Takealot of Cash

To market to market to buy a fat pig. American politics is driving markets at the moment. Another Trump advisor, Michael Flynn, has been linked to Russia. He pleaded guilty to lying to the FBI, while they investigate Russia's involvement in the 2016 US elections. Markets tanked on the news.

More significant though is that the Senate passed their version of the tax bill. They managed to get the bill through without needing to increase corporate tax from the initially proposed 20%. Considering that tax legislation is arguably the most far-reaching and important legislation a government will pass, you would think it is something you would take your time deciding on. Well, at least enough time to read the bill before passing it. Here is a picture posted by a Democrat Senator showing that some of the changes to the bill were made so late, that they didn't even have enough time to type them all up. Worse is the fact that not all the words are legible.

As a South African owning US stocks, the only thing that really matters to me is what the corporate tax rate is. 20% is much better than 35%. Long term though a strong US is good for everyone, as such it would be nice for lawmakers to take at least a weekend to read through all their amendments and think what the long-term implications could be. From here, the Senate and the House need to agree on a final version of the bill before Trump then signs it into law. Both the Senate and the House's bills are similar, meaning things are still on track for a final version to be through by the end of the year.

Market Scorecard. Even though markets tanked n the Flynn news, they mostly recovered by the end of the session. The Dow was down 0.17%, the S&P 500 was down 0.20%, the Nasdaq was down 0.38% and the All-share was down 0.54%. Friday on the local market, Naspers had another red day, down over 4%. Tencent in Hong Kong is up 2% today, Naspers should be well in the green to get the week going.

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Company corner

Byron's Beats

Last week we received interim 6 month results from Naspers. Being by far the biggest company on the JSE, this event now attracts a lot of attention. As expected, the results looked stellar on the back of another incredible period for Tencent. Let us take a look at the numbers which remember, are now reported in dollars.

Revenues increased by 33% to $9bn. This resulted in a big leap in core headline earnings per share, up 65% to $3.50. In Rands that equates to R48 a share. Let's assume they grow earnings by a very conservative 10% in the second half. That would mean they would make around R100 a share. Currently trading at R3531 a share, the stock trades at 35 times earnings. I remember a time when Naspers traded at 150 times earnings. Despite the phenomenal rise in the share price, the stock has actually become cheaper related to earnings. People often forget that.

Here is a nice visual of their revenue mix. SNS (social network services) includes Tencent and Mail.ru

We often cover Tencent separately, in light of that I want to focus on the rest of the business.

Ecommerce grew revenues by 15%. This division includes Etail, Travel, Payments, Classifieds and Food Delivery. All areas with great potential, especially in the untapped developing markets. Classifieds (OLX) have just become profitable. Etail which includes Takealot and Flipkart will suck funds for a while to come. That makes sense, building distribution centres and sorting out logistics is capital intensive. We can see how long it has taken Amazon to build scale. But once you have that scale, you are almost untouchable. Flipkart has a 70% market share of online retail in India.

The Ecommerce division used up around $318m whilst the Video Entertainment division made around $234m. They are still using the old profitable video business to fund the new exciting ecommerce division.

Video entertainment had a decent period. Trading profits grew by 4%. The Rand has stabilised to the dollar but many of their operations throughout the continent suffered on the back of weak currencies. Showmax is doing nicely in South Africa and also has a solid presence in Poland. Maybe they got there before Netflix?

All in all these numbers look solid. We are comfortable that the rest of business is on the right track, continuing to grow and become more influential within the massive shadow of Tencent.

The current allegations against Multichoice are upsetting. Their silence on the matter has also been disappointing although they did announce on Friday that they have implemented an internal investigation. As a Naspers shareholder, I wouldn't be too concerned, the rest of the business is far too big and separated to be heavily influenced. As a concerned South African however I will follow this story closely. If the allegations are true, I hope we see some heads roll and the consequences dealt with accordingly.

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Michael's Musings

On Friday morning, AdvTech released the following SENS, Voluntary disclosure of fraud. One of the head office financial managers had been stealing from the group since 2015. In total the cash stolen was around R 5 million, which they should be able to recover through insurance and from the individual. As part of the SENS announcement, they stated revenue figures had been inflated and expenses were understated, resulting in a R35 million once off adjustment.

I'm not sure how the financial manager was stealing, but in my mind if you are stealing you would decrease revenue and increase expenses, creating a gap for you to take money? This incident shows the risks that come from owning and running a business, it is the reason why equity holders demand a higher return on their investment. The once off adjustment is rather small in AdvTech's life, around 1% of their revenue.

