You own companies

"Stocks go up and down, in the end it is only the great companies that drive the levels of the overall market. For instance Aspen once traded at 5 or 6 Rand, I remember, as did Famous Brands, Steinhoff was 20 Rand a share not so long ago. Equally Anglo was under 100 Rand in May of 2003, I remember it well, by June 2008 the share price was around 540 Rand a share, It is now 145 odd Rand a share. In London it is down 14 percent in a decade and a half. The market consists of different companies doing different things, it is not a single beast"

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To market to market to buy a fat pig. The concerns around the relative health of the Chinese economy persists, this time export and import data this morning are not the right flavour for those suggesting that China is just OK. I guess it is, and perspective is badly needed at this time. Paul tweeted yesterday: "China will grow at around 7% for next 5 years, said Finance Minister Lou Jiwei. Pretty good, if you ask me.", with the link: China economy enters 'new normal' eyeing 7% growth rate: G20. Yes, that is pretty good. That is excellent in fact.

Even if the Chinese economy grows at five percent per annum for the next five years, that is still an enormous number added to global GDP, an economy roughly the size of the United Kingdom. I think that people don't realise the size and scale of the present economy and how quick growth rates off an increased base is harder and harder to achieve. If they achieve 7 percent growth over the next five years, then the country would have added an economy of somewhere in-between Japan and Germany, the 4th and 5th biggest economies on the planet.

Are you starting to see the size and scale and the very magnitude of what is happening here? Equally if the whole globe grows at three percent per annum for the next five years, it adds a collective 12.3 trillion Dollars in annual GDP. Bigger than China is currently. If it is 2.5 percent, which I certainly think is achievable, then it is equal to the Chinese economy right now. Nobody would ever turn around and say, gee, we added a whole China over the last five years in economic output.

Anyhow, eye popping numbers aside, let us have a look at the scoreboard in Jozi, Jozi yesterday. It was a bleak day, collectively stocks were down half a percent, the only spot of excitement was the debt reduction plan of Glencore, suspending the dividend for the balance of this year and next year, selling assets, slowing down on current spend and most importantly for the market, a rights issue of 2.5 billion Dollars. That is pretty huge, and as far as my reading leads me to believe, management and Glencore staffers will be involved to the tune of 22 percent, the rest is underwritten by Citigroup and Morgan Stanley.

The WSJ article: Glencore Scraps Dividends, Raises Cash to Cut Debt quotes the CFO Steve Kalmin as saying that this is about making this business bulletproof and robust. The share price rallied on the day, up 7 percent in London. The stock is however, and strap yourself in, still down 35 percent over the last month, that is in Pound Sterling terms. Year to date it looks like a train wreck, down nearly 56 percent in Pound Sterling. I remember when Glencore was supposed to be solid, as a result of their trading business which has no commodity price variance.

Almost in the same way that Kinder Morgan Inc. has, a yield of 6.37 percent in Dollar terms at these levels. Huh? And forward, the dividend is said to be 2 Dollars a share. The company transports gas and CO2, it has storage terminals and other product pipelines. So what is Mr. Market telling you here? Richard Kinder, the cofounder and executive chairman gets paid one Dollar per annum, no stock options and no perks, nothing, check out his Reuters basic compensation. Only his dividend.

He did buy around 3,9 million Dollars worth of shares the other day, in July, at 30 percent higher than where the share price is now. He owns (after that transaction) 234,012,353 shares. If the dividend is two Dollars, as the company suggested, he gets 468 million Dollars before dividend tax. Even at the top end rate, he still gets to keep 60 percent of that free and clear. So do not feel sorry for him. Perhaps this is a case of storms on the horizon, why would Richard Kinder shell out around 4 million Dollars around two months ago? He obviously still believes in his business and thought at the time it was oversold.

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I want to highlight an email conversation that I had with someone yesterday. Remembering two things, one, if you are invested in single stocks that means that you do not own the market or the index and two, the index is made up of companies that dynamically change places in the ALSI 40 as a function of their prospects and market participants pricing that future accordingly. For instance, take some of the single commodity stocks, the companies that mine one specific group of metal, their price action can be very volatile as a result of the underlying price. Over five years Kumba Iron Ore is down 75 percent, the price that is. Production is up sharply, the iron ore price in that time has moved around wildly. At the beginning of 2013 the stock topped out at 611 Rand a share, currently it is 86 Rand, the lowest level since the split of Kumba Resources.

