KT Corp. Telkom. Touching each other tomorrow.

"The guys who managed to rack up second place in the polls, the Coalition of the Radical Left are only eight years old and their ideology is basically against capitalism, against globalisation, against all things that I would think is sensible for moving a countries economy forward. They now have 16.8 percent of the electorate."

Jozi, Jozi. 26^o 12' 16" S, 28^o 2' 44" E. Our market clawed back at least half of the losses in the second half of the session, to sink half a percent after all was said and done. But, across the board there was not too much in the green. Banks lost 0.81 percent on the day, resources sank a little more by 0.85 percent whilst gold miners squeaked into the green as there started to be more excitement for the yellow metal. Because of course there were heightened concerns about the European "situation" which became less clear with a change of power in the form of a new president elect in France and a shambles (hung, drawn and quartered) of an election in Greece, if you are looking for a majority government. That is probably in need of more urgent action from the central powers in Europe than the French hop to the left, the first socialist president in a while. That is a not a problem. Greece, well they have deadlines and votes looming in weeks to implement further austerity measures.

And this vote by the Greek people was a definite vote against austerity, because there certainly were some radical decision making on behalf of the electorate. The guys who managed to rack up second place in the polls, the Coalition of the Radical Left are only eight years old and their ideology is basically against capitalism, against globalisation, against all things that I would think is sensible for moving a countries economy forward. They now have 16.8 percent of the electorate. And a firebrand youth at the helm. Yuck, I suspect that for the very first time, the fellows over in Berlin and Paris are probably not that fazed about a Greek exit. Although our line over here is that nobody wants to be out of the circle. And I maintain (write this down) that there will be more members in the circle than out of the circle. Because one exit means that it becomes easier for others to exit. But the tribe has spoken. PASOK were crushed, losing 30.7 percent from the prior period and falling to third place. At the same time Vladimir Putin becomes Russian president for a third term. Yech.

Massmart with a whole lot of announcements this morning, firstly a trading update, this is for 44 weeks to end 29 April, so literally ten days or so ago. Total sales for the group at this stage clocked 51.7 billion Rand (FY 2011 sales were 52.950 billion ZAR and FY 2010 sales were 47.451 billion ZAR), which is an increase of 14.7 percent over a prior period, 44 weeks. Kind of a strange sales update, but I guess the nature of retailers is that the work never really ends, you can pretty much in the urban areas of Gauteng shop at any retailer on any day of the week. Even public holidays. There are very few days of the year where shops are shuttered for business, especially up here in Joburg, I pretty much think that shoppers expect that. And I guess in a way it stimulates our economy, meaning that there are more working hours in which economic activity takes place.

And cheaper too. You have heard me say this a number of times too, where I quote Warren Buffett's right hand man, Charlie Munger say that he thinks Costco has done more for society by keeping prices low and by function inflation low, than any other philanthropic cause he knows. And he is right you know, the consumer is always right.

Straight into a divisional sales update, Massdiscounters clocked total sales increase of 10.6 percent (3.8 percent comparable) with inflation of negative 3.8 percent. Price deflation? Prices of a similar item going down is not altogether a good thing for the retailer, but this is certainly good news for the consumer. Margin management is far easier when prices are going up Paul weighed in, this is very true. But you can't charge people more for that bag of rice when the underlying soft commodity price is trending in the other direction. And with regards to some electronic goods, which tend to get cheaper and not more expensive, the big black box discounters struggle there. Think Best Buy.

Masswarehouse saw amazing growth with total sales growth up 19.3 percent, comparable growth sales up 11.2 percent and price inflation a modest 1.8 percent. Across at the Massbuild division, encouraging signs that the building activity and home improvement activity is on the mend (just try and get a parking at a Builders Warehouse on a Saturday morning) with total sales 11.9 percent better, comparable sales 8.2 percent stronger and inflation a very modest 1 percent. At the other division, Masscash saw sales increase by 15.6 percent, comparable sales increased 11 percent with inflation in that division up by 6 percent. Interesting that the food, liquor and groceries warehousing divisions experienced the highest inflation, but that would make sense.