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Linkfest, lap it up

One thing, from Paul

This week on Blunders: Multichoice is paying big bucks for bum content; Winter Olympics coming up on the North Korean border; Takelot crashes on Black Friday: and fancy app Expensify uses humans behind the scenes - Blunders - Episode 81

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Bright's Banter

Pharmacy-retail giant CVS Health agreed to a $69 billion acquisition of health insurer Aetna in one of the biggest M&A deals of the year.

CVS is trying to get ahead of Amazon's expected move into the pharmaceuticals business , which has several pharmacy-retail companies tucking their tails between their legs.

Aetna is one of America's oldest health-insurance groups and CVS is one of America's largest pharmacy-retail companys making this one a very big deal indeed - CVS To Buy Aetna Reshaping Health Care Industry

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Vestact in the Media

Forbes has written a nice detailed piece on Discovery and their new bank, Michael gets a few comments mentioned - Bank On This Man.

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Home again, home again, jiggety-jog. Following Asian markets, our market is off to a green start too. Nothing major on the news front today. Steinhoff announced this morning that their audited numbers would not be released this week as expected but sometime in January. They will however release unaudited numbers on Wednesday. Not what you want to hear as a shareholder.

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The Brain Drain

To market to market to buy a fat pig. The most exciting news yesterday was the solar eclipse that crossed over the US. One of the worries was how would the power grid hold up because of the increasing reliance on solar produced power. All went well (US power grid passes a test as eclipse reduces solar generation). Europe passed their 'solar eclipse' test back in 2015, which was probably more significant given that Germany, Italy, UK and France are the third, fifth, sixth and eighth biggest solar producers respectively.

Have you heard the story of how Christopher Columbus used the March 1504 lunar eclipse to get provisions for his men? My history teacher always told me that in the 16th-century people thought the earth was flat but if they were predicting a lunar eclipse, the flat-earth theory sounds misinformed to me.

"On 30 June 1503, Christopher Columbus beached his two last caravels and was stranded in Jamaica. The indigenous people of the island welcomed Columbus and his crew and fed them, but after six months, the natives halted the food supply. Columbus had on board an almanac authored by Abraham Zacuto of astronomical tables covering the years 1475–1506.Upon consulting the book, he noticed the date and the time of an upcoming lunar eclipse. He was able to use this information to his advantage. He requested a meeting for that day with the Cacique, the leader, and told him that his god was angry with the local people's treatment of Columbus and his men. Columbus said his god would provide a clear sign of his displeasure by making the rising full Moon appear "inflamed with wrath".



The lunar eclipse and the red Moon appeared on schedule, and the indigenous people were impressed and frightened. The son of Columbus, Ferdinand, wrote that the people:



"with great howling and lamentation they came running from every direction to the ships, laden with provisions, praying the Admiral to intercede by all means with God on their behalf; that he might not visit his wrath upon them .... "



Columbus went into his cabin to "pray" and timed the eclipse with his hourglass, and shortly before the totality ended after 48 minutes, he told the frightened indigenous people that they were going to be forgiven. When the Moon started to reappear from the shadow of the Earth, he told them that his god had pardoned them."

Markets globally, were mostly flat yesterday. The Dow was up 0.13%, the S&P 500 was up 0.12% and the Nasdaq was down 0.05%. Locally our All Share was up 0.26%, on a day where the market just bobbed along in positive territory. The main focus for this week seems to be on Friday where the annual economic policy meeting starts at Jackson Hole. Markets are eager to hear speeches from Mario Draghi and Janet Yellen to see if they give any hints about raising interest rates and scaling back their respective central bank balance sheets.

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Company corner

Byron's Beats

Yesterday we received results from AdvTech, a stock we have recently recommended. There was a trading update a few weeks back which meant there were no real surprises in the numbers. The image below breaks down the revenue and profit splits for the 6 months ending 30 June 2017.

As you can see, the school's division was a bit of a laggard compared to the other 2 divisions. In the commentary section, they mentioned that people immigrating had a negative impact on the numbers. When families immigrate they pull their kids out of school during grades which are not easily replaceable. This caught a lot of media attention and reflects the negative political and economic situation we currently find ourselves in. Many parent's abilities to afford private schooling has also depleted somewhat.

Having said that, Roy Douglas the CEO, said applications at the entry levels were doing well. The demand is there for new entrants, however replacing kids who leave mid studies is tough.