In 2011 the company paid 42 Rand a share in dividends, almost exactly the same in 2012, in 2013 it was nearly 33 Rand a share. In 2009 the total dividends had been over 20 Rand a share, the same in 2010, last year in 2014 it was 34 Rand. Add those all up and you have received 190 odd Rand, back of the matchbox here. Fast forward to the interim results this year, the dividend may be suspended for the time being as the iron ore price has fallen from 190 odd Dollars a ton to below 45 Dollars a ton seen in July of this year, it has since recovered somewhat to nearly 57 Dollars a ton. The single commodity that the company mines has moved so violently and they have now been forced to cutting costs and worrying about conserving cash, like many other miners. Eish.

So Kumba used to be a major company in the ALSI 40, with a market cap of nearly 200 billion Rand. That would make it roughly the same size as Vodacom now. Parent company Anglo American is barely larger than that. Currently Kumba is half the size of the 38th placed Netcare in the index, times change and change very quickly. That is why I had to reply to the email that simply said: "You know I`m a big fan of Vestact and its optimism but one honest question: is there value still value in the SA equity market?"

I replied as follows: "Yes is the short answer. Stocks go up and down, in the end it is only the great companies that drive the levels of the overall market. For instance Aspen once traded at 5 or 6 Rand, I remember, as did Famous Brands, Steinhoff was 20 Rand a share not so long ago. Equally Anglo was under 100 Rand in May of 2003, I remember it well, by June 2008 the share price was around 540 Rand a share, It is now 145 odd Rand a share. In London it is down 14 percent in a decade and a half. The market consists of different companies doing different things, it is not a single beast is the point I am trying to make. Make sure you own the good ones and that you are not looking for a turnaround or hoping the price bounces back 'just because'."

I think the conclusion is that the market is not your portfolio and your portfolio is not the market, they are two very different things. In the same way the economy is not the market, and the market is not the economy, your portfolio is not the market. Nor is it reflective of the weaker Rand, as I pointed out yesterday, Sasol is down 14 percent in 10 years in Dollar terms (the Sasol ADR), the local price is up around 90 percent. All I am trying to say is that one should be careful suggesting that all stocks of a specific company, or indeed sector are all equal. They are not, all companies are different. Each specific holding in your account is completely different from the last and from the next.

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Linkfest, lap it up

The World Economic Forum did some research on how companies perform after raising extra capital. It is not surprising that raising extra capital benefits smaller firms more than larger ones. I found it interesting to note that on average raising extra capital resulted in a significant increase in assets and sales, with the increased growth rates being sustained for a number of years. Given that you have professional managers running companies, it would makes sense that more often than not they allocate capital effectively. - How does issuing equity and bonds affect a company's growth?

This highlights that being wealthy comes from equity in companies and not from your salary. It is great to see employees that have kept their stock over the years. I have chatted to local executives and they find that employees in our market don't want shares and when they do get shares they end up just selling them - Millionaire Grocery Clerks: The Amazing WinCo Foods Story

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Home again, home again, jiggety-jog. Stocks across Asia are mixed, Shanghai is up, whilst a negative GDP read in Japan has sent the Nikkei 225 lower, down two and one quarter of a percent. The huge news is that Kevin Anderson has beaten Andy Murray, you knew that already though. Pretty magical. We can forget the national football team, we don't want to talk about that.

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

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Gill went up the hill, rates came tumbling after

"But why would you think that though, surely banks would benefit from the cuts in rates? But it is getting to the point where banks margins are actually squeezed with lower interest rates. But others, the geared retailers and the shorter term lenders in the form of ABIL and Capitec (with higher lending rates) stood more to benefit from the rate cut."

Jozi, Jozi. 26^o 12' 16" S, 28^o 2' 44" E. Wrong again! That is two meetings in a row here that I was wrong on the MPC. Whilst we were trying to bowl the "English" cricket team out (they speak English, if not all born there) in London at the Oval, locally we were surprised by a rate cut. I really hope for the Reserve Bank's sake that "things" don't get better as quickly as I think that they might. The enormous efficiencies that companies have managed to build in over these lean times mean that most businesses are better placed than ever before. Although, it is still very tough out there, not too much is going on. If it is different where you are, as ever we would love to hear from you, we can publish your pieces in the note.