So, on balance I am pleased with the sales update at this point. The market however is not as happy as I am. The stock is down over two percent, which is more than the rest of the market. So, I guess you have to be with Mr. Market on this one. Then next there is a management shuffle at Massmart, not so much a shuffle rather than a strengthening of the team. The current CFO, Guy Hayward will become Chief Operating Officer (a newly created role) and report top Grant Pattison, the current CEO. Pattison is set to (as per the release) "focus on Massmart-Walmart's strategic growth priorities for South Africa and Africa, including the implementation of the Group's Retail Food strategy." So, are we going to see more Game Foodco's and Cambridge Foods? Yes, I am guessing yes. And not just here, elsewhere in Africa too. Lastly the Chief Financial Officer role will be assumed by Ilan Zwarenstein, who has been Group Finance Executive at Massmart since 2006. Experience all around. They are bolstering the board here in anticipation of growth. And that probably means more people are going to be hired. Anyone listening out there? Byron is listening, he is checking out Massmart today and will return with some good investigating in due course. I look forward to it.

Telkom. Have they finally touched tomorrow? Phew, I spent 40 minutes on a call to their call centre yesterday, a complete waste of time. This morning there is an announcement that KT Corp 20 percent stake is actually going to happen, but at a much lower price, 25.60 ZAR, which is a premium to where the market trades now. Phew, much lower than the initial price, and still at a premium to a rough looking price. Why would you ever want to pay a premium for Telkom shares? There are four pre conditions, which include support from strategic shareholders such as the PIC and Allan Gray as well as the South African government. Those three shareholders have to agree that this is a good idea for Telkom. Then, the fellows from KT Corp are closely watching the competitions authorities and the outcome there, the number that I have heard being bandied about is 100 million ZAR fine. Which is a lot less than the billions, but still too much.

And then something that is completely vague (to me anyhow) and could mean anything, the first of the conditions: "finalisation of the transaction agreements. The transaction agreements comprise a subscription and relationship agreement and a co-source management services agreement;" Sounds like a whole lot more talking about the previous talking. I think that the Koreans are either brave and going to shake things up here, or have delusions that they can actually do that. I said to Paul, well, Naspers should buy Telkom. Naspers has a market cap of 193 billion Rands, whilst Telkom only has a market cap of just over 12 billion Rands. I am pretty sure that they (Naspers) could sweat that asset a whole lot better and provide South Africans with the network that really made business work. But it is not going to happen, not whilst the South African government has that stake in Telkom. Here are the major shareholders from the 2011 Annual Report:

At least the Government and the Government Employees Pension Fund have control at this shareholding levels, a twenty percent dilution would see that diminish. What do you think out there fellows? Do you think that the government are going to give up control of this, well, titan of yesteryear. Sarcasm alert, I preferred the Post and Telecommunication Corporation that made things possible! Telkom, their own worst enemy. If you don't believe me, phone up their call centre and see what lightening service you get. Anyone who does NOT value their client as number one is in serious trouble.

Currencies and commodities corner. Dr. Copper last changed hands at a lower price than yesterday, down at 372 US cents per pound, the gold price is lower at 1626 Dollars per fine ounce, whilst the platinum price is also lower at 1519 Dollars per fine ounce. The oil price is also lower, NYMEX WTI is at 96.87 Dollars per barrel, Brent is 112.96 Dollars per barrel. The Rand is taking a bit of a drubbing as risk off visits our screens again today, last at 7.86 to the US Dollar, 12.70 to the Pound Sterling and 10.24 to the Euro. We have started lower here today. And unemployment statistics don't look that good either.

Sasha Naryshkine and Byron Lotter

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MTN, finally bigger than Nigeria

"Labor Force Participation Rate = Labor Force/Population
If population increases relative to the labor force due to increased life expectancy, then the LFPR would decrease."

Jozi, Jozi. 26^o 12' 16" S, 28^o 2' 44" E. We slipped a number of gears after the nonfarm payrolls number came in lower than anticipated. Session end the Jozi all share index had slipped 0.72 percent, or 248 points to 34127 points. Banks made some modest gains and were comfortably better than the rest of the markets. Resource stocks as a whole were trounced, down 2.2 percent after the dust had settled. Industrials were slightly lower, but benefitted I guess from a weaker currency.

