Global diversity for the win

"That does not mean that there are no investment opportunities, it means two things however for companies with a completely emerging market business, a) the valuations are likely to be subdued on a weakening growth outlook and b) they are more likely to pay up for opportunities elsewhere, and by that I mean offshore. Companies who in large part have diversified their asset bases are likely to attract higher multiples from the local market, who are searching for higher growth opportunities."

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To market to market to buy a fat pig. Whilst the Proteas were trying with all their might to stave off another defeat in the test series in India, in an epic blockathon, the global markets were less dour at face value. Test cricket has a lot in common with investing, it takes a lot of time to execute your plan, there is an enormous amount of planning involved in the first place. It is just as much about tiring the opponent out as it is a test of your own mental stamina. In many instances you feel like you are up against it, it is going to be too tough to be in, you sure as heck don't want to get out though. As they say, and batsmen will tell you this, they only get one chance, whilst bowlers get multiple chances. Not sure, fielders drop catches. I often say that the baseball analogy that Warren Buffett uses is more suited to cricket, it goes like this:

The stock market is a no-called-strike game. You don't have to swing at everything-you can wait for your pitch. The problem when you are a money manager is that your fans keep yelling, 'Swing, you bum!'

See? In cricket you can wait for the ball to come to you, i.e. the bowler to bowl to you, rather than trying to score off each and every single ball. My cricket coach and headmaster was a Geoff Boycott style fan (he would have loved yesterday), he often used to say to the opening batsman, of which I was one for a couple of years, the best shot is no shot at all.

You don't have to swing at everything, in the same way that there will be many companies that you never own that you wished you did. Like PSG, or Capitec or any other such business. Like SABMiller when they were worth a whole lot less, like Old Mutual at the bottom of the financial crisis, why did you not buy that, what is wrong with you? And getting a start is important, no matter what your age. If you are not saving, nobody else is going to do it for you. In other words, if you are not committing more to your long term savings, nobody else is going to do that for you. It is simply like that. Again, the cricket analogy is apt here, each and every person utilising investment platforms is looking for the same thing, how they go about it is another story entirely, take Shivnarine Chanderpaul, nothing pretty about that style, darn effective though, he averages 51 plus in a losing team more often than not.

Enough about cricket, I do realise that it definitely is not everyones cup of tea (and cucumber sandwiches). Markets locally regained some of the losses from the sell off here on Friday, stocks up around a percent and one-fifth here in Jozi, Jozi, the Rand was testing new all time lows to the US dollar, it was hardly prettier to the Euro nor to the Pound. I am afraid that we are stuck in a situation where the perception of emerging markets has soured badly. At the end of the session our market was just below the 50 thousand point market, over 5000 points away from the all time highs now, the end of the year has certainly been tougher than the beginning.

That does not mean that there are no investment opportunities, it means two things however for companies with a completely emerging market business, a) the valuations are likely to be subdued on a weakening growth outlook and b) they are more likely to pay up for opportunities elsewhere, and by that I mean offshore. Companies who in large part have diversified their asset bases are likely to attract higher multiples from the local market, who are searching for higher growth opportunities. So, one will have to continue to look for and invest in diversified global business with a more than even growth rate. Easier said than done, right?

Across the oceans and far away in New York, New York, stocks came off the boil after the marvellous rally Friday, ending comfortably down across all three major indices. The nerds of NASDAQ sank nearly four-fifths of a percent, the S&P 500 sank 0.7 percent whilst blue chips lost two-thirds of a percent. The oil price was caned again, sinking to a seven year low last evening. That is excellent for consumers, provided of course that they are buying in dollars, not like us, right? Oil prices are traded as low as 37.77 Dollars a barrel, some suggesting that the lows could test numbers not seen since the early part of the last decade. Ouch for balancing budgets in some parts of the world, great for Joe Consumer. The reason is clearly OPEC's inability to turn off any taps at any quarters, instead the "drill baby, drill" Sarah Palin mantra comes to mind. And to think that she has more sanity than Trump. Sigh .....