So the surprise rate cut saw us blindsided, retailers rocked, big banks not so much. But why would you think that though, surely banks would benefit from the cuts in rates? But it is getting to the point where banks margins are actually squeezed with lower interest rates. But others, the geared retailers and the shorter term lenders in the form of ABIL and Capitec (with higher lending rates) stood more to benefit from the rate cut. The property loan stocks also took off, the thinking of course is that in the search for yield, at least these stock prices of the property sector are going to be better investments than the other fixed income options. Those stocks as a collective were up one and a quarter percent, whilst the banks were off 0.77 percent. The overall market, the Jozi all share index added three quarters of a percent to end the session at 34292 points.

Byron's beats covers most of the important news over here in the Anglo American stable. Gosh, they have been very, very busy, some good for some and some ugly for certain individuals. Here goes:

Lots of news coming from Anglo America over the last few days. First we had the Anglo Plats update which we already covered then we had an announcement yesterday afternoon indicating a big management shift.

Anglo American plc announces a number of executive management changes across its South Africa based businesses following Neville Nicolau's decision to resign as CEO of Anglo American's Platinum business to pursue other interests.

"The following changes are effective from 1 September 2012: Platinum - The Board of Anglo American Platinum Limited has appointed Chris Griffith as the company's new CEO. Mr Griffith has been CEO of Kumba Iron Ore Limited (Kumba) since 2008. Prior to joining Kumba, he worked at Anglo American Platinum for 18 years, reaching the position of Head of Joint Venture Operations. In the interim period until 1 September 2012, Bongani Nqwababa, CFO of Anglo American Platinum, will fulfil the role of CEO of that business.

Kumba Iron Ore - The Board of Kumba Iron Ore Limited has appointed Norman Mbazima as the company's new CEO. Mr Mbazima has been CEO of Anglo American's Thermal Coal business since 2009 and has an intimate knowledge of the South African mining landscape and many of Anglo American's key partners, including Eskom and Transnet. He was previously the CEO of Scaw Metals and joint acting CEO and CFO of the Platinum business."

This is big news. Chris Griffith is highly regarded, we will have a look at the Kumba results which came out this morning later and you will see why. We had a discussion in the office yesterday after the news came out and all agreed that we would rather be Iron Ore miners than platinum miners right now. It also spurred me to check the relevant market caps of Anglo Plats and Kumba. Fascinatingly Kumba is now comfortably larger at R182bn compared to Amplats at R113bn. Chris Griffiths has a big challenge ahead but maybe he is the right man for the job.

So that was yesterday. This morning Anglo released their production report for the second quarter ended 30 June 2012 followed by Kumba's results. In case you forgot Anglo own 65.2% of Kumba. We will cover these now.

Anglo production report.


The report looked good, everything showed improvement except for platinum and Diamonds. The Iron ore division grew by 12% largely thanks to Kumba. In fact of the 12.9 million tons Kumba contributes 11.4 million while the Brazillian Amapa production contributed 1.5 million tons. A lot is still expected from the Brazilian operations in 2013 and beyond.

Met coal was a record quarter after recovering from bad weather in Australia. This was up 23%. Thermal coal was up 7% from their SA division despite freight issues with Transnet (not good) while the Colombia division was up 22%. Copper was up 7% with the Los Broncos expansion project starting to take effect. Weather and safety delays caused production to decrease compared to the first quarter of the year. Nickel increased 65% because of a big ramp up while platinum, as you know from yesterday, declined 13%. Diamonds decreased by 11% thanks to market conditions and maintenance.

All in all it looked good and the market seems to like it with the stock up 2% so far. But the guys who are dragging the team down are a concern. And at the same time Billiton do not have these bad team players. This includes Platinum, Diamonds and mining in SA. Sad but true. We prefer BHP.

Kumba Results.


Another good set of numbers from the Iron ore miner, even though profits were down due to lower Iron ore prices. Here are the numbers from the release.

"Kumba's headline earnings were R7.4 billion for the six months ended 30 June 2012; 18% below the R9.1 billion achieved in the first half of 2011. The decrease in earnings was primarily as a result of substantially weaker iron ore export prices together with cost increases which were partially offset by higher export sales volumes for the six months. The higher export sales volumes and a more favourable Rand/US Dollar exchange rate aided the 5% growth in revenue to R25.2 billion for the six months, another record for the group, despite the decline in iron ore prices. Attributable and headline earnings for the period were R23.05 and R23.07 per share respectively, on which an interim cash dividend of R19.20 per share has been declared."

They expect Iron ore prices to settle at these levels so let's assume a similar amount is earned in the second half. That puts the company on a forward PE of 12 and a whopping dividend yield of 6.7% according to my calculations. Total Production is up 13% thanks to the Kolomela ramp up which again is running well ahead of schedule. The Sishen mine production was slightly down, 4%, due to weather and some operational issues.

