Money with a dash of Funny: ECB

Showing posts with label ECB. Show all posts

Friday, 11 March 2016

Draghi dances daintily

"Don't stress about wanting to know the nitty gritty of what the acronyms are, the central bank will just start buying high quality corporate bonds, exceptions include - 'Securities issued by credit institutions and by entities with a parent company which belongs to a banking group will not be eligible.' Or as Draghi made just as clear in the Q&A segment (see below) 'investment grade of non-financial companies.'"

To market to market to buy a fat pig Mario, woohoo! I am not too sure how to make all of the sounds of those two little Italian racing drivers, who seem to wear giant mushrooms on their heads, what I do know is that Mario Draghi is far cooler than Super Mario. At least to me he is! I recall a headline in which we said something like, Mario Draghi, cool, suave, calculated, Italian of course. At the time when Draghi got the job as the ECB president, the German Finance minister Wolfgang Schauble (missing accents on the a, not good for my web publishing) said something along the lines that he was the most German of the candidates. Schauble himself has been on the job as German finance minister since 2009. He is a brave man, he is outspoken, he is a modern day political hero, how one "should" do things.

This must be my paternal grandmother speaking, she was so German that her father (my great grandfather) had fought in the trenches on the German side during world war one. My paternal grandfather fought against the German army in North Africa and Italy during the war. That is pretty awkward, not so? By that time my grandmother's father was long gone. That was and still is Europe for you, small enough to be apart, too close together to ever fight again.

Whilst outsiders may think the European experiment is "not working" I must disagree vehemently, economic ties discourage physical conflict, nationalism must be replaced with strong economic ties. In a way the language barriers (and by extension different cultures) will remain, I do always chuckle when I see the official languages of Europe, there are 24, and according to the European Commission website, the staff tasked with translating are 600 full time and 3000 freelancers. Wow.

The European Central Bank deliver their policy meetings in English, that is the language of business globally. For anyone proficient in English in business, as all of you are who read this, it is a bit of luck that we have that opportunity. The ECB yesterday changed things up a little, announcing a corporate sector purchase programme (CSPP) to the asset purchase programme (APP) and announces changes to APP. Don't stress about wanting to know the nitty gritty of what the acronyms are, the central bank will just start buying high quality corporate bonds, exceptions include - "Securities issued by credit institutions and by entities with a parent company which belongs to a banking group will not be eligible."Or as Draghi made just as clear in the Q&A segment (see below) "investment grade of non-financial companies."

You can read the press conference statement, the "thing" that Mr. Market focussed on was not that the ECB unveiled more shock and awe than initially anticipated, rather that rates were unlikely to go much lower than present. The ECB was also giving the asset purchase program a timeline which also had Mr. Market a little irritated, keep it open ended was what the Twitter thingie was saying, don't commit to timelines that may well leave you with proverbial egg on your face.

Stocks across Europe led the charge higher initially, and then the comments about unlikely pushing deeper into negative territory was negatively interpreted. We want more! Always. The Euro swung wildly during the trading session, down against the Dollar and then up sharply again, a four percent swing from low to high. Yeah, that is right y'all, interpret that. Stocks across the ocean and far away in the US ended flat, stocks had of course a wild session, being up and then down and then up again.

It was pretty wild out there! After all was said and done, stocks in New York, New York closed flat, the blue chip Dow Jones Industrial average down a smidgen, the broader market S&P 500 up a smidgen. The nerds of NASDAQ closed down one quarter of a percent, clearly tech lagging after a spectacular year last year. YTD (that is year to date for you nerds) the NASDAQ is down nearly 7 percent, whilst the S&P 500 and the Dow Jones are down around just over two and a half percent each. And in a couple of weeks time we will be through one quarter of the year. And who said that this was a seven year anniversary of the bull market? I guess by technical definitions it is, as there has to be a drawdown of 20 percent for a bull market to cease to exist. Anyhow, looking and graphs and predicting what is going to happen next is utter idiocy, which is why I think technical analysis is dumb.

Linkfest, lap it up

As the saying goes, look after your pennies and the pounds will look after themselves - Swedish billionaire 'buys all his clothes at flea markets'

The article briefly touches on the potential of hydroponics for growing crops in a city. I found it more interesting to read how land rights work in China, where farmers merely lease land from their community instead of owing the land. China is moving slowly towards more land ownership with will allow people to use the land as collateral for loans and will encourage people to develop the farm land further - An Indian bureaucrat is amazed by China's ability to grow crops without soil

After yesterdays link on finding ways for crops to grow during droughts, one of our readers pointed me in the direction of this company, Aponic. Their system is design to grow plants vertically and use 90% less water. Great to see the direction technology is heading and how we are becoming more efficient with our resources.