The shining light was the tertiary division which continues to thrive. A few deals, especially in the culinary and hotel management sector has excited the team. Tourism has thrived amongst a struggling economy. Jobs in the sector are high in demand and are far better quality than mining or construction for example.

The resourcing division also surprised to the upside. Demand for the kind of graduates the tertiary division churns out is still strong. They are growing this business throughout the continent.

We still see plenty opportunities for this company. Although the economic conditions are not ideal, this is the kind of business that will thrive regardless. Especially if they adopt technological advances such as remote learning, which they are very excited about. We are pleased with the results and remain buy rated.

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Linkfest, lap it up

One thing, from Paul

In my view, one shouldn't use the words "car" and "investment" in the same sentence. But I have heard plenty of stories over the years about people who have profitably bought and sold collectible motor vehicles, and this story caught my eye - 1956 Aston Martin DBR1 sells for record-setting $22.5M. Mind you, like fishing stories, you only hear about the trades that work. What about all the times that people lost money on some misguided motor car misadventure?

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Michael's Musings

Sticking with the eclipse theme of today someone has gone back and checked how the stock market has performed in years where a solar eclipse has occurred in the US - Here's how stocks perform after a solar eclipse. Given that markets are green more years than not, it is not surprising to see the results.

Google has found another way to make the world just that little bit smaller - Google Earth created an eye-opening way to 'step inside' some of the world's most remarkable homes.

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Bright's Banter

Elon Musk has joined Google's Mustafa Suleyman and 116 experts from 26 countries in signing a letter urging the United Nations to halt the lethal Artificial Intelligence arm race currently underway. I can understand why. You don't want fully autonomous weapons within reach of some world leaders - Elon Musk Calls For Global Ban On Killer Robots

Here's an interesting short piece on "anti-goals". Apparently identifying what you like least about your job, and deliberately avoiding those tasks can help you develop strategies for eliminating them from your life according to Andrew Wilkinson, a tech entrepreneur. Charlie Munger once said that "a lot of success in life and business comes from knowing what you want to avoid: early death, a bad marriage, etc." Another quote comes from Warren Buffett "Charlie and I have not learned how to solve difficult business problems. What we have learned is to avoid them" - The Power Of Anti-Goals

Seth Klarman, one of the most successful and influential investors you have probably never heard of. Some refer to him as the quiet giant of investing. Here's what Seth had to say in his most recent letter to investors and the message is strong! - Margin Of Safety - Trading Sardines vs Eating Sardines

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Home again, home again, jiggety-jog. Asian markets are in the green this morning, along with our market. A good looking set of numbers out of Shoprite, currently trading up over 2%.

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This is great. When does it start?

"There is a quote from American comedian, Groucho Marx, who sat for a full hour at the home of cricket, Lords, and asked the person next to him: "This is great. When does it start?" I guess the same could be said of the Fed rates decision, it is like watching extreme slow motion. For those who don't remember, I don't blame you, the Fed last raised rates in June of 2006 when Ben Bernanke had just assumed the job from Alan Greenspan."

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To market to market to buy a fat pig. In Jozi, Jozi markets rose to over a percent. Not too much in the losing column, Discovery saw strong moves northwards in their share price, that stock up nearly three percent on the day and no too far away from their all time highs. It was all about waiting for the most highly anticipated announcement for global equity markets for the year, or that is how it was being touted anyhow. Everyone was able to throw their five cents worth around as if it actually meant something. The Fed will do what they need to, that is almost always the case.

Yawn. After all the hype, all the people getting so excited about the most anticipated Fed meeting in around 9 years, nothing was done. There is a quote from American comedian, Groucho Marx, who sat for a full hour at the home of cricket, Lords, and asked the person next to him: "This is great. When does it start?" I guess the same could be said of the Fed rates decision, it is like watching extreme slow motion. For those who don't remember, I don't blame you, the Fed last raised rates in June of 2006 when Ben Bernanke had just assumed the job from Alan Greenspan. The mantra back then was one and done. Meaning that rates had peaked and were unlikely to go any higher for a while.