MTN produced subscriber numbers on Friday, and finally there was good news for only I guess the second time this year for the stock, or so it seems anyhow. These are numbers for the first quarter to end March. And the number is, (drum roll), 170 573 000. That is right, 170 and a half million people, which is now more than the population of Nigeria. Only just, because the Wiki listed population of Nigeria is 170,123,740 folks, which is the worlds seventh most populous country. Nigeria in fact, in these numbers, is 25.1 percent of the overall MTN subscriber base. So, without thinking too hard, one in four Nigerians are on the MTN network, 42.899 million folks. The next biggest market for them is Iran (where MTN has a 49 percent stake in Irancell), which has 36.831 million subscribers. Next is South Africa, 22.735 million subscribers. Together, these three markets make up 60 percent of the overall MTN subscriber base. The only other country with more than 10 million subscribers is Ghana with 10.394 million subscribers.

Only three of their territories saw their respective subscriber bases contract were Guinea-Conakry, Congo - Brazzaville and Syria. MTN describes the Syrian business as follows: "Its performance continued to be hampered by civil unrest in the country, which resulted in a reduction of subscriber numbers of 23 000 subscribers and a decline in local currency ARPU of 8,5%." Hampered? The place is as close to a disaster as you get, it is quite surprising that it is still OK, relatively speaking. Notwithstanding that, MTN still expect to add 450 thousand subscribers in Syria for the year. In fact, in total MTN are expecting to add 21.3 million subscribers.

All ARPU's (Average Revenue per users) across the board fell, blended ARPU's in South Africa are 123.5 Rands per month. Or roughly 15.83 Dollars per subscriber, blended of course. In the pre paid market in South Africa, the ARPU is 93.2 Rands, or 11.94 Dollars per user, which is still a lot more than our African counterparts. Here goes, Nigeria is the highest at 9.4 Dollars per user per month, Iran 7.5 USD, Ghana 6.6 USD, Syria at 10.4 USD whilst some of the lower ARPU's in MTN's operations not unsurprisingly come from Afghanistan (4.5 USD), Zambia (4.4 USD) and Rwanda (3.8 USD). I think that notwithstanding that economic progress has been made in all of the countries that MTN do business in. OK, perhaps Swaziland and Syria for the time being are exceptions, Swaziland has a long road to travel.

Cyprus with a subscriber base of only 283 thousand folks (population estimate 834 thousand people on the Cyprus part) has ARPU's of 27 USD per user, a fall of 16.4 percent in Rands and 11.2 percent in local currency. Uganda saw a significant jump in ARPU, but again, it is just less than 4 USD. The MTN subscriber base is by in large in relatively poor countries that are growing their economies quickly, but that does not detract from the fact that ARPU's are still shrinking. As more marginal users are added to the network, ARPU's will continue to decline. And greater competition will continue to see lower ARPU's.

MTN data revenue (which includes SMS) is 14.4 percent of total revenue, mostly South Africa though. MTN Mobile Money at the end of the period had 6.2 million subscribers and is now active in 13 of their territories. Mobile payment systems are going to become increasingly important as societies trend towards less cash based payment systems. The stock rallied in the face of a weakening market after these numbers, quite clearly Mr. Market enjoyed this release. MTN closed at its best level in over a month, at 136.68, up 1.62 percent.

Oops. I was wrong. I thought that Mr. Sarkozy would have piped François Hollande and retained the French presidency. Oops. Sarkozy has conceded defeat. And with that, Hollande now needs to make new friends. I am pretty sure that more than a cursory telephone call has taken place between himself and Angela Merkel already. But this is, how should we say, not the best news, political instability. It will matter immediately what Hollande does to calm markets, to say that he will stick to the plan. All we have to do is wait and see, but now you know, the socialists are back in charge in France, at least of the presidency. If you have a look at the Senate and National assembly, it is still the Union for a Popular movement that holds the edge. But guess who is leader of that party? Nicolas Sarkozy. Well, excuse me for thinking out loud here, but probably not for much longer. Time to go and change diapers I am guessing. Eish, not good, but I guess the French have spoken, and the right of centre in France has a lot of soul searching to do now. And the socialists, well, they will be dancing. Ugghh.

Byron's beats has a look at companies who are doing better!

Today we are going to cover two trading updates from two companies who have had very different fortunes of late. One falls in the retail fast food category while the other is in construction. I'm sure you can guess which one has done well and which one hasn't. Esorfranki and Famous Brands both had updates this morning, let's look at the construction company first.