There was another deal brewing, a Luxembourg based group by the name of JAB Holding was busy offering a monster premium for Keurig Green Mountain Inc., wanting to buy the firm for 13.9 billion Dollars. Now the group is becoming serious in the coffee world, having acquired D.E. Master Blenders (Douwe Egberts) in October 2013 for over 10 billion Dollars and Mondelez International Inc.'s coffee unit in May of 2014 for somewhere close to 5 billion Dollars.

Now the company is close to a usual European setup here, there are three highly skilled professionals running the business for four heirs, each of the Reimann offspring are worth four billion Dollars plus, according to Bloomberg. They moved from Germany to Austria, swapped their nationalities and hey presto, cheaper taxes in Austria. Good work, plus, they speak the same language. One of the investors in JAB Holdings is a known entity, Alejandro Santo Domingo, a shareholder over at SABMiller (and #winning on the current deal) is an investor in some of these coffee deals. I like these deals, it means that the coffee space is more interesting, more people willing to pay big premiums on premium coffee. We continue to stay long Starbucks, our most preferred global coffee investment.

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Linkfest, lap it up

I doubt this project will get out of the planning phase, I hope that it does though - The World's First Underwater Tennis Court Could Cost $2.5 Billion.

With high growth in China there have been environmental draw downs. The question to ask though, is it worth it? Will the environmental damage be temporary as China gets richer and will they get greener? - Beijing Issues Air Pollution Red Alert for the First Time. The other big problem is the health issues that will arise in the population due to the pollution.

Here is a look at how different sectors have performed for this year. Generally we think that mega companies just plod along with limited share price growth given the huge base. This year that has not been the case - Mega Cap Stocks Driving Market Returns. The blogger also has a look at the returns of value and growth stocks this year, it is no surprise that growth stocks have outperformed by 10%.

Thanks to competition, renewable energy costs are plummeting. Two things are happening in the renewable energy space, the products are getting cheaper and the products are producing more electricity. The result is that on a per Watt basis, solar and wind are starting to be real alternatives - How Solar and Wind Got So Cheap, So Fast

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Home again, home again, jiggety-jog. Stocks across Asia are down sharply, Japan down over a percent, in Hong Kong markets are down over one and two-thirds of a percent. Stock futures across in the US are also pointing to a lower opening, no doubt European markets and ourselves in this time zone will start lower too. Part of the reason is another set of smoggy looking Chinese numbers, their trade numbers for November suggested that their trade with the rest of world continued to shrink. The country still runs a pretty mean monthly trade surplus of over 50 billion Dollars, I am guessing the envy of many.

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Sugar, Spice and All Things Nice

"We would rather own Holdsport, Nike, Under Armour, businesses that are working to make you healthier, equally Discovery, rather than producers of products that global bodies are trying to reduce your intake thereof. Make sense? British American Tobacco also falls within the no go category for us. So far we have been wrong on that but it will come."

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To market to market to buy a fat pig. There and back yesterday on the Jozi all share, the biggest stories of the day were undoubtably the climate talks in Paris. And at exactly the same time, as the FT pointed out in an article I read, giant smog clouds descended over the capital cities of the two most populous countries on the planet, namely China and India. Those two countries desperately need to uplift their respective populations, their energy needs and mix will be vastly different to those of the developed world.

In the developed world there are more reasons to worry about climate control, your infrastructure is built and your intensive industries have developed to a point where the laws and rules for environmental controls are stricter. For instance, with all due respect to the countries involved, the environmental laws will undoubtably be stricter in Denmark than the DRC, Japan than in Java, it is not to say that these issues shouldn't be taken more seriously in all territories.

How can you tell India to be stricter on emissions controls when around 30 percent of the population lives below the poverty line, a number not too dissimilar to here in South Africa? There are bigger social problems to overcome, full tummies, jobs, shelter, access to basic services seem a whole lot more important than clean air, perhaps that is a basic human right, access to clean resources. Ironically the consequences of climate change often impact those that are marginalised, so we have to care more, a two pronged approach.

We should all try a little harder, be more energy efficient, recycle more, I think that is happening. Resources ironically need to become more scarce, i.e. the economics need to dictate to us. In other words, like we are seeing with solar panels, their conversion, adoption, battery storage capacity, etc. The costs are falling at a rate of knots, relative to the mainstream technologies. Our preferred investments in this space, and they certainly are out there, is SolarCity and Tesla, ironically both companies are associated with Elon Musk, who might have been schooled in these parts (and we call him our own), Charlize is really more South African. Although she picked up some funny accent along the way, what happened there?