It wasn't until around the time the market peaked in October 2007 that it became apparent that the subprime lending crisis was something to watch out for, before the New Year rang in 2009 we had ZIRP, a Zero Interest Rate Policy. And since then it has been exactly like that, for nearly 6 years. And this was in stark contrast to the inflationary years and high rates of the late 70's and early 90's. No wonder the music was so "good". I'm kidding! It was excellent, Neil Diamond, Billy Joel, The Eagles, Michael Jackson, you had it all back then. Kramer vs. Kramer, The Deer Hunter and Annie Hall (never saw that one!). Anyhow, enough nostalgia, here is a 45 year representation of US interest rates, courtesy of Trading Economics:

If you must read it (try in your best Brooklyn accent, like Janet Yellen) September 17, 2015, there you go. Short, sharp and sweet. Only Jeffrey Lacker voting against. And Stanley Fischer? Voting to keep rates where they currently are. So much for that Jackson Hole speech, right? The closing line: "The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run." Your guess is as good as mine. Inflation, no problem, only problems are problems abroad that could impact on the US economy. No need to move right now, as you were. Time for the pundits to worry about the next meeting, which will be the most important in the history of all Fed meeting until the one after that. Sigh.

I enjoyed this and no doubt you will enjoy it too, the post is from Bob McTeer, a former Fed member, who wrote before the meeting started in a blogpost titled An Obvious Point About Fed Transparency: They Can't Signal What They Don't Know. Interesting. Like I said, move along, get back to more important matters of studying company annual reports, presentations, results, prospects, more reading to do. After all was said and done and over the seas and far away, stocks gave back their initial gains in New York, New York ending around one quarter of a percent lower. I noted that Eddy Elfenbein in his weekly mail pointed out the irony of it all, no 25 basis point hike, markets down 0.26 percent. He said that maybe they were just messing with us, of course he does not mean it.

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Company corner

Some notable news out yesterday from AdvTech who announced Accelerates Growth Strategy With R82 Million Acquisition Of Summit College. You can understand why management were not keen to be taken over by Curro, they still have big growth plans for the company. There were two other big acquisitions relatively recent, with the R450 million Maravest purchase (4 443 students) on the 24 November 2014 and the Centurus Colleges acquisition of R750 million (3080 students) on the 16 September 2014. Summit College which is based in Kyalami has 590 students with the capacity to grow to 1 000.

This is a very exciting sector to be in and is well positioned to take advantage of the boom in the South African middle class as well as the increase in numbers of the current generation. From an outsider looking in, it would seem that Curro arriving on the scene and showing what can be done in the sector has awaken AdvTech. A bit of competition improving the RSA schooling sector.

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Linkfest, lap it up

The general theory goes that your best long term/ risk adjusted returns should come from owning a proportion of the universe of assets out there. Clearly there are problems with assuming that we can all own a fraction of a Picasso, so most people opt instead to compare their asset growth to a large index like the S&P 500. It is a nice number to find, easy to use and covers some of the largest assets on the planet - 4 Reasons to Stop the S&P 500 Comparisons

Experience matters and the newer you are to something the more important it is to get some experience. At some point though the impact of more experience is very limited and may even hamper your performance by having past biases/ experiences push you in the wrong direction - The Experience Fallacy

I found this graph on twitter yesterday. It is a bit mind blowing to see the amount of commodities that China consumes!

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Home again, home again, jiggety-jog. Oh, and the Greeks go to the polls again this weekend. Perhaps that will be the biggest and most pressing story de jour next week. Or perhaps story de semaine (that is week in French for those who didn't pay attention in class). Syriza may be pressed hard by some folks that look a little more reasonable from an economic stand point, the breakaway party with the ex communist finance minister is polling really low. Perhaps people do not want crazy people in charge. That is almost always the case, it seems like a good idea at the time, implementation is hard. The mighty Japan stand between us and points, hopefully a solid display can mean we are real contenders, set the bar high.

Stocks across Asia are mixed, Japan is much lower, China is higher and Hong Kong is up around half a percent. US futures are a little higher, European futures are flat to lower. As baseball legend Yogi Berra (Yankees for life) said It's tough to make predictions, especially about the future. How right.

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Educate your Board

"As is the case with many mid cap listed businesses, there are very few shareholders that Curro will have to talk to. There is a total of 83 shareholders that hold 75.4 percent of the shares, we have identified three shareholders who control 45 percent of the business, together with the founder, just over 50 percent. Remembering that Curro need not get it all, they are offering smaller shareholders cash."

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To market to market to buy a fat pig. Wow. I thought that the BHP Billiton production report was decent enough, sadly the commodity rout continued across our market, as a collective the stocks sold off nearly four percent. Perhaps the "all emerging markets with commodities exposure" sell button was hit. And from there we were down, and heavily, the Jozi all share index fell 999 points. That is a loss of 1.75 percent on the day. What to do? Nothing.