Their prospects seem muted to positive. They have seen a levelling out in China but feel current stimulation will stabilise things. Don't forget that historically Iron prices are still extremely inflated even though they have come down somewhat this year. We like the stock but as with any single commodity miner it is a wild ride. At least you get paid a handsome dividend while you ride the volatility.

New York, New York. 40^o 43' 0" N, 74^o 0' 0" W. Hip-hip hooray. And then the another one, but Mr. Market did not quite take that one to heart. Just after midday on Wall Street everything was going swimmingly well, but stocks closed off their best levels. Still, I would take that every day over the opposite happening. The broader market S&P 500 added just over one quarter of a percent to close at 1376 and a half points, the Dow Jones Industrial Average added exactly the same amount, whilst the nerds of NASDAQ rocketed up, off the best levels of the day, but still a comfortable 0.79 percent up for the session to 2965. A couple more days like this and nerds will be closer to 3000 points, but bear in mind that the all time inflated Über-bubble high was back in March of the year 2000 (say it like Conan O'Brien says it!), where the tech bubble was at its hottest. 5048 is the all time closing high, March 10, the year 2000. I had not been in this industry for very long, so I guess what was normal for some, is not for others! In less than five years the index grew fivefold. If you were not investing in tech stocks, then you were just plain stupid back then. And then, after that, if you had avoided the sector, or got out "early" then you were clever.

I found these milestones online, from this Yahoo! source Milestones in the Nasdaq composite index:

First close above 1,000: July 17, 1995.
2,000: July 16, 1998.
3,000: Nov. 3, 1999.
4,000: Dec. 29, 1999
5,000: March 9, 2000
Next day: 5,048.62 (all-time high)
By October 9, 2002: all the way down to nearly 1,100

But of course these stocks that make up the biggest part of the NASDAQ by market cap are all much, much cheaper than ever before. Microsoft now trades on 11 times earnings, whilst the all time high (adjusted for the split last in Feb 2003) was nearly 59 Dollars at the end of December 1999. And the annual earnings per share back then was 1.42 USD, or net income of 7.785 billion Dollars on 19.7 billion Dollars worth of revenue. That was in 1999 when businesses were spending like gang busters, just two years prior to that in 1997, the business had made 3.454 billion Dollars off only 11.936 billion Dollars worth of annual sales. Just last evening the Microsoft revenue for the past quarter clocked 18.059 billion Dollars. The quarterly revenue was nearly more than the entire 1999. And more than double for the quarter past, than for the whole of 1996, where net revenues were 8.671 billion Dollars for the full year. And if you needed to know, last evening the company reported that they have 63 billion Dollars worth of cash on their balance sheet. Cash on hand for Microsoft in 1995 was less than 5 billion Dollars.

I am getting to some sort of point though. Adjusted for the share splits, the share price now is at the same level it was in 1998. 1.83 Dollars per share is what the company made back then, BUT, they have done two share splits since then. So divide by two in March 1999 and another in Feb 2003, and you get to currently 46 cents worth of annualized earnings. So, back then the stock was trading on nearly 70 times earnings. And today, for all the hard work and better products released (a few stinky buys) the stock can only get an 11 times rating from Mr. Market. The truth.

Google hit the streets with results afterhours and a beat of expectations, which is always comforting to see. A bottom line beat, but a top line miss. EPS was anticipated to be just over 10 Dollars a share, a slight beat of 10.12 Dollars was delivered, revenue missed but still showed a 35 percent increase on Q2 2011, the comparable quarter. If you are looking for the official release then you will have to check out Google finance ironically, over here: Google Inc. Announces Second Quarter 2012 Financial Results. I use Google Finance all the time, it is one of my favourite free services, if not absolute favourite. I do NOT use the Yahoo! service because that comes with a login.