"Esorfranki is currently finalising its financial results for the year ended 29 February 2012 and shareholders are advised that the company expects a basic earnings per share of between 4,5 and 5,4 cents and a headline earnings per share of between 5,5 and 6,5 cents for that period, these numbers represents an increase in earnings per share of between 132% and 138% (2011: loss per share) and headline earnings per share of 143% and 151% (2011: headline loss per share)."

This is very good news as we finally see a turn in fortune for a company that is an important indicator for the sector as a whole. This is because they do the earthworks and pipeline construction for sites before the actual building takes place. They are one of the first to be contracted and paid when a building goes up and will therefore be one of the first companies to indicate a turn in the sector. As you can see from the update this is a massive turnaround from a big loss in 2011 to a decent profit. Good to see.

Famous Brands, another one of those over achievers, released a trading update which indicated headline earnings per share growth of 14%-16%. On a diluted basis this will come in between 270c-275c per share. The company is not cheap but in recent memory, it never has been. Trading at R52.90 the stock trades at 19.3 times earnings. But the fundamentals look very strong for this extremely well managed business to carry on growing.

They have great brands in a nation that has a growing middleclass with aspirations to consume their products. Fast food around the globe is being lapped up by the developing world. Yum Brands and McDonalds are doing fantastically and it makes perfect sense. It's convenient, affordable and people absolutely love to eat. As the demographics of South Africa changes, Famous Brands are perfectly poised to benefit. They just need to maintain their brilliant brand portfolio. The full results are coming out on the 21st of May where we will have a closer look.

New York, New York. 40^o 43' 0" N, 74^o 0' 0" W. Jobs. Nobody wanted to be taking any chances late in the session Friday, the worst week of the year unfolded with the worst day that we have seen in a while. The broader market S&P 500 fell 1.61 percent, the Dow sold off just over a percent and a quarter whilst the nerds of NASDAQ bore the brunt of the selling, down two and a quarter of a percent. Yech. You know how I feel about the "jobs number", and it was great that I stumbled across this article titled Wise Up to the Proper Flaws of Monthly NFP Data, by Barry Ritholtz. For him, and his publication, the "stuff" that is useful is hours worked, temp help and wages paid. Well, for the record as far as Barry is concerned, you can find out everything about the jobs numbers Friday here: Employment Situation Summary.

There you go, only 115 thousand jobs added for the month of April, less than the anticipated 175 odd thousand. What I found quite interesting was revisions upwards for the month of February and March were 53 thousand MORE collectively. So, simple math, add this number to the headline number, and hey presto, don't we have consensus? Not sure, the number is unpredictable, and we tend to side with earnings, that ultimately gives markets direction.

OK, but back to the Barry big picture measure. Hours worked? Unchanged. Temp jobs? Temp help? That increased 21 thousand. Average hourly earnings? Up a single cent to 23.38 USD. Hey, that is twice as much as a South African (on the MTN network) uses in mobile charges per month. Let me get that right, what the average South African uses for a whole month in airtime on their mobile phone, that is equal to half an hour of the average hourly wage in the USA. Getting distracted, so by Barry's measure "things" are looking average. My thoughts exactly, this was a decidedly average employment report, with only the unemployment rate at 8.1 percent moving in the right direction.

What is particularly disturbing (or strange) is that the civilian labour participation rate was at its lowest level since December 1981. Most are struggling to explain, many are pointing fingers at the ageing US labour force. And those who were expecting employment before they thought that they would retire, well, that is not happening, many close to the cusp are being "forced" to retire earlier. Which is why strangely the unemployment rate is falling, fewer folks making themselves employable. So who knows, ironically in the recovery, perhaps the unemployment rate will rise again. As Paul said on Friday, what is the Romney crowd saying as we continue to see jobs added and the unemployment rate fall? Perhaps by the time the election takes place the number will be closer to seven and a half percent.

I did see that one of my favourite bloggers, Prof. Mark Perry explains all of this, and as usual makes the most sense, at least to me. Read it, it is a summary. And after having finished the piece, I almost feel like buying more healthcare stocks! Prof Perry's theory is simple, and listen in everyone:

"An increase in population would exactly confirm and support the trend I am highlighting:

LFPR = Labor Force / Population

If population increases relative to the labor force due to increased life expectancy, then the LFPR would decrease."