Locally there was an inflation read that suggested that perhaps a rate hike today is the wrong thing to do, in particular as food inflation is moderating, what do I know however? I am just a stocks guy, the powers that be must set interest rates and normal people must deal with the repercussions of higher borrowing costs relative to their income. There always will be an obsession with interest rates and that is for both savers and indebted folks at exactly the same time, a move one way or the other. There are relatively few mortgages in South Africa, relative to the population, there is however a lot of short term debt that is being serviced at high interest rates.

On the other side of the world, stocks clawed their way off the worst levels, whilst Apple lagged the market badly (down 4 and one quarter percent by the close), Boeing, which is a big Dow component had a sterling day, up over a percent relative to blue chips down one-third of a percent. We continue to see earnings top expectations, there has been a view that expectations have been set too low. I for one do not think that equity markets are too hot, we could be accused of being too optimistic all of the time. Wall Street and financials services businesses have been shrinking their respective workforces for more than half a decade since the financial crisis and it looks like that is going to continue.

Pick yourself as an analyst/strategist in an environment where your pals are being handed pink slips, the bonus pools are shrinking and regulation is making it harder to get ahead, your reality is different from those people in Silicon Valley who are changing the technological landscape forever with newer inventions, better products, pushing technological boundaries. Someone who tells you that things are terrible may find it very hard to separate their lived reality relative to the rest of the country, or pockets of brilliance and change.

In this regard I am lucky. I have a job that I really like and each and every day is completely different from the one prior and tomorrow will be different from today. I have never seen the market close completely flat, the days differ from one another. It does not however mean that you do not try and do the same things over and over again, and make sure that you have the same high standards for yourself. One of the main reasons that we churn this note out day in and day out is so that we ourselves can stay relevant and up to date. We need to be sure that we act as shock absorbers, making sure that we understand and get across the point that you own companies and not share prices. Yet ironically, share prices need to go up in order for the businesses to attract more capital from their shareholders and have more favourable borrowing costs. There is of course a big correlation between the two. Stay calm, invest in quality and always stay the course.

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Company corner

It's getting hot in there, so take off all the prose. In this case it was the other way around, the chaps from Curro stuck out a stinging SENS in response to the Advtech board rejecting their offer. This is unusual that any PSG controlled company goes hostile, it seems now that Curro will speak to the shareholders of the company. After all, they are the owners of the company and had expressed a desire for a deal of some sort to happen, bearing in mind that it is at a significant premium. We had seen earlier in the day a letter to parents of a school that is owned by Advtech, suggesting that any bid would be disruptive for the teachers and pupils. Not a single mention of the shareholders, the people that actually parted with their funds in order to build these institutions.

First things first, who are the shareholders of Advtech? As per their website, under the segment Major shareholders, they are:

Coronation, Kagiso, Old Mutual (who have done deals with Curro before, that is not unusual for Old Mutual though) and BD Buckham. Who is BD Buckham? He used to be a non exec, Brian Buckham, who last transacted in shares in November 2006. He sold a few, correction, he sold nearly 900 thousand shares. He is actually the founder of the business, from way back in 1978. At 76 years old, I wonder if he is up for the fight, or maybe he can cash in at this level. His stake at the closing price is worth 287.7 million Rand. Motty Sacks used to be a non exec there too.

As is the case with many mid cap listed businesses, there are very few shareholders that Curro will have to talk to. There is a total of 83 shareholders that hold 75.4 percent of the shares, we have identified three shareholders who control 45 percent of the business, together with the founder, just over 50 percent. Remembering that Curro need not get it all, they are offering smaller shareholders cash.

Before we move away from shareholders, there is one board member, temporary CEO, Frank Thompson who has much to gain here. I think that is worth noting. As at his retirement date last year, in October, he owned 12.367 million shares. At 12.2 Rand, where the price closed last evening, he is worth 150 million Rand on paper. Not bad for a 30 year plus career in corporate South Africa. He ran Advtech from the beginning of August 2002 to October 24 last year. Leslie Massdorp (who had 2 million options at 8.19 Rand, as per the annual report) came to replace Thompson and left immediately on the 23rd of March. I am guessing that if anyone knows the business well and better than anybody else, it must be Frank. As part of the board and person who owns 2.9 percent of the business, he has said no thanks to Curro. I certainly think that is worth noting.