So where did Google make all their money? Well, in the traditional places, paid clicks increased 42 percent over the comparable quarter, but only one percent on the prior quarter. 90 percent of their sales still come from the advertising revenues. Motorola made a loss and the jury is still out on that one, but I suspect that Google are a smart bunch, they are biding their time. I remember that my wife had one of those clam phones, they were very cool at the time. They made you look a little like that Horatio fellow from CSI Miami, remember him and his witty one liners? Cash on hand is now 43.1 billion Dollars, WOW! That is enough to buy Yahoo! twice over and have some left over. And then Google can reemploy Marissa Mayer and pay her less, check this out from BusinessWeek just a couple of days ago: Yahoo: Help Us, Marissa Mayer. You're Our Only Hope. I honestly do not think that one person can change something that is structural with a business, they are no longer market leaders. I know that Steve Jobs almost did not go back to Apple, and I know that Marissa Mayer is really amazing, but there are limits, not so? I hope that Yahoo! are going to get what they pay for, her immediate pay package is around 100 million Dollars. Check out what some folks think that she could do: 5 things Marissa Mayer will change about Yahoo.

We like Google a lot, and think that the company will continue to be an innovator, amongst the leaders in new product delivery and implementation. Quality attracts quality, that is what happens to good businesses, the smartest folks want to further their careers here, rather than at the laggards, dare I say it, at Yahoo! Earnings expectations next year are expected to be around 41 Dollars. So, with a share price at 600 odd Dollars a share, is that expensive? 47 Dollars worth of earnings per share in 2014 are the estimates, just under 13 times earnings for 2014. We continue to rate the stock a buy.

Currencies and commodities corner. Dr. Copper is last at 344 US cents per pound, the gold price is lower at 1577 Dollars per fine ounce. The platinum price is lower at 1409 Dollars per fine ounce. Commodities are lower across the board, the oil price is also lower at 91.69 Dollars per barrel. The Rand is weaker, 10.07 to the Euro, 12.94 to the Pound Sterling. The market is flat, GE results were a slight beat on the bottom line, a miss on the top line. Futures are lower, indicating that we are perhaps going to slide into the weekend here.

Sasha Naryshkine and Byron Lotter

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My favourite season is earnings season

"In the last earnings quarter nearly 80% of companies beat earnings expectations and out of the ones I looked at, most of the beats came from developing nation growth. This is why I am slightly worried about the numbers coming through this quarter. As ever, it will be really interesting to see what companies say about the conditions that they are currently operating under."

Jozi, Jozi. 26^o 12' 16" S, 28^o 2' 44" E. After starting better here, and enjoying a decent day, the rally was scuppered by the release of the non-farm payroll numbers, which were lighter than anticipated. And worse than the market expected means that the selling starts, the Jozi all share index closed down 51 points, or 0.15 percent to end at 34170. I guess you could say that this is not very good news, US unemployment data in the last three months has been weak, but so then has the economic news, European austerity and uncertainty has weighed heavily globally on markets, I suspect that the Greek elections and the Greek momentum had a lot to do with confidence (lack thereof) during the first part of the quarter just past. And by no means is the European crisis finished, it is ongoing all the time as governments try and balance growth and austerity

A trading update from Kumba Iron Ore on Friday looked weak, but once again this is as a result of the same factors that we were referring to above, a slowing European economy which is resulting in a global slowdown. As Byron often says, if someone does not need a new washing machine in Spain or Italy, and the goods are manufactured in China, well, that means less business for the Chinese. And that means less demand for the raw products too. ALTHOUGH, the internal consumption story in China is one that still continues to impress the pundits, or so I am led to believe. China still has a relatively unbalanced economy. But back to this main story, Kumba Iron Ore expect earnings for the first six months of the year to clock 7.1 to 7.5 billion Rands, which on a per share basis is between 22.10 ZAR to 23.40 ZAR. Which on balance sounds good, and the share price is acceptable at 559 ZAR a share, bearing in mind that the distributions have been amazing. The payout ratio in recent years has been around 80 percent of earnings.

The first six months of last years' earnings clocked 28.20 ZAR per share, so we are going to see a comfortably lower set of earnings relative to that period. The full year number last year was 53.13 ZAR a share (24.93 for the second half), with 44.2 ZAR paid out to shareholders by way of dividends, including Anglo American who are a nearly two thirds shareholder. The reason for the lower earnings are explained in a simple one liner and are "largely attributable to a decrease in export iron ore prices in the period". I have been watching the monthly change at the SA ports, and the key one (as far as Kumba Iron Ore is concerned) to watch here is Saldhana Bay, where the volumes have been growing. Indicating that the volumes should be slightly higher, remember that in the second half of the year last year, production fell. What is different this year is that the newly "opened" Kolomela mine, which should produce between 4-5 million tons per annum this year and 9 million tons per annum from next year, 2013. Total sales last year were 43.5 tons, it will possibly be the number to watch.