Read the whole piece here: Decline in Labor Force Participation Reflects Demographics, May Not Be as Bad as Reported.

Currencies and commodities corner. Dr. Copper is last at 377 US cents per pound, perhaps not as weak as you might think. The oil price has taken a beating. Yes. Beating is the word. 97.06 Dollars per barrel for NYMEX WTI. The Gold price is last at 1639 Dollars per fine ounce, slightly lower, the platinum price is lower at 1518 Dollars per fine ounce, the gap has opened up sharply. The Rand is weaker at 7.86 to the US Dollar, 12.69 to the Pound Sterling and 10.27 to the Euro. Asian markets have started off weaker, we have started weaker here too!

Sasha Naryshkine and Byron Lotter

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Time to Face up to the book facts

"Facebook talk about 125 billion friendships (900 million monthly users and 525 million daily users) and 300 million photos uploaded each and every day. Whoa! And 2 billion "likes" a day. 1 billion comments a day. It is of course easier to "like" something than it is to write a comment."

Jozi, Jozi. 26^o 12' 16" S, 28^o 2' 44" E. We were trading at a record high, and then we slipped after the ECB decided to keep rates on hold. Not the actual event, but rather the press conference where the ECB basically said that governments should follow a pro-growth path, and that the central bank would not be intervening to boost economic growth. In other words, no more stimulus from them, or extraordinary measures other than the ones in place right now. What ECB governor Mario Draghi did say however is that credit was not given to the various governments for their extraordinary work that they have done thus far. Draghi said that they had done more in two years than in the last twenty. Like I have often said, nothing like a good old fashioned crisis to crystallize the thought process. I am not like the mainstream thought out there, but rather side with some of the more sensible insiders in Europe. Europe will solve European problems in their own way, if that means bumbling along for a while, then so be it. But I am confident that in a decade, there will be more members of the union and not fewer. And I still can't understand how Mario Draghi looks so good for a 64 year old.

The after effect of no more extraordinary measures from the ECB weighed on commodity prices from that point on in the day, and that weighed on the global producers of the underlying metals. There was also at the same time the sense that we are closer to some sort of resolution as far as Iran is concerned, I saw yesterday that India was no longer buying big quantities of Iranian crude. So crude started to slide, alongside the gold and platinum price, but the copper price remained steady. So we slipped, the gold stocks slipped just over two percent, and are now down 23 percent year to date! What? Resources slipped 1.3 percent, the overall market was down only 0.31 percent, or 107 points to 34376 points. Banks were up over two percent. What? AND, are now up 20 percent for the year, that is amazing. Short gold, long banks, who would have thought?

Mondi gave a trading update for the first three months of their financial year, to end March. This is their weakest quarter, or that is what I can establish anyhow. They made 120 million Euros in the first quarter, which is both less in the last quarter and the corresponding quarter last year. But they do make some interesting observations: "Pleasingly, following the low levels of demand seen towards the end of the previous quarter and into the early part of 2012, there was a clear trend of improving demand through the period under review, such that, on average, sales volumes were higher than the previous quarter across all paper grades."

Nice, so I am guessing out loud here, but "things" are improving a little, not so? And that is also in March I guess, I would think that since the Greek debt restructuring that confidence is slightly higher in Europe than before the event. And as such I suspect that Mondi will register a much better second quarter. BUT, do I want to own a paper and packaging producer? No. No thanks.

Byron's beats looks at one of our most widely held stocks that has been in the news.

MTN are in the news again for the wrong reasons. This time there is news that Nigerian authorities are threatening to impose sanctions on the service provider over alleged poor service to subscribers. The Nigerian Communications Commission (NCC) issued a warning to the company today. Apparently subscribers experienced problems with connecting over the last few days without MTN communicating reasons why to either its subscribers or the regulator which are required.

To put things into perspective MTN have 42 million subscribers in Nigeria which is about 50% of the market share. That gives them massive control of the market. There are pros and cons to this. The negative is perhaps an arrogance over so much market control hence bad services which lead to allegations like this. The lack of competition may cause them to fall asleep at the wheel. I don't believe this is the case however. MTN have a great reputation for thorough efficiency and wouldn't let such an important market slide.