Yes, so here goes, as per the SENS announcement from Curro, they had written letters of support for a deal price of 13 Rand from "major Advtech shareholders". This was at a 42 percent premium to the 30 day "volume weighted average price of Advtech at 28 April 2015, the date prior to the submission of Curro's initial expression of interest to Advtech."

Curro had made a proposed offer at 13 Rand: "The proposed offer by Curro is based on a share swap with Curro valued at R33.65 per share, resulting in a swap ratio of approximately 2.59 Advtech shares for every 1 Curro share. The proposed offer also includes a 50% cash underpin for Advtech shareholders who do not wish to accept Curro shares (a minority shareholder is likely to be able to receive 100% cash, as many of the major shareholders have indicated preference for Curro shares). The aforesaid offer was only subject to a limited due diligence on specific matters;"

Possibly the best point that Curro made in their SENS announcement is a point that Byron made on PowerFM last evening (what you mean you never heard him?) and it is simple. When Advtech announced that they had bought Maravest, they were happy that issuing shares of their own at 8.02 Rand a share and that was a fair price. The Advtech board believed this to be a fair reflection of the value of the business, and said as much. So why would 13 Rand a share not reflect (it is after all a 63 percent premium to that) a really magnificent price, more than fair? That is why I think Curro are more than peeved, you can't suggest it does not reflect the real value of the business, when you said something much lower was fair. Even if the market might have thought that Advtech overpaid for their recent transactions, perhaps Curro are talking to those shareholders, they would have made some quick bucks out of all of this, not so?

I suspect that this is not over by a long stretch, it is pleasing to see private education making so much headway in South Africa, filling a vital gap in the economy where parents see the benefits of a wonderful education for their children. Far better than they had or their parents could afford, education is something that everyone should be passionate about. It is of course a very emotive issue globally.

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Linkfest, lap it up

This puts the global GDP into perspective, I am glad to see that South Africa made it onto the map - This one map explains the entire worldwide economy

The wonders of modern medicine - Attention celiac sufferers! Scientists are working on a pill that will let you eat bread and pasta. Would you take a pill so that you can eat gluten or would you still rather avoid it?

Will a market with lower trading costs and longer trading hours be a good thing or a bad thing? The academic answer would be yes from a practical point of view, probably not - The Cost of Free

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Home again, home again, jiggety-jog. There was a Rolling Stones article on the worst first names for good bands, Pearl Jam their first name was the Mookie Blaylock. Huh? Radiohead called themselves "On a Friday" first. That could work. Queen's first name was "Smile". Freddie Mercury and the Smiles? Nah. Def Leppard was Atomic Mass. Maroon 5 was Kara's Flowers. No, no, no, Adam. The Beach Boys were The Pendletons. What is that? Green Day was Sweet Children. They are not that sweet now, are they? Pink Floyd were called Screaming Abdabs. Try and say that quickly. Red Hot Chilli Peppers were, wait for it "Tony Flow and the Miraculously Majestic Masters of Mayhem". They actually shortened their name. What is in a name however? It turns out a lot if you are trying to get a gig I guess.

Stocks have bounced a little here this morning, look out for the interest rate decision later. I think that there is too much focus on that (from an equities view), really. It is what it is, as we mentioned however it does impact on more peoples lives than just the equities market, hence all the air time that it tends to get. A hike? Would it be right or wrong, it is irrelevant what I think, it is one of those many things that are beyond our control.

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Go Private, save the state

"It seems like there is a whole lot more room to grow. I for one would much prefer it if the government outsourced all schooling to private entities, which set themselves really high standards. As Curro points out (just after this table in their 2014 Annual Report), them building schools saves the state 70-120 million Rand initially and then 50 million Rand a month. People pay for private education after they have paid their taxes."

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To market to market to buy a fat pig. Agreekment done. At the "money moment", the Greek parliamentarians, for all their noise voted for the money. In fairness however to Syriza, the governing party, much of the members voting against the package were part of the ruling party. Were or are, it is difficult to say. Whilst there were heated debates inside the Greek parliament, there were the 'no to austerity' protestors throwing molotov cocktails at police. Question, if there were to be a cut in Greece's debt that is owed to the Troika, who would ultimately be hurt as their asset is written down? Is it the pensioner of France, Italy and Germany, Spain, Portugal and the Netherlands? Debt to one is an asset to another.