The number of online users in India is expected to grow faster than any other market in the world. Online sales is expected to grow 7 fold over the next 5 years, with Flipkart currently holding 45% market share. Good news for Naspers given that they own 17% of Flipkart - The great race.

I love this article, the history in a way of how the machines replaced the people on the floors of the Chicago Mercantile Exchange: A Eulogy for the Pit Trader.

OMG! You may recognise that one, you may however have forgotten the difference between median and mean, what are metaphors and similes, you are not alone it seems: A fifth of adults have forgotten how to do fractions or percentages

Home again, home again, jiggety-jog. Stocks are flat to begin with, after having started the session so much better. Talk of downgrades to the banking shares due to all the South African debt they hold as part of Basil III regulations. There are talks that MTN could get their fine reduced even further and Old Mutual have formally announced their business restructuring. Sadly we have run out of time, we can cover those stories a little later! Both stocks were up and are now lower, which is a pity for the Friday bulls!

Sent to you by Sasha and Michael on behalf of team Vestact.

Email us

Follow Sasha, Michael, Byron, Bright and Paul on Twitter

078 533 1063

Friday, 4 December 2015

Super Mario uses a pom-pom gun

"The Pimco fixed income chief, Andrew Ball, was quoted as saying in the FT that the ECB delivered at the low end of expectations. This is hilarious and getting to the point where we are pre-empting Central Banks and also being disappointed by them. What happened next, in the aftermath of the statement and during the press conference was that European markets sold off heavily, and there was a fair amount of short covering on the Euro, which spiked to the Dollar."

To market to market to buy a fat pig. Draghi downs markets, bringing out the pom-pom gun rather than the bazooka. Or so it seems that was the case. It seemed that the efforts of the ECB was to be far greater for Mr. Market. It caught me a little off guard, it caught me a little by surprise, I have to admit. Normally the central bank meetings of the ECB and the Bank of England have been, well, steady as it goes, inflation is this and under control and not a problem, growth rates are muted, we are going to stick to our current programs. It seemed however that the market was in Oliver Twist mode, looking for more. I could not quite understand it, even after reading various commentary.

The Pimco fixed income chief, Andrew Ball, was quoted as saying in the FT that the ECB delivered at the low end of expectations. This is hilarious and getting to the point where we are pre-empting Central Banks and also being disappointed by them. What happened next, in the aftermath of the statement and during the press conference was that European markets sold off heavily, and there was a fair amount of short covering on the Euro, which spiked to the Dollar. You would have naturally expected the disappointment to side with a weaker Euro, in fact I see on my screens this morning that Goldman Sachs are looking for 1.03 Dollars to the Euro, in the near term.

I guess it is a matter of time until we see parity, at least if the ECB "disappoints" the market. Let us be clear, the ECB is not in the job of pandering to the market needs, this is not trying to beat the streets earnings expectations by a penny. Their mandate is to maintain price stability, i.e. make sure that inflation is neither too high or too low, the central bank has certainly been tested in terms of their powers and ability to flex their muscles over the fragmented political landscape in Europe. I am pretty sure that when we look back on this time of central banking in decades, we will be well impressed with the various programs and constructiveness of officials. Unlike in the Great Depression, when the Fed was new, and their hands were tied.

The "I want more brigade" sold the market off heavily, here, there and everywhere, to borrow a phrase from Dr. Seuss. It was pretty ugly after the dust had settled, the French market was off over three and a half percent, the Dax in Germany down by about the same amount, the UK markets were down two and one quarter percent. Obviously we were going to be sucking wind here too, stocks sold off as a collective down 1.43 percent. When I look at the European stocks, I think that we got off fairly lightly. Pending here today are the ratings agencies views on it all, we could be in for a tough time of it on the currency front. I suspect that the falling financials share prices and the weakening local unit over the recent days fear the worst, we are unfortunately getting closer to non-investment grade. We will have to wait for that unfortunately.

Equally, the other event that you will have to wait for is non-farm payrolls. Those are due out at 15:30 local time. I suspect that this number does not matter, the market is expecting the Fed now to raise rates come the December meeting. Janet Yellen and the others have been priming the market for a while now, the expectations have moved towards that being a certainty. Both the broader market and blue chips sold off by nearly a percent and a half in New York, the nerds of NASDAQ down by one and two-thirds of a percent.