But I thought, let us check out a five year iron ore pricing graph to see what Kumba Iron Ore are talking about, which I sourced from here: Iron Ore Monthly Price - US Dollars per Metric Ton. Here is the graph, which just shows the highs and lows and recent price.

These prices are average monthly prices and are perhaps a blended price of the spot market and the contract prices. You can see at the bottom left, the prices were set annually by the majors in a negotiated settlement with the steel companies. And then everyone kind of set that as the benchmark. I was trying to do a simple back of the matchbox type iron price, with the first six months of last year seeing an average price of 177 odd Dollars per ton. For the six months just past the price is roughly 20 percent lower at 141 Dollars per ton, that was the simplest calculation that I could do. Helping Kumba out would be the weakening Rand to the US Dollar. The results are expected to be released around the 20th of July.

Beware the one commodity stock is the message I guess, this no doubt is weighing on Exxaro too, which is lower on this news, and another piece of news that was pointed out to me this morning. Iluka Resources, which mines zircon missed earnings expectations by a country mile. It is an Australian mineral sands mining company, and from what I have read have blamed almost all the worlds markets for having missed almost every metric that analysts find important. Zircon is used in the making of ceramics, fancy plates and tea cups and so on, think your grandmothers finest tea cups when you were a kid! It is also used in construction, another sign that the Chinese economy is slowing. We do not have to wait too long to find out, the Chinese release their second quarter GDP number on Friday (expected 7.6 percent), as well as retail sales (expectations are for a 13.5 percent jump) and industrial production (9.8 percent growth expected). This without a doubt is the single biggest release of the week and no doubt will have everyone focused.

New York, New York. 40^o 43' 0" N, 74^o 0' 0" W. Non-farm (as opposed to NO farm payrolls, that would have been worse) payrolls clocked 80 thousand new jobs for the month of June, and the quarter clocked the worst seen since 2010. Well, I guess the optimistic types would be tempted to say that at least jobs are being added here. And you remember that piece that we posted on Friday, which suggested that the unemployment number would have been a whole percentage point lower if the government had kept all their jobs. But the unemployment rate remained the same, at 8.2 percent and government changes in jobs were not that bad for the month of June, recording a loss of 4000 only, state and local government jobs lost are 586 thousand since December 2008. Wow. So, on balance you could argue that the system itself is working, getting rid of unnecessary government jobs when the tax receipts fall, and now might be seeing a stabilization of that trend. Session end all the indices closed higher, off their worst point, reversing that trend in the last hour or so. Losses for Blue chips and the broader market were lower by one percent or so, whilst the nerds of NASDAQ sold off by 1.3 percent.

Byron's beats looks into the most favourite of seasons over here at Vestact, earnings season. There is earnings seasons from quarter one through to four, so that is like football, cricket, rugby and athletics seasons, but these are the same teams participating. And we get roughly a month and a half from each season, around half the year is spent with proper markets direction from companies.

That time of the year is starting again. It is a time that can be very exciting for us equity enthusiasts and for me is the most important information source we can get to really see the state of the economy. I'm talking about the US earnings season which kicks off this week and starts with, as always, the big aluminium producer Alcoa.

In the US they report quarterly so this happens 4 times a year. So far the economic data for this quarter has been negative and I have a feeling we will see this showing up in the earnings numbers. I say this because we already saw numbers from Nike (whose economic calendar differs from the rest) which showed weaker demand from China. If that is a theme we see throughout these companies we could be in for a wild ride.

In the last earnings quarter nearly 80% of companies beat earnings expectations and out of the ones I looked at, most of the beats came from developing nation growth. This is why I am slightly worried about the numbers coming through this quarter. As ever, it will be really interesting to see what companies say about the conditions that they are currently operating under. Forward looking statements will also be very interesting and can move share prices extensively depending on the sentiment of the statement.

I've always said it is a lot more constructive to listen to what a company like Caterpillar have to say about demand in China than a 70 year old professor who spends the majority of his time in an office. Of course you have to try and filter through bias issues.

If we do get a bunch of misses there could be some good buying opportunities presenting themselves. We know how reactive the US market is to misses or beats. I would also assume expectations to be lower and most of the negativities to already be factored into the market. As ever we will follow and cover these releases extensively and will relay them onto you guys as they come in. Be prepared!