There was of course other news, there was a name and version change for Steinhoff, it is effectively an inward listing now. What does that mean? Here is your refresher, we wrote about this back when the company released their FY numbers, here goes: " ... the company announced that they had got the necessary votes to proceed with the offshore listing in Frankfurt. Logistically speaking, what happens next is that a business called Genesis N.V. will acquire all the shares of Steinhoff, in exchange for each Steinhoff listed share on the Frankfurt stock exchange, there will no doubt be a version change. You will basically be an investor, owning a global depositary receipt of a business listed in Frankfurt and domiciled in the Netherlands. Got it? Easy, not so?"

The share code has now changed from SHF to SNH, which stands for Steinhoff International Holdings N.V. The N.V. part stands for naamloze vennootschap, which translates to public company, and according to Wikipedia is used only in the Netherlands (obviously), Belgium, Aruba, Curacao (accent left off the second c, apologies), Suriname, St. Maarten, and Indonesia. The stock actually flew up the charts, up four and a half percent, last week was not a particularly good week for the company, perhaps the ebbs and flows of it all, or perhaps out of certain indices and into others created natural sellers and natural buyers.

In other company news there was Illovo who pointed to the poor weather as something that has really impacted on their business, they are of course not alone. I would not own the business, their core product is one that most diets agree should not be included, it is not good for you, obviously there are still many studies to be done. Some would argue that everything in moderation is ok.

Earlier this year the World Health Organisation (WHO) urged people to reduce their sugar intake, check it out: WHO calls on countries to reduce sugars intake among adults and children. Isn't that a bit of a dumb headline? Adults and children, are you not one or the other? Just recently too the WHO released this: Q&A on the carcinogenicity of the consumption of red meat and processed meat. We would rather own Holdsport, Nike, Under Armour, businesses that are working to make you healthier, equally Discovery, rather than producers of products that global bodies are trying to reduce your intake thereof. Make sense? British American Tobacco also falls within the no go category for us. So far we have been wrong on that but it will come.

And then lastly on the company front, perhaps a story that was underreported and more important than almost anything else going on globally was that the Brazilian government were mulling fining BHP Billiton and Vale (the Brazilian Iron Ore giant) 5.2 billion Dollars for the Samarco operation dam burst. Someone needs to fit the bill for cleaning up a huge environmental disaster. What is astonishing for me is that the size of the fine is about the same as the one levied on MTN for not disconnecting sim cards.

When the fine fits the punishment I have no problem, in this case the burst dam has seen a loss of life and a significant displacement of hundreds of people, the longer term environmental impact is yet to be felt. In BHP's defence, they deny that the tailings had heavy metals and toxic chemicals in them, suggesting that they had checked. The BHP Billiton share price in London fell to a 10 year low. Against of course the backdrop of a complete rout of commodity stocks. We continue to avoid all of these businesses.

Over the seas and far away in New York, New York, stocks started the last day of the second last month on a better footing, unfortunately slipping away after mid afternoon. That Fed meeting and the pending hike will no doubt capture the imagination of market participants for the better part of two weeks. First however is the small matter of the most hyped, most highly anticipated event in equity markets across the world, the release of the non-farm payrolls, officially known as the Employment Situation. A stronger than anticipated number would definitely lead to 100 percent stamp of surety that the Fed are going to hike rates in mid December. The meeting of the Federal Open Market Committee (FOMC) ends on the 16 of December, a holiday here in South Africa. And the local currency has been obliterated relative to the US Dollar, so have many currencies across the globe. Year-to-date the Rand is 8.7 percent weaker to the Euro, over 20 percent to the US Dollar.

Other noteworthy news, and the Euro being the obvious loser was the inclusion of the Chinese Renminbi into the SDR basket. Huh? SDR stands for Special Drawing Right, and according to the inter-webs (that will explain these things better than me): "The Special Drawing Right (SDR) is an international reserve asset, created by the IMF in 1969 to supplement the existing official reserves of member countries. The SDR is neither a currency, nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members." The official IMF release is here: IMF's Executive Board Completes Review of SDR Basket, Includes Chinese Renminbi.