I seriously cannot believe it. I was taken to task by a reader for being condescending towards Nigeria in my observations over the weeks. I shall publish it, once I have the permission of the person that wrote the piece back to me. My point to them was that I bat for capital and individuals, not for government, not for organisations. And capital changes lives, for the better. Are normal Chinese peoples lives better as a result of liberalisations in the economy or were they better under the communist great leaps forward? You know the answer. Here comes the part I seriously cannot believe, a day after receiving the first letter:

"Late on 3 December 2015, the day after receipt of the First Letter, the Company received a further letter from the NCC dated 3 December 2015 (the Second Letter). The Second Letter, which was stated to supersede the First Letter, informed the Company that the fine had actually been reduced by 25% to 780 Billion Naira and not by 35% to 674 Billion Naira, as was stated in the First Letter. The payment date remained 31 December 2015."

Michael made a simple point, how would you react if this was a private company? This unfortunately proves my point, this is not really a professional process, it seems borderline like the Goon Show, or Monty Python, flopping around. And what makes it even more interesting is that the release says the following: "Neither the First Letter nor the Second Letter sets out any details on how the reduction was determined." Amazing. I will get permission to publish the interaction, and then you can judge whether or not I am condescending. I love people, I wish them only good things, I wish everyone was rich and had access to the internet, and of course that includes all the citizens of Nigeria. I just cannot see the merit in an overhanded approach, for future capex.

Linkfest, lap it up

One of the biggest questions for economists and politicians is what to do when something is incorrectly priced. When it comes to carbon emissions, it may be cheap to get coal out of the ground and then burn it but it has further costs to society through pollution. What is the cost? What can you do to bring the price you pay inline with the 'true social' cost? One way is through taxes - Elon Musk: Only a Carbon Tax Will Accelerate the World's Exit from Fossil Fuels

Thanks to the summit in Santon this week, it has been grid lock on the streets. Here are some of the fruits to come from the summit - China in Africa: President Xi Signs $6.5 Billion Deals With South Africa's Zuma. To fund some of the deals the ICBC will issue Rand denominated bonds, which is the first time an Asian organisation has issued debt in Rands. It shows a confidence in our financial system and our currency - China's ICBC to sell $696 mln worth of rand bonds to build S.Africa infrastructure

Capitalism is at its best when things are allowed to function freely, thus creating some very wealthy people. Part of their wealth is created by adding value to society by making things more efficient and cutting the cost of doing something. People should be encouraged to make as much money as possible and then to be generous, i think this would solve many problems that the world currently has - Capitalism Needs More Capitalists like Mark Zuckerberg

Home again, home again, jiggety-jog. It is a blood bath out there at the moment, with the All Share down around 2%. One of the biggest losers is Steinhoff, which is down 8% on news that one of their subsidiaries in Germany is under investigation of tax evasion.

Sent to you by Sasha and Michael on behalf of team Vestact.

Email us

Follow Sasha, Michael, Byron and Paul on Twitter

078 533 1063

Thursday, 16 April 2015

Super cool Mario

"At the same time you do not want to ignore the people, most especially young people entering into the workforce at this time. Paint this scenario quickly, you entered university and graduated in 2009, at the end of that year. Older folks, who may have thought about retirement a couple of years earlier when asset prices were much higher and the future looked more certain (it never does) were getting used to the idea of enjoying their golden years."

To market, to market to buy a fat pig. I really like Mario Draghi. In fact, I really like most central bankers. In the old days they were not really household names, people knew who they were in the news, people did not see them on the telly's. Perhaps the crises that ensued during the tenures of both Alan Greenspan and Ben Bernanke changed that a little. Most Central bankers I have seen in my time had and have a great sense of humour. Yesterday when a young woman jumped on the desk in front of Mario Draghi and shouted: End the ECB Dictatorship. With slightly more colourful wording. He Was very cool and collected, as he always is.

It did not take too long to find out who she is, her name is Josephine Witt, a 21 year old German woman, who has a message for the ECB. Yes, she even tweeted her "manifesto", which was part of the confetti that she threw at Mario Draghi as she stood on the desk in front of him, here it is, taken from Witt's tweet:

Now excuse me whilst I go on a little rant here. Life is hard, I understand that. Life is tough, I understand that. Life is a lot less tough for someone in the German system than someone born in Somalia at the same time as Witt. There is absolutely nothing stopping her getting the necessary grades in order to enter the German tertiary education system. In order to make progress inside of the ECB and change (or lobby to change) the mandate of the central bank you have to do more than wangle your way into an ECB conference. Good skills in that part, poor message relaying, even as I read her message and Twitter timeline I have no idea what she wants. Change happens through more than a protest. I get the sense that people always feel that change must happen yesterday, it cannot.

