away. But what I find interesting about this S&P high is another thing, and read this Eddy Elfenbein article carefully: Dividends Continue to Rise. And remember that we have spoken about cash on company balance sheets being at a record high too. This is in large part due to an adopted wait and see approach which has worked. I had a great conversation at a kids birthday party with the CFO of a mid tier listed industrial business. And he said that they, their business that they are working for, are searching for each and every way to mechanise their business. Spend heavily now, because shareholders are expecting margins to improve off a low base. He said there was absolutely no way that they could return to the labour intensive past, at least in their business, as the demands were too many.
Our mutual suggestion, in order to strike a balance with business, was that each and every union leader should be forced to visit Detroit, Michigan. You have no doubt seen those then and now photos of Detroit, if not, here goes: Now and then. General Motors and Chrysler collectively employ less than 10 thousand workers there now. The population of Detroit is also 1 million less than what it was 60 years ago. A time when the saying went, what is good for General Motors is good for America. We are also, as luck would have it, looking ahead to US motor sales, the best number in over four years is expected. Mechanisation means fewer manual jobs exist, to succeed in the modern world you are going to have to stay ahead of your peers.
According to a New York Times article union membership in the USA is at a nearly 100 year low, as a percentage of the workforce. Part of the reason, as per this article: Share of the Work Force in a Union Falls to a 97-Year Low, 11.3%, was that VW and Boeing were moving to non union states and that retail and restaurant jobs (which were growing) were not likely to be unionized. Amazingly, private sector union membership had peaked in the 1950's at around 35 percent.
Finally some good news from Telkom on Thursday. The announcement of the two appointments gave the share price a boost. The two appointees are Sipho Maseko, the ex BP South Africa guy, who has been appointed as group CEO. More importantly, Maseko is ex Vodacom South Africa managing director, a very good school friend worked under him and knows him well, he says he is tops. The other appointment is the new COO in the form of Brian Armstrong. Armstrong has pretty extensive telecom experience. So, the two were favourably received by the market. But, the Telkom share price, if you add in the Vodacom now, used to be at roughly the same level as it was back in 2005.
You are however missing something important, both businesses have paid since 2005 a collective 80.90 ZAR. So whilst you might have been forgiven for thinking that "nothing" has happened over the last eight years, ignore the power of the dividend at your peril. Of course you would have been MUCH better off had you sold Telkom and bought Vodacom as the unbundling and subsequent sale took place in May of 2009. In fairness that did coincide with a market low, but since Vodacom have been listed separately the share price is up 87 percent, versus a Telkom share price that is down 75 percent. That Telkom share price performance does include a special dividend of 19 ZAR back in May of 2009.
So is now the time to own Telkom? Their infrastructure is worth a lot more than the market affords to the company. Or is it? Is the market wrong or right? I suspect that one must never argue with the collective, the collective knows best. As ever, we point to the 40 odd percent shareholder and their meddling in the business. That shareholder, the government of South Africa, seems to think that only they matter, so much so that the name of the business was changed to Telkom SOC, with the SOC standing for State Owned Company. Now I suspect that they should look at the last annual report, a story from a year ago that I wrote: Telkom, Vodacom and government holding shows you the holding. Now the only thing that we can note from this name change is that government are oblivious to the minority shareholders. So much so that the mere renaming of the business suggests as much. So, the more it changes, I suspect that the meddling will stay as government is again told by their core support base that they must continue to do more.
Crow's nest. Looking good for the first trading day of the quarter. Anglo American continues to plumb new multi year lows. Over a ten year period in London the stock is up 67 percent. Now that might not sound bad, especially those returns in Pound Sterling terms, but the stock has underperformed the FTSE 100 over the same time period. No really. BHP Billiton over the last ten years is up 374 percent over the same time frames, Xstrata and Rio Tinto have beaten Anglo comfortably then too. So much for equals, that does not exist anymore. Xstrata's market cap is around 35 percent more than Anglo American. Mark Cutifani takes over tomorrow, it is his first official day on the job. Phew. Good luck, perhaps the timing will turn out to be genius.
German, French and overall European PMI numbers beat lowly expectations, whilst Italian and Spanish PMI reads remained underwhelming, worse than anticipated. Unemployment in Europe in the common currency era reach a record low of 12 percent. But 12 percent was expected. The problem as ever, because most of the countries look after their unemployed, this continues to put pressure on European countries fiscal situations, which look ropey at best. And news just in ...... the Cyprus finance minister has resigned. What now? Can you imagine the stress that he was under? Nope. I can't.
Sasha Naryshkine
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