The bigger picture is that the IMF are right, even if there were incredible terms imposed on Greece and they were told that there was a 30 year interest holiday, they were told that there was more debt reduction, it needs to happen sooner rather than later. Investors of Europe need to know. Even if this is not exactly a deal breaker for opening a business elsewhere in the common currency area, it has captured the imagination of the networks for the better part of five years. Greece needs to grow their economy, that is the only way that tax receipts will rise and that the government will easily be able to service the debt more aggressively.

There needs to be political will power and I am afraid as long as there are far left wingers feeling that the only way to do things is more government intervention, and less private sector, I do not see that happening soon. The Golden Dawn (one of their members tore up the agreement in parliament yesterday) are borderline cases to be institutionalised. No, that is rude, as I said to my eldest last night, people get what they vote for. And do not ever question why someone voted X or Y, that is immediately suggesting that their political views are inferior to yours. That is exactly why each and every person has a single vote, it may not be perfect, it is however better than having no choices.

So that is done and dusted, expectations are for a fall out of sorts in the ruling party. Resignations, perhaps even new elections. If Tsipras comes through this wiser and better as a leader then thumbs up to his leadership skills, well done to him. If he firmly believes that what he is doing is the best interest of Greece long term and not scoring political points (even though he suggested that there was a knife held to his throat), then I admire that. It shows some maturity that was possibly lacking beforehand. Read the NYT piece: Greece, Its Back to the Wall, Adopts Austerity Steps.

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The other "thing" capturing markets yesterday was Fed chair Janet Yellen delivering testimony in front of the House Financial Service Committee, see the NYT story: Janet Yellen Warns Congress Against Adding to Fed's Oversight. What I find really funny about the story, and perhaps it deserves a copy paste is the following paragraph in that story: "Ms. Yellen provided few new indications about the Fed's plans for the next few months, and she was not pressed on the issue. Lawmakers in Congress evidently do not share Wall Street's obsessive interest in the exact timing of interest rate increases." Ha-ha! A Wall Street obsession is definitely not a worry of the person on the street.

I expect that we will see rate rises different to those in the past, the trajectory will be slow to begin with, I reckon a range adjusting in smaller increments that the street is used to, like 10-15 basis points at a time. i.e. Moving the band slowly higher until you can hike by 25 basis points, why not, the way down was unconventional, why should the way up be anything ordinary? And expect the high end of the next interest rate cycle to be lower, i.e. not 6.5 percent, rather somewhere between 3.5 and 4, that is my best guess. Markets on Wall Street? Not too much action if you look at the scoreboard, the Dow and broader market S&P 500 were a whisker lower. Earnings, those continue to filter in and through, Bank of America was the standout, the stock was up 3.3 percent. It is still down 61 percent over ten years however, the "great recession" saw to that.

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In the local market, Jozi, Jozi, stocks rallied across the board, obviously there strong Chinese GDP number buoyed commodity stocks. Both Anglo and BHP have recorded big write downs in the last two days, the Anglo production report from this morning does not look encouraging. Lower prices, lower demand is not a perfect cocktail for shareholder returns.

Less commodity exposure, I still am struck by that comment I read earlier this year that said an investment in commodities was a bet against humanity, I think that it was our old pal Cullen Roche who said it. I think what he is trying to say is that humanity keeps doing more with less of the same resource. That is not too dissimilar to that graph from yesterdays piece with more than double the number of people on earth eating food that is roughly the same price, farming technology has improved significantly over fifty year, without ordinary people noticing. When something changes slowly and constantly, it is called a Mesofact says our old pal Samuel Arbesman. Of course none of these people are really our pals, as a result of the awesomeness of Twitter, we fell we actually know these people. Including folks like Novak Djokovic and Serena Williams who we can (and do) follow on platforms like Instagram.

After all was said and done, the local market closed at 52 and a half thousand points. That looks like the best level in around one month to me. However it has been a tough old year, stocks have not really moved, the JSE all share index is up an uninspiring 5.55 percent. Although, that is around what inflation is, and on an annualised basis you would be double that. That is a decent enough long term return, remembering the rule of 70. i.e. how long does it take to double your asset base. Is it 70, or 72 or 69.3? Read Wiki: Rule of 72. Divide the annualised returns by 70, that is your number. Working the other way around, what return would you have to get in order to double your money in 5 years. Divide 70 by 5, you get to 14 percent. 6 years, that number falls to 11.66 percent, per annum. In other words, the consistent return matters. As Warren Buffett says however, he would rather have "lumpy" (read outsized) returns than solid and consistent ones.