What was most impressive about the ECB governor is that after the scuffle, literally minutes later we went on to continue with the press conference and take questions as if nothing happened at all. You can watch the recorded webcast (if you have a spare hour, nobody seemingly has a spare hour any more), or read the text at the bottom: Webcast of the press conference 15 April 2015. If you are hoping to see the incident, forget it on that platform, a small line there: The video has been edited to remove an interruption. I know you want to see it, so I found a clip on Youtube: Josephine Witt Stages Confetti Protest At ECB President.

At the same time you do not want to ignore the people, most especially young people entering into the workforce at this time. Paint this scenario quickly, you entered university and graduated in 2009, at the end of that year. Older folks, who may have thought about retirement a couple of years earlier when asset prices were much higher and the future looked more certain (it never does) were getting used to the idea of enjoying their golden years.

Giant pause, work another five years, the natural attrition in the workforce that makes way for younger entrants does not happen. Youngsters find the going tough in an environment when jobs are being shed. That happened and the jobs have not really come back in the manner that everyone hoped. In the end frustration leads to protests when people feel they are not heard. It is no different here in South Africa, violence is somehow easier than words, perhaps as a result of fewer and fewer platforms to express those views. Perhaps the lack of quality education which should be more than a human fundamental right. With education, everything changes, you cannot take a brain away.

Away from philosophy, those discussions never end. Back to markets. Apart from the ECB news conference disruptions, the real issue that continues to dominate is an almost certain Greek default. Yes, the time has almost come. We have suggested over months and years that this is the case, that Greece will not want to leave the Euro zone. Yes. There is however a time when the other side is frustrated. Frustrated to the point where they are suggesting that there cannot be a solution, there cannot be middle ground met.

Company corner

Wow. That was pretty big. Standard Bank executive Bruce Hemphill is going to join Old Mutual and run the whole business, replacing Julian Roberts. Group Chief Executive succession is where you can find the official announcement from the company. Obviously this is a big loss for Standard Bank, what it confirms (and you all know this already) is the fact that there is an enormous amount of quality here in South Africa.

Hemphill goes to London, leaves Joburg. He actually returns, he did his articles in London at a law firm by the name of Farrer & Co. Some more snooping reveals that Hemphill has a strong non-banking background in asset management, an area where obviously Old Mutual is strong. He is 51 years old, he has been at the group for 22 years, an executive at Standard Bank in his 2nd year. Perhaps in his (Hemphill) second year in senior management there is a realisation that Sim Tshabalala, four years his junior at co-CEO will own the top job at some stage. And as such, a bold move will see to it that Hemphill carves his own name at another organisation. Well done. Good work.

Holy smokes. Brait with a monster announcement this morning, out of Malta, the little European island. Here it is, the proposed acquisition of a c.80% interest in Virgin Active and withdrawal of cautionary announcement. Brait Mauritius is proposing that they buy 80 odd percent of Active Topco, which trades under the brand Virgin Active, for 682 million Pound Sterling, or 12.21 billion Rand. The group owns 267 clubs in 9 countries across 4 continents. And of course you will know well that they are gyms, clubs, places where you can keep and get fit and healthy. Places that you know and understand that an investment in your health is an investment in the future. The health and wellness theme is something that you know we like, it is evident in our investments in healthcare and more specifically in businesses like Discovery and Nike. People who are making your life healthier and better. The share price is around half a percent off, it seems that all and sundry, the competitions authorities and the shareholders will have to now decide whether this goes ahead.

Brait has a market cap of 44 billion Rand, this is huge. Remember that they have all the cash from the exit from Pepkor, Brait sold their 37.06 percent stake for 200 million Steinhoff shares and 15.086 billion Rand. 200 million Steinhoff shares at 77.52 Rand per share is worth 15.5 billion Rand, which is a lot more combined (30.5 billion Rand) versus the 25.7 billion that Brait valued the stake at. If this purchase goes through, the health club investment will be their second biggest investment after Steinhoff. And there will still be enough cash left over to do something else with. Good work and definitely left field.

Things we are reading

This is via Marc Andreessen, who is a well know venture capital chap and founder of Netscape (remember that browser?), his firm does work for airbnb, Buzzfeed, Facebook, the list goes on. A picture, via the Economist, tells 1000 words:

What the future of air travel may look like and taking the term "cattle class" to a whole new level - The terrible, claustrophobic airplane seat redesign that could soon be how we fly. I would not be a fan of flying like this but if it was only a short distance flight and it saved a chunk of money, flying becomes even more affordable to everyone.

Driverless cars? What about planes that fly themselves, well they already mostly do - Planes Without Pilots. Take off and landing is all a pilot needs to do - "In a recent survey of airline pilots, those operating Boeing 777s reported that they spent just seven minutes manually piloting their planes in a typical flight. Pilots operating Airbus planes spent half that time."

