To market, to market to buy a fat pig. The Iranians and the rest have a reached a deal on their nuclear ambitions, the so called P5+1 (United States, China, France, Britain, Russia and Germany) talks finally ended on a positive note. There is a key line in the agreement, which I guess is pleasing for not only Israel, but the rest of the region: Iran reaffirms that under no circumstances will Iran ever seek or develop any nuclear weapons.
To read the agreement signed in Geneva, find it here, via the WSJ (you may be asked for a subscriber login, I am not sure): Joint Plan of Action. It is not completely signed, sealed and delivered, there are some obstacles, but hopefully those will be completely ironed out over the coming days and weeks. Ten years of long and hard negotiations and obviously the sanctions have had the desired outcome for those who imposed them. Enough to bring the Iranians back to the table and to half enrichment. Which is all the EU and the US wanted in the first place!!!
So what is the upshot of it all? I suspect that for starters the oil price will have to find a level lower and that is excellent for the inflationary outlook in developing markets, which have been under severe pressure lately. But then again, inflation concerns have been in emerging markets for as long as they are growing fast and emerging! I remember some Chinese inflationary concerns a while back, that was nasty and going to scupper the Chinese growth story. Lower oil prices are not exactly good for the region, but better for Iran to have valuable export revenue than nothing at all. And of course very good for MTN, but not immediately. So we will see.
Almost there is a very small (in stature) but enormous in power (financial circles) person. Janet Yellen that is, the nearly next Fed chair. What does amaze me still, and it shows that we still live in a patriarchal society, is that the chattering classes talk about her being a woman. Yes everybody, we know that, but as someone pointed out yesterday, we did not question Ben Bernanke on the basis that he was a man. I could not care what gender, height, colour, religion and so on the person is, if they are the right person for the job (I draw the lines at aliens, they know NOTHING about monetary policy) then that person must get the job. What did I leave out there, political affiliation, oh, that seems to be the problem!!! The temperature, politically speaking, in Washington DC is probably the hottest it has been in a long, long time.
The Yellen nomination being set in stone (nearly) on Thursday provided a boost for markets through to the end of the week. Blue chips were above 16 thousand again, but closing above that level for the first time Thursday, it managed to hold Friday. Good economic data and what the market perceives as a dovish Fed stance. Although I have read many an article that suggests that Janet Yellen is almost certainly more cautious than many suspect. Technology and finance led the charge, in the end the Dow was up over 50 points, cementing that 16 thousand point level, the S&P 500 closed over 1800 points for the first time whilst the nerds of NASDAQ added over half a percent, to be staring at 4000 points. One year, up nearly 40 percent for the nerds of NASDAQ. Ten years? Up 109 percent. From the March 2000 highs? Down 19.2 percent.
But back then the multiple was wild (high PE's and much lower earnings), nowadays you can buy Cisco on a 11.7 multiple, Microsoft on a 13.95 multiple, Apple trades on 13.15 times, Intel on 13.6 times, these stocks are all much cheaper than the rest of the market. Missing from this list the LAST time in 2000 were stocks like Google, Facebook and more recently Twitter, those are newer companies. Many new companies on more expensive multiples, old(er) tech stocks looking seemingly cheap.
Right. We are at this time of the year where people start looking ahead to next year and asking questions about "what gives" in 2014. Personally I have no idea why people separate investments from year to year. Really. I am pretty sure that when Woolies opens their doors on the 1st of January 2014 the strategy will be exactly the same. Try and sell as many quality products as the day before. And when Tiger Brands opens their manufacturing facility on the 2nd of January 2014, which is a Thursday, the tomato sauce (I mean ketchup) will taste the same when it is shipped a few days later. OK, Maybe by Monday (wink) the next week it will taste much better. Of course the trick is for the company to make sure that the product tastes the same week in and week out, regardless of the year or decade, or month or week.
Eddy Elfenbein has a great weekly newsletter, Crossing Wall Street, in which he quoted Henry Ford (here we go): "It is not the employer who pays the wages; he only handles the money. It is the product that pays the wages." Those two sentences in business are possibly some of the wisest words I have ever heard. Ford is of course right, it does not matter how much you think you have a revolutionary product, consumers ultimately decide how your business pans out. You can have the best management, great work flow, the best systems and of course the list goes on; without a quality product you might as well close the doors. Which is why I think that the vast majority of meetings are quite possibly a waste of time. Internal ones of course, meetings with clients on what they want, those are most useful.
And that goes to the core of the point, whilst companies might want to try a new strategy next year, the existing products/services are still the ones the consumers know. Do you decide whether or not to shop at a different store, change your insurance, change your bank, swap your car out, live somewhere else, throw out the old wardrobe and get a new one, just because the year is coming to an end? Maybe, but not all at once!!!
They are called New Years resolutions and they should probably be renewed each and every month or fortnight probably. My gripes aside, they (predictions) always make for good reading. First, via Cullen Roche, Goldman Sachs: 10 Themes for 2014. Worth a read, on balance bullish for next year. And then the Economist, yes you read it, hopefully on an app or online, they also have an upbeat outlook for next year: EIU global forecast: Recovery momentum builds.
And earnings? The stuff that really matters? Because the economies of the world can do x or y or z, but if companies have sales growing at a steady pace (factor in all the cost savings initiatives over the last half a decade) over the coming three/four years, I suspect that the profits will follow. Yes. We wait.
I like this. How the Media Blows Bubbles. I think that this is important, because it raises some interesting historical comparisons with regards to information dissemination. The Radio, the internet and TV/mass media. All rather interesting. But the conclusion is pretty clear to me at least:
1. Read stuff you know you're going to disagree with.
This is how you prevent confirmation bias.
2. Read old news.
This is how you learn not to take forecasts seriously.
3. Don't think every news story requires action on your part.
Because it doesn't.
Reading "stuff" that you do not like is something I try and do. Reading relentlessly bearish commentary is tiring, but reading cautious "stuff" is always good. Another thing that I think the journalist missed here (Morgan Housel, same guy from last week) is that many folks who do not own stocks (he does) do not speak from a position of interest. How many stocks do you think many outspoken, in "print" and on the box people are, who do not have any skin in the game? Perhaps none at all. Housel does own stocks and therefore knows that earnings matter and writing and then flipping and flopping on an issue does little for credibility.
Home again, home again, jiggety-jog. Markets have started better here this morning. We have results from Pioneer Foods, they look OK, and the biannual CFO letter from Sasol, this time the new acting CFO Paul Victor has had his say. Looks good!
Sasha Naryshkine and Michael Treherne
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