All this means is that the IMF have recognised the Chinese currency as a reserve, a decade after the real Chinese growth started to ramp up. Admittedly this only changes every five or so years, herewith the "new" formula:

U.S. dollar 41.73 percent (compared with 41.9 percent at the 2010 Review)
Euro 30.93 percent (compared with 37.4 percent at the 2010 Review)
Chinese renminbi 10.92 percent
Japanese yen 8.33 percent (compared with 9.4 percent at the 2010 Review)
Pound sterling 8.09 percent (compared with 11.3 percent at the 2010 Review)

I for one still don't understand how the Chinese currency trades, whilst it floats and is supposedly free, it is certainly managed by the central bank, the People's Bank of China. Quite right, the direct translation of Renminbi is the people's currency. As apposed to? Fun to watch, nice to be part of that history, until the Dollar changes significantly it will still be the currency that is most widely accepted worldwide. Even in the heart of the cold war, what did people want behind the iron curtain? Dollars. Capitalism wins every single time, and with the liberalisations in the Chinese economy, this is being recognised by the IMF, the International Monetary Fund. A question that should be asked is, how would Chairman Mao Zedong feel about all of this, he is after all the face of the Yuan notes?

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Linkfest, lap it up

With wealth comes the ability to take bigger risks. In this case it is taking bigger risks to try push us forward in our consumption of energy, to consume clean energy - Bill Gates, Jeff Bezos and other tech titans form the Breakthrough Energy Coalition to invest in zero-carbon energy technologies. The one thing that Gates says which I feel is very important is: "Our primary goal with the Coalition is as much to accelerate progress on clean energy as it is to make a profit.". Being profitable will make the project sustainable and will also make it possible to attract more talented people to the project.

Here is a look at what global energy supply looks like and the carbon emissions that come with them. It is amazing to see how much more power we consume - As appetite for electricity soars, the world keeps turning to coal. The one thing to remember about electric cars is that at the moment most of them are essentially powered by coal and with a single charge equating to around a months power use of your fridge at home, they have a high electricity demand. As the likes of Bill Gates invests in renewable energy production and as scale makes it cheaper than coal, electric cars will become cleaner.

Josh Brown points out the phenomenon of momentum in asset prices. The basics are that when something is hot or doing well, it gets an extra boost as people all run towards it - The Trouble With Chasing Hot Strategies. It seems to be a phycological trait where we want to get in on the hot action and get out of the things that are doing poorly. The problem is that what normally happens is we buy a stock/strategy at the top and sell a stock/ strategy at the bottom. The cure is to stay calm and patient, short term noise always passes.

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Home again, home again, jiggety-jog. Stocks across Asia are higher across the board, some December cheer. US futures are up sharply. The reason given is apparently Asian cheer of the regions prominence, the Asian economic Tiger has clearly arrived. I am not too sure what the Indians think of all of this. India have Ravichandran Ashwin, who is now the second best bowler in the world. China as far as I know have no cricketers of prominence, although the left arm leg spinners googly is known as a chinaman. Stick that in your pipe and smoke it.

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Massfart

"You will remember that something similar happened last year when they released a trading statement that was also heavily impacted by currency moves. I think the company missed a trick by not giving more information on the impact of the currency, the SENS leaves a lot to the imagination which makes the share price move today understandable."

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To market to market to buy a fat pig. Yesterday China was the topic that 'everyone' was talking about again. The Shanghai Index was down 6% and is down a further 1% today. The best reasons that I can find online for the drop are because of Yuan fears (again) and the bomb blast in Thailand. Both reasons don't sound like real reasons to be selling a stock, here is a graph of the Yuan over the last month. You can see that it has been very stable over the last few days:

Found on XE.com

A more likely reason in my opinion, are the sales from insurance companies who are going to have to fork out large sums to cover the damage from the blast earlier in the week - China's Tianjin blasts will cost billions. Here's the tally so far. The problem in Chinese markets at the moment is that people are still operating under a state of fear, so as soon as the market starts to fall, traders continue to sell. The result is that the market falls further than it should. We saw a similar, albeit smaller impact on markets from the Japanese tsunami and earthquake in 2011 where the Nikkei dropped as well as US stocks. Why the US stocks? Probably a mix of traders just selling on negative news but also because the insurance companies operating in Japan had assets in the US that needed to be liquidated in order to pay out claims.