What impact will buy backs have on EPS and share prices? - The legend of buybacks outperforming the market has outlived the reality Buy backs are great if stocks are fairly valued or in a company that has a bright future.

Home again, home again, jiggety-jog. Going to another record high here at the start, the local market touched 54 thousand points for the very first time. Another day, if we close here that would be three out of four days that the local index registers another high. So far the big earnings this week in the US have been nothing short of excellent, the strong Dollar theme continues to weigh heavy.

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

Email us

Follow Sasha, Byron and Michael on Twitter

087 985 0939

Friday, 6 July 2012

The Fed not blinking

"The upwards moves in interest rates by Jean-Claude Trichet in hindsight seems to have been the wrong ones, but that could have happened to anyone. The interest rates on deposit facilities was cut to zero percent from 0.25 percent, this would encourage banks to lend. But will they? Who knows?"

Jozi, Jozi. 26^o 12' 16" S, 28^o 2' 44" E. Yesterday was that one day before the market junkies get their single biggest number for the month, the non-farm payrolls data. Normally it is a little quieter than it was, from a data flow point of view, but there was no shortage of action yesterday, it came flying in all directions after midday. Some we were sort of expecting, the ECB (European Central Bank) cut rates to an all time low, whilst others we did not expect, the PBOC (People's Bank of China) lowered the deposit rates across the board, and also lowered lending rates at the same time. I wouldn't say obviously. The Chinese news was a positive surprise (I think), but there was no change to the reserve ratio requirements rate. And whilst the Chinese release was not expected, a Bank of England announcement that they would continue their asset purchase program, adding another 50 billion Pounds to it, was expected. Quantitative easing or QE is what this is chaps.

Session end the Jozi all share index managed to hang on to good gains, 182 points up on the day to close at 34223, 0.54 percent better on the day. Banks added almost exactly that percentage gain, Telkom slid by about the same amount. I promise that we will talk about that ADSL pricing sometime soon, or perhaps I should just point you in this direction, Techcentral deputy editor Criag Wilson wrote this piece: Rock. Telkom. Hard place. Resource stocks added a less exciting quarter of a percent, general retailers were on a tear, up 1.81 percent, MTN had a cracking day, up the same amount as general retailers. And in fact MTN is within touching distance of their 52 week high, which is possibly a "normalised" high, if I could put it that way. I guess the overhang of the Turkcell allegations are closer to going away, if I could put it that way.

Ye Olde Worlde. Listened carefully to the ECB press conference afterwards, we all admired the way that ECB chief Mario Draghi conducts himself. He comes with such an impressive resume and track record. Perhaps the only disappoint was that there was less clarity with regards to the bond purchasing program that would have helped the bond yields of both Spain and Italy to get lower. But rates were cut to an all time Euro low, to 0.75 percent. The upwards moves in interest rates by Jean-Claude Trichet in hindsight seems to have been the wrong ones, but that could have happened to anyone. The interest rates on deposit facilities was cut to zero percent from 0.25 percent, this would encourage banks to lend. But will they? Who knows? Have a read through the Introductory statement to the press conference. I guess the biggest disappointment was the bond purchases, that would have helped Spain and Italy. And that is why I think that the market received this news negatively, the Spanish equities market was crushed nearly three percent, the Italian stock market was down two percent. Not good.

Byron's beats converges on Beijing central. 39^o 54' 50" N, 116^o 23' 30" E for a look at the rates decision from yesterday:

This is the second time rates have been cut in a month as the authorities take advantage of less than expected inflation numbers. The market didn't like it however. China has been known to implement stimulus just before a slew of negative economic data. Market participants expect that the authorities have had a glimpse at the June figures and have made this cut as an urgent reaction. Maybe they saw less than expected inflation numbers as well. It is funny how markets work, bad news seen as good news seen as bad news.

I'd have to say that net net this is good news. We know China is hitting a speed bump. We also know there is a lot of room for easing. We also know that this economy is still growing very fast and when it is stimulated the reactions will be more extreme. For example when the deposit rate decreases in a nation which has a saving culture, millions of people will be incentivised to spend instead of save. There are also growth opportunities which need investments. So when interest rates decrease, better places to put money do exist. This, as opposed to Europe, where money is cheap but the alternatives are fewer.

But most importantly these rate cuts further liberalise the Chinese consumer who are supposed to be the next big growth theme, not just for China but for the whole globe. Consumer based growth is sustainable and even more powerful than an industrial growth spurt. As more and more Chinese people experience the joys of consumption it will spread like wild fire. It's addictive, contagious and often customers are the best advertisements. I've already convinced three of my friends to buy iPads. Fashions, fads, must haves and must do's will be embraced into their everyday lives.