But because they have such a big market share I doubt the regulators would sanction a service that keeps 42 million people connected. That would be a disaster. This gives MTN a lot of bargaining power. So I wouldn't be too worried about such threats. MTN have 24 hours to respond but have not released any statements as yet. But according to this article from a website called allAfrica.com, MTN suffered a fire on Tuesday which was of course a public holiday. It's not that the service was down which seems to be the issue, it's the communication of the incident which was the problem. They seem to have a good relationship in Nigeria and I am sure they will deal with the regulators accordingly.

Although they are dealing with big issues in Iran they should not let this kind of things slide. The company has a fantastic reputation which is being tested. I'm sure unhappy subscribers in Nigeria feel the same.

New York, New York. 40^o 43' 0" N, 74^o 0' 0" W. Stocks slipped and closed at the worst point of the day. There was a pleasing reduction in the weekly jobless claims, which had gone back up after having fallen to a four year low in March. Pleasing to see on the way down, hopefully the nonfarm payrolls is a surprise too. That number is set for release mid afternoon. That will dictate how the day ends up for everybody that is open around the world.

Undoubtedly the biggest news yesterday was the Facebook announcement that they would be aiming at the top end of the range to have a valuation of as high as 96 billion Dollars. Some folks are worried that some of the original shareholders, even the Zuck himself (around 6 percent of his stake), are looking to take money off the table when the company IPO's. Which is not what has been happening much at some of the other recent social media listings, the owners have been hanging onto all their stock on listing. Like Paul said, if they want to sell, why not do so on the first day? Or perhaps the size of it, the company is set to be the most valuable US technology company on listing, perhaps that is the reason. When Google listed in 2004, the company was worth one quarter of what Facebook is hoping to be, that 96 billion. The first day of trade will be 18 May, the price will have been determined probably the day before, my eldest daughter's birthday. She is turning 7, Facebook is 8. I can't believe that!

At the top end of the range Facebook are looking to raise as much as 13.6 billion Dollars, the offering is between 28 and 35 Dollars per share. Like we said above, 96 billion Dollars. Time for a road show, you can check it out here -> Facebook Video roadshow. If you have the time, go and have a look over the weekend. The Zuck talks about a better world, because people understand each other better. I have always said that the internet has done more to demystify one another from each other. They talk about their product, timeline (which was not very well received) and news feed. I have been using Facebook a whole lot more lately, because I want to understand THEIR angles, how they (Facebook) see their product changing the world. They talk about 125 billion friendships on Facebook (900 million monthly users and 525 million daily users) and 300 million photos uploaded each and every day. Whoa! And 2 billion "likes" a day. 1 billion comments a day. It is of course easier to "like" something than it is to write a comment.

Facebook says that the mobile phone means that people will become linked more heavily with their product, they currently have 488 million mobile users, Facebook is the number one most downloaded application on all mobile phones in the US. The road show video is a really good production. 100 million people were choosing Farmville and the like for extreme time wasting entertainment inside of 1 year of their launch. WOW.

And then the most important "thing", advertising. Zuck said he did not start Facebook as a business. Adverts. In keeping Facebook free, advertisers will have to be able to reach you and I. Ben and Jerry's (the best ice cream in the world according to my wife) has over three million fans. Thanks to Facebook. And in fact, Ben and Jerry's say that for every one Dollar they spend on Facebook, they get three Dollars in sales back. This is where Sheryl Sandberg comes in, and she weighs in with this slide:

And why should advertisers send more of their money towards Facebook and not in the traditional places? In fact Sandberg suggests that advertisers are soon going to shift strongly towards an online presence, you see how skew it is still to the "old" media. I am pretty sure that a pie graph 50 years ago showed how TV was starting to impact on print. These are their compelling reasons to advertise with them.

There is a much higher accuracy, because Facebook knows who you are and what you "like". In fact Facebook knows more about you than any other advertiser. This is true. That makes sense that Facebook should have the most important data to deliver to advertisers. Next, their financials, the part that EVERYONE struggles with, why would you pay so much for this business. Here is a screen grab from their video, revenue.

And then I guess from a valuations point of view, here is operating income, and how it has grown.

