To market, to market to buy a fat pig. Ha-ha!! This is almost as if we are watching a high school romance between the main cheerleader and the buff flyhalf, or should that be the eigthman, to use a rugby analogy instead of an American football one. It is Craven week after all. Take your pick, perhaps the Fed and the teamsheet (the FOMC announcement and minutes) are the jock and the market participants are the cheerleaders. The highs and lows of the relationship leading to the prom (matric dance) almost seems the same to me as the short termers trying to time the Fed exit from their bond program and pending taper. Will he choose me, will she say yes?!?
I wrote this morning to a client who sent an email asking if bad news is good news:
Imagine chasing your tail all the time trying to second-guess the Federal Reserve and flopping from one FOMC meeting and announcement to another?
Sounds rather tiring, I had a fox terrier as a kid named Goggles (she had brown rings around her eyes) and that was my favourite thing to watch, when she tried to catch her docked tail!!!
What sets stock levels ultimately are earnings, in the short term the sentiment around rates and economic growth outlook waxes and wanes like the moon cycles.
Stay the course as usual! Be invested in industries that are going to transform society and business, not old and stale business losing market share to new technologies.
Watching the Fed and getting anxious about their next move is going to make you old and always uncertain. I love history and read markets history. What for? Just curiosity, I don't think that you get patterns developing and history repeating itself. And when I hear people say "this reminds me of 1986, or 1997" I ask the same question: "How many iPhones were sold in that year?" That question of course will change and no doubt in 15 years might be driverless cars.
OK, time to make a point, your time is precious. The Minutes of the Federal Open Market Committee June 18–19, 2013 were released last evening. The key paragraph for me was this one:
"Since the September meeting, some participants had become more confident of sustained improvement in the outlook for the labor market and so thought that a downward adjustment in asset purchases had or would likely soon become appropriate; they saw a need to clearly communicate an intention to lower the pace of purchases before long. However, to some other participants, this approach appeared likely to limit the Committee's flexibility in adjusting asset purchases in response to changes in economic conditions, which they viewed as a key element in the design of the purchase program. Others were concerned that stating an intention to slow the pace of asset purchases, even if the intention were conditional on the economy developing about in line with the Committee's expectations, might be misinterpreted as signaling an end to the addition of policy accommodation or even be seen as the initial step toward exit from the Committee's highly accommodative policy stance. It was suggested that any statement about asset purchases make clear that decisions concerning the pace of purchases are distinct from decisions concerning the federal funds rate."
And then after having said that, this member was worried about this and that member thought asset purchases should end early, the line that every one picked up on:
"Many members indicated that decisions about the pace and composition of asset purchases were distinct from decisions about the appropriate level of the federal funds rate, which would continue to be guided by the thresholds in the Committee's statement. In general, members continued to anticipate that maintaining the current exceptionally low level of the federal funds rate was likely to remain appropriate for a considerable period after asset purchases are concluded."
Many members means almost everyone. As the FOMC have said before, until asset purchases end, they won't. It is almost the inverse of that quote from Dev Patel (who is the character Sonny Kapoor) in the movie The Best Exotic Marigold Hotel: "Everything will be all right in the end... if it's not all right then it's not yet the end."
And Mr. Market breathed a sigh of relief, she said yes, he asked! So back to the prom for stimulus, long live the rally. All the armchair Fed chair people can sit down now. I know this is an aggressive line that I am taking, but it goes back to the core of investing and what we are trying to achieve. We buy companies. With good prospects. We do not buy Fedspeak and then try and interpret it. We do not buy extraordinary programs designed to restore faith in banking systems and liquidity, which is the lifeline of businesses. I am pretty sure that the FOMC will do what they think is right. And the combined human processing power of the committee is amongst the greatest economists in public service anywhere and at any time. So getting anxious about it is probably a waste of time. End of rant, time to move on!
I am outraged! It is laughable. But sad at the same time, because it is your money in the end. I am going to try and spell it out for you as absolutely best as I can, the difference between a private business and a State Owned Corporation. This has to do with something that is really important to all of us, and in particularly if you happen to live within the borders of this great country of ours. Power. For the people. Of the electrical kind. Eskom released results yesterday, for their year to end March 2013. First difference, as a listed entity accountable to shareholders (of all sorts) you are obliged to meet parameters that the exchange has put in place to report within 3 months of your reporting period end.
Here are the Annual Financial Statements for the year ended 31 March 2013. The Financial Director, Paul O'Flaherty, has resigned over at Eskom, some suggest that he might be the fall guy, perhaps the pressures of the job got to him. I have absolutely no insight into that whatsoever, but it must be an incredibly tough gig. But money is money, and when the state and by function their citizens are funding a State Owned Enterprise accountability is all the citizens ask for.
It is perhaps a coincidence that Sasol yesterday inaugurated a gas fired power plant at the same time as the Eskom results. The media release is here: South Africa's first gas-fired power plant fully operational. Some interesting points. Firstly, the project cost 1.5 billion Rands. The plant on average produces above its operational capacity at 152MW (since it became operational at the end of last year). So, quite easily I can work out cost per megawatt of output, by dividing the one by the other. 9,868,421.05 ZAR. And another point worth noting, as Sasol do in the release: "Gas powered plants require less time to build and install, taking between 20 to 30 months, opposed to the 40 to 50 months required for a coal power plant and 60 to 80 months for a nuclear plant."
And Medupi? Well, we were told that is was going to cost 105 billion Rands. And when finished, the plant will have maximum capacity of 4,788 megawatts. Cost per megawatt? 21,929,824.56 ZAR. 122 percent more than the Sasol plant. Which also took shorter. Fair enough it is a small scale plant and both have different energy inputs with variable costs, but all we want is value for money delivered timeously. Again, I am no engineer, the closest thing I ever came to that was creating amazing lego contraptions out of old style blocks. The kids of today have all the fun!
There are a few things that I must concede. I have no insight into economic policy of the upper echelons in government and how individuals who form it have themselves been shaped by the ugly events of South Africa's past. Today is a particularly historical day in our chequered past, it marks the 50th anniversary of the arrest of 19 folks at Liliesleaf Farm, not too far from where I sit. Arrests of Govan Mbeki, Walter Sisulu, Nelson Mandela and many other famous South Africans took place that day. Those men gave up a large portion of their lives that day as free citizens in their country of birth. So I concede that the overwhelming feeling that the state can provide the best possible services to the people, because there is a genuine care about the have-nots, might not be shared by business. But surely at the end of the day, everyone wants electrification at the lowest possible cost to the tax payer.
The end user probably doesn't care who supplies the electricity. And greater competition will result in a lower price to the end consumer. Unfortunately (with my capitalist hat on always) the state will proceed along this path. Perhaps in decades time with the private sector supplying more power to the grid it will become more fragmented as the state sells off portions, floats the business (Eskom) publically as perhaps economic decisions trump ideology. That would be best in the long run.
Home again, home again, jiggety-jog. Wow. Amazing. The Bernanke big bust out today as taper weaning is delayed. Our market was up nearly 2 percent at one stage earlier this morning, we are not too far off for the time being. Almost everything is up! Resource stocks, the most beat up are catching some serious bids here. Commodity prices are up, the Dollar is taking a hit, the Rand as such has strengthened.
Sasha Naryshkine and Byron Lotter
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