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Company corner

Curro and AdvTech confirmed yesterday that they are in talks. Obviously it was Curro who initiated the talks, they want to buy AdvTech. It makes sense that as the bigger competitor by market cap that they use the momentum and big shareholder to buy another business that the market has not taken so kindly too. As Michael pointed out yesterday however, and lean in a little closer to your screen here, Curro has a market cap of 12.1 billion Rand, turnover of just on one billion Rand for the financial year to end February. AdvTech has a market cap of 5.2 billion Rand, turnover of 1.93 billion Rand. Curro's turnover grew at 51 percent last year, AdvTech at less than ten percent.

Even at elevated share price levels, AdvTech trades on a 27 multiple, Curro has recently started making a profit, it trades on a multiple of nearly 200 times. Is the market bonkers? Perhaps not. There may be expectations from the market that the PSG magic could work again here, as it did for Capitec, PSG own 57 percent of the shares. And of course PSG have underwritten all the rights issues along the way, Curro has grown exceptionally fast. I doubt that there will be a massive PE unwind for Curro in a hurry, the goal is to continue to roll out as many affordable private institutions as possible. Where the perception is that paying for education means that the quality offered against the alternative (the government) equals a better outcome for the child, that is all that parents worry about. Curro have recently been in the news for all the wrong reasons, I truly hope that (for the sake of our nation) that this is dealt with swiftly. Racism is narrow minded and plain dumb, we should be all turned inside out, we would all look the same. Not very good "same" though, I love diversity and different.

Not too dissimilar to many success stories, and often what the ordinary person on the street misses, Curro started with a small school, all of 28 pupils in 1998. They started this year with 42 schools and 36 thousand scholars, learners, pupils, whatever you want to call them. So are they going to triple the number of scholars (or are they customers?) in the next three years?

It seems like there is a whole lot more room to grow. I for one would much prefer it if the government outsourced all schooling to private entities, which set themselves really high standards. As Curro points out (just after this table in their 2014 Annual Report), them building schools saves the state 70-120 million Rand initially and then 50 million Rand a month. People pay for private education after they have paid their taxes. I still like to think that the modern schooling system needs a serious shakeup, more responsibility needs to be given to the child. To get real life readiness, you have to be responsible for your actions. Elon Musk is right to start his own school, that is however for super rich kids. Sadly here in South Africa there are limited resources.

Whether or not a formal offer is made, or a merged entity appears at the other end when these talks between the two private education providers appears on the other side (or even if the competitions authority allows it), progress is being made shaping the minds of the youth. And that is something to celebrate, after all, the founder of the nation, Nelson Mandela was quoted as saying: "Education is the most powerful weapon which you can use to change the world." That will always be right, the only problem with that is that the more you know, the more you realise there is to know.

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Linkfest, lap it up

I enjoy peanut butter, I buy the sugar and salt free one from Woolies. Not everybody can eat nuts, 1.4 percent of kids have a nut allergy in the US and this is rising. There is always capital looking to solve this problem, Mr. Picketty should take note that it is a French firm raising money in the US to solve the problem of nut allergies: Progress in peanut allergy trials raises hopes. Darn one percenters looking to solve problems of ordinary people.

Yesterday Amazon turned 20 many people didn't think it would get past its first birthday, it has survived start up phase, the dot come bubble and a host of new competitors - At 20, Amazon Continues to Defy Predictions.

Where there is a will there is a way! Many young people that I speak to are struggling to get jobs in the industries that they hope to have long careers in. This CV highlights the possibilities that are out there if you are willing to do what it takes, very inspiring! - Hey, I'm Nina!

Higher cash levels with asset managers may point to people preparing for an interest rate hike? Where funds want to own a couple more bonds but can only purchase them after the rate hike - Fund Managers Holding Highest Cash Percentage Since Lehman. This isn't pointing to a bear market because cash is also flowing into financial stocks which can be seen as a proxy for the economy and one of the sectors that do a bit better with higher interest rates.

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Home again, home again, jiggety-jog. Mixed Asian markets this morning, I saw an interesting comment from Blackrock's Larry Fink that suggested that the reason why Chinese markets are so volatile is that capital markets are immature. There was an awesome interaction between Carl Icahn (who is nuts) and Larry Fink, you might see footage during the day. Back to the real grind of earnings today. Google, Ebay, Goldman Sachs, Mattel, Philip Morris, UnitedHealth and of course an interesting one Schlumberger. That is why we invest in markets, for companies, not for Jannet Yellen comments or Greek debt issues.

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Sent to you by the Vestacters, Sasha, Michael, Byron and Paul.

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