To market, to market to buy a fat pig. Saved by the bell, or last chance saloon, you take your pick, but when push came to shove the politicians actually stood together and voted ahead of the date that Jack Lew had signalled was the day. A deal is a deal, and I guess it was always anticipated. So why the wait? What did the Republicans get out of it? Anything? The one concession was a means test for a tax credit where income has to be four times less than the poverty rate. Or something along those lines. Hardly sounds like a win to me, sounds like 17 odd days stupidly spent drumming up support for (seemingly) nothing in particular. Pfff....
I guess the long and the short of it all is that the shenanigans did not really move the needle, in other words, the market called the politicians bluff. There were a few short term victims, well, more than a few, some hundreds of thousands of non-essential workers who had no job for over two weeks. And according to a little graphic of a poll that I saw, in which the question was asked, will you vote for your incumbent in your congressional district next year, the answer overwhelmingly was "no way". Too early to tell had more votes than yes, which clocked only 19 percent. Phew. The losers in all of this were also the networks, I heard about 1000 times people confused that the markets were "not reacting" to such dire and potentially catastrophic news. No news actually.
So a whole lot of wasted time and effort wondering what the impact of a default would be, because in reality would you want to be a politician that failed to reach a deal and send the US at the core into the unknown? Would you really want to be that person, or collective, blamed for decades thereafter? Maybe, if you are at the core of the leadership struggle to capture the Republican party, as this WSJ piece points out: Was the Point Republicans Made in the Shutdown Worth the Price?. This was getting rather tiresome really, and as we suspected will pass. The FT has this take: Defeat has bitter taste for Tea Party. Bitter tea is never tasty for anyone, especially tea that is cold and bitter.
Although, look out for the ides of January, because that is potentially the start of another shutdown, should law makers fail to reach another budget deal. The debt ceiling is effectively suspended until 7 February. Oh, today is the 17th of October, there are a mere 75 days until the end of the year. We are on day 291 of this year, so next week Sunday will mark day 300. You can put that Spartan fellow in that movie on your calendar. Oh, and it was Jacques Kallis' birthday yesterday, possibly the most impressive cricketer of our generation, say what you want about Sobers (whom I never saw), but Kallis has a better bowling average, more wicket, and an equally good batting average. This is however not the forum for that discussion. So we won't talk about the average showing over the last three days either.
OK, so birthdays, debt ceilings, budget extensions and chest puffing out of the way (for now), we can return to the business of business. And by doing that we are here to do, watch the businesses closely and identify changes and opportunities. There is a reason why some businesses have been around for decades and in some cases centuries. The world's six oldest businesses still in operation are all Japanese. The oldest is a construction company, Kongo Gumi which can trace it's roots back to 578. Speciality? Building Buddhist temples. The family lost control in 2006, when the business was bought by a bigger conglomerate. So then perhaps the "record" belongs to Nisiyama Onsen Keiunkan, a hotel in the smallest town (by population) in Japan. That is quite some statistic, oldest hotel in the world in the smallest town in Japan. It looks stunning, the little town of Hayakawa. And how to marry old with new? Give the hotel an entry on Tripadvisor: Nishiyama Onsen Horaikan. Two reviews suggest that the place was excellent. 20 rooms. Class is permanent you see.
Enough fun, back to business. Did you see that Angela Ahrendts announced that she is quitting Burberry (the business she has run for 7 years so far) to join Apple, as head of their retail division. We have all be thinking over the last few days in the office and the conclusion that we came to was that people can shout from the rooftops suggesting that Apple should be looking to have an offering to the bottom end of the market, but who cares if it is a soft luxury item, right. Should you care as a shareholder that they concentrate on solid margins and superior products? Steve Jobs apparently compared Apple to BMW and Mercedes Benz. No matter how many or few you sell, you still want the luxurious and enduring qualities that attract your customers, old and new. Here is an outstanding piece from the FT (sorry, subscription only): The control freak formula at Apple and Burberry. Ahrendts is a tall individual, six foot three, and has all the qualities that Apple are looking for!
At the same time the news is filtering through that the consumer thinks the same thing. How so? Well, simple enough, the "cheaper" version of the phone has not reached the sales figures as of yet, but the more expensive 5s model is the one that everyone wants. I guess if you are spending that much money on a phone you might as well get the most expensive version, not so? The expectation levels have risen furiously, with the models suggesting that 50 million phones will be sold in the holiday quarter. So you see. The customer might always be right then, and the chattering classes are almost always just chattering. What I am trying to say is that perhaps this is NOT the worst news, fewer plastic phones, more classic phones. The next event from the company is on the 22nd where new iPad versions (both the mini and the large) are expected to be released.
Michael's musings. They are back, he is feeling slightly better. What is a Hot Stock?
As most of you will know, Paul does a daily show called Hot Stoxx on CNBC Africa (channel 410 on DStv), where he uses CFDs, to purchase a portfolio using leverage, with the portfolio up around 60% for the year ending in October.
I want to highlight the differences between the Hot Stoxx portfolio and what we do here at Vestact on a daily basis. The first difference is that the Hot Stoxx portfolio uses CFDs instead of buying the stocks outright, they use CFD's due to the main sponsor of the show being a CFD provider.
A Contract For Difference (CFD) is an instrument that allows you to have leveraged (geared) exposure to the market. In simpler terms, if you have R10 000 with 5 times gearing, it means that you have exposure to the market of R50 000, meaning that your gains/losses will be 5 times greater with the CFD, than if you had just used your R10 000 to buy shares. With a CFD you can lose more than you started with.
The next big difference between owning shares and CFDs is their cost structure and tax implications. CFD's cost about 50% less to purchase than shares because they doesn't have STT and STRATE costs that a share would have, but you pay interest on the borrowed funds. Back to our example of having R10 000 cash, but R50 000 market exposure, meaning that the borrowed amount is R40 000; with a CFD the interest on that R40 000 is paid on a daily basis. The next difference comes with tax; when regularly buying and selling, which is normally the case with a CFD, you would pay income tax on profits instead of capital gains as is the case with shares held for a longer period. Having said that, most people who trade CFDs never get to pay tax because due to the leverage available to them, they wipe their portfolios out in a short period of time; you need profits to pay tax on.
The next difference is the time periods that they are held for. Due to Hot Stoxx being more trading as opposed to investing, the holding periods are a lot shorter than our desired holding period of 'forever'.
If the Hot Stoxx portfolio is up 60% then why don't we follow that approach all the time? The trade ideas for the show come from the work and research that we do here on a daily basis, so you still get good returns here but over a longer period of time, with lower risk. The reason for the high rate of return is that using a CFD is a more risky way of doing things, and for that added risk you are receiving a higher rate of return. Trading is higher risk with higher return, where investing has lower risk with lower returns, each having a place to play in the financial markets.
So don't get confused between trading and investing, the only thing that they have in common is that they both do something with shares, but that is where the similarities stop.
Home again, home again, jiggety-jog. Stocks are lower after the not so grand deal. Mr Market had expected this yesterday anyhow, so now it is onto business as usual. Coming in the next few days will be a detailed analysis of SABMiller and their trading update, with results themselves expected on the 21st of November. And then IBM results, which disappointed somewhat, but one of the recent and bigger shareholders, Warren Buffett was on the box yesterday and he said that he was not overly concerned. We can have a look at those two bits of news, the market reacting in different ways to two completely different companies.
Sasha Naryshkine and Michael Treherne
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