Of course this is just my opinion and admittedly I have never been to China. But I know human nature and I know that, judged by the numbers we have seen, this is already take effect. The base is still low and there is tons of potential.

New York, New York. 40^o 43' 0" N, 74^o 0' 0" W. There was a whole slew of US data, the ADP employment number beat expectations, the weekly jobless claims were lower than anticipated and although the ISM services index missed expectations, it is clear that the US economy is in far better shape than the folks across the Atlantic. The Dow managed to do a there and back again, after a poor start, but still closed in the red, down 47 points to 12896 on the day. The broader market S&P 500 lost nearly half a percent, whilst the nerds of NASDAQ ended about flat, just marginally better.

Let us check out those ADP numbers. Who are ADP? And why are these numbers even considered important? Well, as per their website: "It is a measure of employment derived from an anonymous subset of roughly 500,000 U.S. business clients. During 2011, this subset averaged about 344,000 U.S. business clients and represented over 21 million U.S. employees working in all private industrial sectors." So, this is an estimate then of the whole workforce, through the ADP numbers of their payroll systems! A guesstimate really, but a very good one.

Here is the release from their website: June 2012 ADP National Employment Report. However remember that last month there was a much better read on ADP than there was on the Labor department's non-farm payrolls number. I will tell you something interesting that I came across, the perception is that government is too big in America. BUT, the WSJ has a piece that suggests that if the government had not been firing people left right and centre, the unemployment rate would be closer to 7.1 percent. Wow. That is pretty amazing really. But still, the same article (admittedly old, from May) titled Unemployment Rate Without Government Cuts: 7.1%. That part is most interesting, because this is directly in contrast to what the Republican types are saying, "big government" is getting smaller. But by smaller, there are still too many government employees, 20.3 million folks!

So, this tees us up for the actual number, non-farm payrolls. The expectations that I can see are for an improvement of 100 thousand jobs, versus a 69 thousand gain last month. I get the sense that NOBODY pays as much attention to the revisions as they should. Hopefully the manufacturing trend will change, the last three months have seen losses for that industry. But May and April have both been pretty awful employment months, the Greek issue was pretty big too. Weekly hours worked has been unchanged over a year, to 33.7 hours. Average hourly earnings was lower in May than in April! And then there is of course the unemployment rate, which is a household survey, so that could be interesting from a mainstream point of view. For those interested, 8.2 percent is the current rate, 12.7 million Americans are currently unemployed. That is more than the whole population of Greece (10.8 million) and just less than Zambia (13 million people). That puts the sheer size and scale of the American economy into context.

Currencies and commodities corner. Who are Statoil? Well, they are a Norwegian company that is the world's 13 largest oil and gas company by revenue, listed in both Oslo and New York. The business is relatively young as far as energy majors go, founded in 1972 only, and recently merged with the oil and gas part of Norsk Hydro (made sense from that name). As far as I can tell, the Norwegian government has a 64 percent stake in the business. This is a global business, which operates in 36 countries around the world, closest to us here is Mozambique and Angola, no guesses as to why. So where is this all going? Well, as per the release from the Statoil website: Statoil preparing to halt production after notice of lockout. Yech. "For Statoil, the shortfall in production will be around 1.2 million barrels of oil equivalent per day." Not good for global consumers I am afraid, unions are demanding higher wage increases and earlier retirement. I am not too sure if union members all want a paid for holiday to Corsica. Pfff... really Sasha.

So now you see where that was all going, just as the Iranians are having to store oil in ships going around in circles looking for someone to buy, the Norwegian bosses are adamant that the warmer weather is a good time to negotiate and implement a lockout. An industrial lockout is different from a strike, because the company closes operations and workers lose pay. This type of action is only instituted on workers if management feel they have to muscle terms of wage negotiations. Not something that you would see here.

All this though has resulted in a shortage of supply, Iran oil is a no go for everyone, and now Norwegian oil production is about to grind to a halt. And that is why oil prices have gone higher in recent days, with NYMEX last at 86.50 Dollars per barrel, and 99.49 Dollars per barrel for North sea Brent, that is why you see the price between the two having moved further apart, the lockout. At one stage yesterday Brent had topped 101 Dollars a barrel. Since the lows of 20 June (Brent was under 90 Dollars a barrel), the oil price has moved steadily North.

The gold price last traded at 1604 Dollars per fine ounce, the platinum price is lower at 1468 Dollars per fine ounce. Dr. Copper is slightly lower from yesterday, the price last at 347 US cents per pound. The Rand is last at 8.16 to the US Dollar, 12.66 to the Pound Sterling and 10.10 to the Euro. We have started slightly better here, heading back towards all time highs.