Currencies and commodities corner. Dr. Copper is last at 341 US cents per pound a little higher on the session. The gold price is slightly lower at 1580 Dollars per fine ounce, the platinum price is also lower, last at 1435 Dollars per fine ounce. The oil price has ticked up a little, remember the Norwegian lockout takes effect today, 84.63 Dollars per barrel for NYMEX WTI. Brent is last at 98.41 Dollars per barrel. As the risk off returns somewhat to the market, the Rand of course will sell off. 8.29 to the US Dollar, 12.84 to the Pound Sterling and 10.22 to the Euro is where it was quoted last. We are around two thirds of a percent worse by mid morning here in Jozi. ECB president Mario Draghi will deliver a testimony to the European parliament today, I guess that does hold some interest for many, we shall keep an eye on that. After the bell, as Byron said is the real meaty part of the markets for us.

Sasha Naryshkine and Byron Lotter

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Moody's bank blues

"It is easy to feel beat up after a day of selling like that, particularly when the overall mood was starting to improve. Policy response is going to be key from here on out for the rest of the year. Germany needs to be committed to being more proactive, in a way the cracks starting to appear in their economic armour might ironically see the action more forthcoming."

Jozi, Jozi. 26^o 12' 16" S, 28^o 2' 44" E. The bad news finally came and the sellers were not afraid to act. Whilst Spanish bond yields continued to fall from the high at the beginning of the week, the Spanish bond auction during the day went well. Sort of I guess, better than expectations, but at the same time the Spanish are paying a Euro era record for their five year debt, just above six percent. The demand was quite high though, the suggestion is that if Europe is "going to get the job done", then of course these yields are attractive in the medium term. The other Spanish news on the agenda was of course an independent bank audit which suggested that Spanish banks need as much as 62 billion Euros to shore up reserves to the level that they ought to be. That news release was a pretty late one in our time zone, but it was coming nevertheless.

But the news that was impacting on us the most was quite simply another pretty dull looking HSBC Flash PMI read which showed that Chinese manufacturing was again under pressure. That was the news that moved the needle on commodity prices, with oil falling to an 18 month low, this is to a level when Kaddafi (Qaddafi?) and Mubarak were still in control in their respective Northern African countries. The one is dead and the other one is technically dead. All commodity prices also took heat not only on the Chinese news, but filtering through from the prior session and a lack of extra stimulus had a negative impact on precious metal prices. Gold bugs were, you guessed it, upset with Ben Bernanke once again. WHAT? No more stimulus? What is that about? As such the broader commodities complex sank, Sasol was hurt the most, the stock ended down 4.4 percent on the day. The broader resources ten index closed down 2.36 percent, sending the Jozi all share index 0.73 percent off, or 254 points to 34534.

Byron's beats tries to explain that you should rather be grateful for the Chinese growth story, because it has made us all better off.

I want to talk about a more positive story and one we are seeing less and less of in the South African environment. Today Kumba Iron ore announced the official opening of the Kolomela mine which is situated in the Northern Cape. The mineral rights for this mine were issued in July 2008 and the project was scheduled for first production in the first half of this year. Full production of 9Mtpa is expected in 2013.

But these production dates have not happened. In fact they have been surpassed. The mine started production 5 months ahead of schedule and contributed 1.5 million tons to Kumba's full year production of 41 million tons at the end of their year December 2011. They expect to produce 5 million tons at the mine this year.

As shareholders of Kumba we are very pleased with this but there is a bigger story here. In 2007 Kumba had revenues of R8.7bn and profits of R2.1bn. This was from 31 thousand tons of production. Last year Kumba Made R17bn in profits from R48.5bn in revenues and paid R9.7bn in taxes. Where am I going with this? Through efficiency and a bucket load of demand from China, Kumba have more than nationalised 2007 revenues. Our government now extracts nearly 5 times Kumba's 2007 profits. If Kumba had been nationalised in 2007 I highly doubt government would be getting close to what they make from the private company right now.

Other than our receiver of revenue, Kumba shareholders and employees have also benefitted handsomely. Massive dividends and generous bonuses have been paid and reinvested into our economy. There are two points I am trying to make here. One, allowing a miner to operate efficiently will create more benefit in the long run for everyone. This kind of thing is not happening in South Africa enough at all and it is situation that needs to be dealt with immediately. Miners are struggling and are faced with many government related headwinds.

My second point is that those of you who believe the Chinese are selfish and are purely focused on extorting Africa should reassess your opinion of them. Yes they may have their own best interests at heart but without their growth our economy would be nowhere near where it is today and we have all benefitted indirectly. In fact the entire globe has benefitted. Without the Asian growth story we would be living in a very different world right now, that is for certain.