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Company corner

Lower commodity prices have come through in the Glencore Plc - 2015 Half Year Report. The lower prices resulted in their revenue dropping 25% and last years net gain of $728 million swung to a net loss of $676 million. Over the period they managed to pay down debt and are keeping their dividend inline with last year's, both signs that management are putting on a brave face. If you read about Ivan Glasenberg and his team running the company, they are all tough as nails. The results highlight the perils of operating in the mining sector, you have no say about the price that you sell your product at. The stock is currently down 5%.

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Massmart at the moment is down 11% due to a negative Trading Statement For The 26 Weeks To 28 June 2015. HEPS are likely to be down 29.8% to 22.4% but if you strip out the negative impact of currency moves Earnings may be up by 0.9%. You will remember that something similar happened last year when they released a trading statement that was also heavily impacted by currency moves. I think the company missed a trick by not giving more information on the impact of the currency, the SENS leaves a lot to the imagination which makes the share price move today understandable.

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Linkfest, lap it up

Given how much spending power Millennials have you defiantly need to be giving them attention when it comes to making investment decisions - How trillion-dollar millennials are spending their cash

Given the strengthening of the US Dollar and the weakening of the Brazilian Real luxury products in Brazil are looking cheap - Luxe for Sale as Cartier, Prada Become Bargains in Brazil. Maybe this will spur a new type of tourist to Brazil. Why not go have a holiday and then add to your watch collection at the same time?

Building more cognitive style competing chips will makes computers more useful in the future, with the ability for computers to 'think' for themselves. The offshoot of the technology is to better understand how brains work, so significant resources are going into this technology which will no doubt have medical benefits as a byproduct. - IBM has built a digital rat brain that could power tomorrow's smartphones

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Changing Energy

There is no doubt that information is power, which allows us to make rational decisions and decisions that maximise the benefit for ourselves. Google have set up a website to help tell you if your roof is conducive to solar, how much you can save and then connect you with someone who can help out - About Project Sunroof. If people are able to reliably see what they can save by using solar there is a higher chance that they will use it. At some point critical mass will be reached and putting solar on your roof is just something that is done in sunny areas. No one wants to be that odd one out who isn't saving the environment and who isn't saving themselves money. - Google's 'Project Sunroof' Aims To Put Solar Panels On Top Of Everything. . . Eventually

I didn't realise the impact of being more efficient has been so big. Lessons that can be learned for the power problems in RSA. There has already been a big push in the light bulb arena but a bigger push probably needs to be made in the appliances department. "Americans' energy-conservation efforts, from switching bulbs to upgrading washing machines and air conditioners, have done more to reduce carbon emissions than the increased use of solar, wind and natural gas. . ." - The Lowly Lightbulb Outshines Solar and Wind on U.S. Power Grids

Buying renewable energy companies can be risky given that the barriers to entry are low and it relies on other sources of energy become more expensive than solar - Solar is having a great year, except on Wall Street. While oil looks like it will remain at these levels for the foreseeable future, shares of companies linked to alternate energy have had a tough time. This might be a buying opportunity if your time horizon is long enough.

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Home again, home again, jiggety-jog. Our market is currently down by over 1% lead by the commodity linked stocks. Our Rand has strengthened slightly today, trading under the R/$ 12.90 mark. The big data out today was our CPI coming at the 5% mark, which falls nicely in the target range from the SARB of 3-6%. With the fuel price probably going down next month lets hope that the result is not another rate hike from the SARB. The market moving data out of the US later is their CPI data and then the FED minutes from their last meeting. You can be sure that interns all over the place will be tasked with going over the minutes to find "key" words or phrases about when the next rate hike will come. I don't even think the FED themselves know when exactly they will be raising rates, so not sure how much value scrutinising the minutes will result in.

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