Sasha Naryshkine and Byron Lotter

Email us

Follow Sasha and Byron on Twitter

011 022 5440

Thursday, 5 July 2012

Super Mario looking at Koopa Troopa, Goomba and a rate cut

"Total group sales for the period reached a record 61.2 billion Rand, showing an increase on last year of 15.5 percent. In terms of who is the most important division across the group, the Masscash division represents the most important part of the business currently, taking these increases into account, that division should roughly be 37.4 percent of overall group sales."

Jozi, Jozi. 26^o 12' 16" S, 28^o 2' 44" E. It was slow going here in the city founded on a "whole bunch of gold", as we were stuck in the liquidity doldrums, the Americans were on holiday celebrating their independence from the British. The only excitement across the screens was the build up to the Bob Diamond hearings in London in front of ~~narcissistic types~~ the Treasury select committee. It made for interesting viewing, because there is always the sense that the politicians are mostly there for political point scoring and the bank chiefs are mostly trying to deflect attention, say sorry and get out of there as soon as possible. A waste of time, because surely questions can be submitted in an orderly fashion and answered in good time too. Or is the purpose supposed to be a televised headmaster/pupil type session? Whatever the case, it made for good TV. Self important politicians, aren't they all like that? Don't get me started.

The Jozi all share index rose marginally, adding just 34 points, or 0.1 percent on the day to close at 34020 points. Banks continued to sink post the ABSA trading announcement shocker last week, down nearly one percent. I did see that the SARB annual report was released yesterday and subsequent interviews where officials from the central bank stressed that in light of this Libor scandal, that they were happy with the way that the interbank rates are/were set here. We have often said that our banking system is a very well structured, perhaps largely due to the restrictions placed in terms of exchange control, but that is not fair, that sweeping statement.

Massmart released a 52 week sales update yesterday, and I guess Mr. Market was marginally pleased with it. It looked better than I had anticipated, that is an upside surprise! Firstly the 52 week cycle that retailers have do not coincide with normal year ends (for other companies), because a month does not end on a Sunday all the time, the end of a retailers trading week. This particular 52 week sales period is to 24 June 2012. Really Sunday the 1st of July, that is so inconsiderate of you. But in a way this is a good thing, because that means that next year could possibly have a week longer and that is good for sales.

There are four divisions over at Massmart, Massdiscounters, which includes DionWired and Game stores, Makro (Masswarehouse), which is self explanatory, Massbuild, which consists of the "Builder's" brands, the Warehouse, Express and Depot, all of which I am sure that you know well. The ones that perhaps you do not know as well, is the last division, Masscash which consists of CBW, Jumbo Cash & Carry and Shield. And more recently the addition and roll out of Cambridge Foods, Byron visited one of these on a Massmart site tour not so long ago. The major difference between say for instance Game Foodco (the new retail offering) and Cambridge Foods is offering to different LSM groups, with Cambridge servicing 2-6 whilst Game Foodco's will service 5-10. For a simple explanation, I found one on the web, here goes, The 4 Lifestyle Levels. Which one are you?

Into the sales numbers, which are broken down by each division, straight from the release:

* Massdiscounters increased by 11.0% (4.4% comparable) with deflation of 3.3%;
* Makro increased by 20.1% (11.6%) with inflation of 1.9%;
* Massbuild increased by 13.0% (9.3%) with inflation of 1.4%; and
* Masscash increased by 16.5% (11.6%) with inflation of 6.1%. Total sales growth has been boosted by the inclusion of Rhino from 1 March 2012.

Total group sales for the period reached a record 61.2 billion Rand, showing an increase on last year of 15.5 percent. In terms of who is the most important division across the group, the Masscash division represents the most important part of the business currently, taking these increases into account, that division should roughly be 37.4 percent of overall group sales. Makro makes up roughly 25 percent of the group sales, whilst Massdiscounters represents around 24.2 percent of total sales. Whilst Massbuild sales are the smallest division (13.4 percent), they still manage to clock nearly 8.25 billion Rands worth of sales. That Builders Warehouse, you can never walk out with just one thing! Results are expected on the 22nd of August, we will as always be watching.

Vodacom have announced this morning that there is going to be a change in directorship at the very top, Pieter Uys is stepping down after having been at the company for two decades, and the Group CEO position will be assumed by Shameel Joosub, who rejoins Vodacom. Joosub of course, if you had been following has been working for parent group Vodafone in Spain. Nice, must have been fun there. Joosub knows the Vodacom business well, he has extensive experience and has lived through the business roll outs. I suspect that this news is about neutral, the appointment would have been by Vodafone with consultation with some of their other big shareholders, including Government and the PIC, the "other" shareholders of size and scale. The free float realistically of Vodacom is much smaller than you think, with around 84 percent in "safe" hands. The price at the get go is unchanged.