New York, New York. 40^o 43' 0" N, 74^o 0' 0" W. When the market participants caught wind of a pending across the board ratings downgrade for all the major banking stocks across the globe, the selling activity accelerated. Moody's stepped in after hours, the longest day of the year in the Northern Hemisphere saw them make the following release afterhours: Moody's downgrades firms with global capital markets operations. I have already seen several of the banks themselves object to this, some saying that this is almost reactionary. There are some implications with short term trading between the banks, specific to derivatives, as far as I could understand it from the FT, but a lot of banks say that they have done a lot since 2008 to deleverage and shore up capital. So, is this a case of the ratings agencies telling everyone the obvious? Perhaps. But we will still maintain around here that these big banks are not where we want our clients funds invested, the capital requirements required by new regulation and the handcuffs placed on past lucrative business segments are going to impact future profitability. Thanks Moody's, we knew this already.

Markets got crushed, it was one way traffic, the markets graphic was, well ..... graphic for the bulls. The Dow Jones closed down nearly two percent to 12573 points, the broader market S&P 500 lost two and a quarter percent on the day to 1325 points, whilst the tech stocks sold off one fifth of a percent worse than the broader market. Materials and energy stocks, like they were here, were sold off heavily, over 4 percent lower for the oil and gas producers. Yech. Exxon Mobil, Chevron, ConocoPhillips, and even services company Schlumberger (one of my favourites) all sank between three and four and a half percent. And if that was not enough for you to feel a little beaten up, well then, Proctor & Gamble lowered their guidance for the fourth quarter, citing Dollar strength and slower growth in developed markets. They are not the only company to do this is recent days, McDonald's are taking strain in some of their geographies, ditto Pepsico. Soft cabbage patch here Sandton dolls, that is where we are right now.

It is easy to feel beat up after a day of selling like that, particularly when the overall mood was starting to improve. Policy response is going to be key from here on out for the rest of the year. Germany needs to be committed to being more proactive, in a way the cracks starting to appear in their economic armour might ironically see the action more forthcoming. As far as I understand it Angela Merkel is going to be attending the quarter final in Poland tonight, in the mother of all sovereign debt clashes, with the Germans taking on the Greeks. Last night, in case you missed it (like Ronaldo did on a few occasions) the Portuguese beat the Czechs one zip, with the one of the worlds best scoring a stunner. I have Mario Gomez in tonight, with the Germans edging the Greeks, any other results would be a huge shock. The G20 heads have already met, there was not too much fanfare this time around, the G20 Leaders Declaration looks like a generic document with tweaks. Commitment to this, commitment to that, working harder on this. Yeah, thanks for the politics everybody.

Currencies and commodities corner. Dr. Copper is lower, at the lowest level I have seen in a while, 327 US cents per pound, the gold price is also lower at 1565 Dollars per fine ounce, the platinum price is also lower at 1430 Dollars per fine ounce. The oil price is about the only good news for consumers here, down at 77.84 Dollars per barrel for Nymex WTI, whilst Brent Crude oil trades at 88.78 Dollars per barrel. The Rand is getting a little tap on this risk off day today, 8.37 to the US Dollar, 13.07 to the Pound Sterling and 10.54 to the Euro. We are selling off here again today, but it has been a few good weeks.

Parting shot. Awesome, I found these graphs again, they were Economist graphs published which takes the last two thousand years worth of economic activity globally and what the majors contributed at a specific time. As the Economist blog points out, this data was complied by economist Angus Maddison who died a couple of years ago. This first graph is found via the Wiki entry for Maddison:

And then on to the starting point, the Economist blog entry titled: More 2,000 years in a single graphic. I quite like that one line there, lower, with the Maddison graphs: "Among the points it presents is that in the first decade of the 21st century, the population of the world produced more economic output than in the first 19 centuries of the common era combined."

So, think about it, the last ten years have produced more economic output than the years 0 to 1900. Yeah, you are right, things were so much better in the old days. No matter what you might, or might not think about the future of our species, I suspect continued progress will continue to see output globally rise in the coming years. And with that prosperity will grow, and there will be fewer pariah states. How many of those can you count? I guess also it depends who you are. Current Pariah states are fewer than they were in the past. I look forward to the days when North Korea finally emerges from that category. Do yourself a favour, look at the last graph in that Economist blog and ask the question, do you think that a more spread global economic pie is better or worse for all of us? The simple answer is yes, it is better.

Sasha Naryshkine and Byron Lotter

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