Tiger Brands have reached an agreement in principle, after much talk, to buy a 63.4 percent stake in Dangote Flour Mills from parent company Dangote Industries. Aliko Dangote, who is the richest fellow in Africa, is obviously getting the parent company to cash in here. Dangote is still the chairman of the Flour Mills business that has his name, but perhaps for not too much longer. As far as I understand it, Dangote Industrials will continue to hold a 10 percent stake in the business, should the deal be concluded. Now, as far as I can understand from the Bloomberg information on Dangote Flour Mills: Dangote Flour Mills PLC (DANGFLOU), the market cap is 29750 million Naira. Or 29.750 billion Naira.

Currency conversion time, officially one US Dollar is 162.8763 Naira, so this means that the whole business is worth 182.65 million Dollars. Which is roughly 1.48 billion Rands. And at the ruling price for Dangote Flour Mills, Tiger Brands would be paying 0.938 billion Rands, or 938 million Rands. Tiger Brands entire market cap is nearly 49 billion Rands, so this deal is worth roughly 2 percent of the market cap of Tiger. From their last set of numbers, West African sales were 336 million Rand, with EBIT of only 18 million Rands. This purchase (if closed) will raise West African sales significantly, in the 2011 financial year Dangote Flour reported sales of 66.281 billion Naira, or 3.3 billion Rands. So roughly 2.1 billion Rands, this is a significant jump in their presence in the region. The business that Tiger are buying into seems to have a creaking debt load, I am trying to find out more about that from a Nigerian source directly.

Byron's beats takes a look at possibly one of the many market moving events of the day, the ECB rates decision. There are many tools that they can still use, including sovereign bond buying, that could help ease the yields, just this morning we have a sovereign bond auction in France. And Ireland are close to coming back to the market, for 500 million Euros, welcome back. Spain had an auction this morning, which sadly meant higher borrowing costs, 6.43 percent for their ten years'.

"The six members of the European Central Bank (ECB) Executive Board and the 16 governors of the euro area central banks vote on where to set the rate. Traders watch interest rate changes closely as short term interest rates are the primary factor in currency valuation. A higher than expected rate is positive/bullish for the EUR, while a lower than expected rate is negative/bearish for the EUR." Interesting.

Remember last month when we discussed why they didn't cut rates earlier? They were using the cut as a potential silver bullet in case the Greece election ended for the worse and a possible exit from the Euro. That of course has not happened but, the region can do with as much stimulation as possible. Rates are currently at 1% and are expected to be cut to 0.75%.

Following the rate cut decision we have the ECB press conference. Again Forexpro has a good description. "The European Central Bank (ECB) press conference is held monthly, about 45 minutes after the Minimum Bid Rate is announced. The conference is approximately an hour long and has two parts. Firstly, a prepared statement is read, then the conference is open to press questions. The press conference examines the factors which affected the ECB's interest rate decision and deals with the overall economic outlook and inflation. Most importantly, it provides clues regarding future monetary policy. High levels of volatility can frequently be observed during the press conference as press questions lead to unscripted answers."

So basically we are getting the ECB's views of the region and what they expect going forward. Expect lots of central bank lingo which often needs Google translate to decipher. We watch these things when they happen but you normally have to siphon through the important information. Like the rest we expect and hope for a rate cut. If you have room to cut then why not? Following the recent PMI data coming from Europe, a weaker Euro plus cheaper borrowing rates will help. Every bit counts.

Currencies and commodities corner. Dr. Copper is steady, last at 350 US cents per pound, the gold price is flat at 1617 Dollars per fine ounce. The platinum price is last at 1480 Dollars per fine ounce, slightly lower on the day. The oil price is higher, it has shot up, there are various bits of news and clarity regarding the Norwegian oil workers strike AND what the extent is of Iranian crude tankers circling not far from home. I read this morning that tankers are being repainted, or simply idling whilst waiting for orders. Kenya cancelled an order because of pressure from the English authorities. A small one, but pressure is being placed, and perhaps this will lead to something concrete from the Iranians with regards to being more open about their nuclear ambitions. The oil price is last at 88.21 Dollars per barrel for NYMEX WTI. The Rand is steady-ish, 8.16 to the US dollar, 12.70 to the Pound Sterling, 10.24 to the Euro. We are higher to start with here. LOADS happening today, ADP, weekly jobless claims, services ISM all happening in the US.

Sasha Naryshkine and Byron Lotter

Email us

Follow Sasha and Byron on Twitter

011 022 5440