As the CFO points out, high margins whilst they are still spending heavily in investing in their business. New staff, new developers, new products. The future part, a short one and a half minute piece from the Zuck is quite moving, talking about how all web based information will be plugged into Facebook. And Facebook will be your first port of call. I am sold on the company, what I am not so sure on are the valuations. But I believe that the power for advertisers is enormous. Bigger than any other platform. And there are a lot more young people who have lived the experience, even though the age gap between myself and the Zuck is not that big (9 years), I did not grow up with the internet, I had to learn how to use it as a young adult. I suspect that like a Google, or Microsoft, this is a company that is going to be integrated into peoples lives. And worth a lot more than it is today.

OK, so what now? Byron and Paul are of the opinion that the reason that Facebook are doing it this way, pricing the stock a little cheaper (the stock has traded in the OTC market as high as 40 Dollars) is that they WANT a pop on the first day. Because I can assure you that stock will be hard to get. If not impossible. Unless you are inside of the inner circle.

Currencies and commodities corner. Dr. Copper last traded a little lower to 376 US cents per pound, the gold price is also lower at 1631 Dollars per fine ounce. The platinum price is last at 1530 Dollars per fine ounce. The oil price, well NYMEX WTI was last at 101.64 Dollars per barrel, the Brent crude oil price was last at 115.30 Dollars per barrel. The Rand is last at 7.73 to the US Dollar, 12.51 to the Pound Sterling and 10.16 to the Euro. It is all about nonfarm payrolls, that number will hit our screens at 14:30.

Sasha Naryshkine and Byron Lotter

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Forget canvas, it is pastels and cardboard baby!

"Visa. Total transactions processed were a whopping 13 billion, which was 8 percent higher. Or, 141.3 million transactions per day. I said to Byron that does not sound like a lot really, and he pointed out that 85 percent of all transactions globally are still in cash. "

Jozi, Jozi. 26^o 12' 16" S, 28^o 2' 44" E. We started off well enough, led by positive surprises in Chinese and US manufacturing data, but the wind was taken out of the sails with weaker than anticipated European country manufacturing data. Plus, it seems that the unemployment situation in Europe is worsening, with youth unemployment being a large part of the focus. Sadly we know exactly how they feel, but those are rich people problems whereas the same problems we have here are poor people problems. Not to detract from the issues in Europe, but the safety net and the family help is far greater than the ones that we have here. Nevertheless, problems are problems. We managed to hang on to our gains here in Jozi, even though we slipped into the red for a little in the late afternoon. The Jozi all share index ended at an all time closing high of 34482 points. Up one quarter of a percent on the day, or 83 points. Led higher by resource stocks, perhaps reacting positively to the Chinese PMI data released early Wednesday morning.

We saw a Vodacom trading statement after the bell yesterday, these are for the full year numbers to March 2012, which are expected to be released on the 21st of May. Basic EPS is expected to be 20 to 25 percent better than the prior years 561 cents, so expect the range to be between 673 to 701 cents per share. Headline earnings per share are expected to be between 5 and 10 percent higher to be between 689 to 722 cents. Nice, that looks like decent enough growth for a company that was supposedly "ex-growth" with a mature market here in South Africa. This is the shift from voice to data, albeit at lower margins, people are going to consume a whole lot more data on their newer and fancier handsets. Even at the lower end, phones are going to become smarter. But is the stock expensive at one hundred and seven and a half Rands? Let us explore this later. Byron always tells me that an iPhone consumes three times more data than comparable smart phone users. Either the iPhone is more intensive in terms of data usage, or/and easier to use.

With basically an 80 percent payout ratio, you should/could expect 295 cents for the second half, bringing your total for the year to around 555 cents worth of dividends. So, the ratios for the fundamentals junkies looks as follows: 14.9 times earnings at the TOP end of the range and a dividend yield of just more than 5 percent. Factoring in the dividend tax of course, around five percent yield is very juicy. And that, I think is the part that attracts the international investors to Vodacom, because you can bet that Vodafone, the 65 percent shareholder (and the South African government, who own 13.91 percent) will want to extract as much as they can. One could on that basis expect the payouts to continue to be high, and as such perhaps the stock will continue to attract a higher valuation. I guess when government bond yields (on the "safer" bonds) start to tick up, then this "endless search for yield" might actually change. Until then though.

Byron's beats explores the trading update from African Bank yesterday.

Yesterday we had a trading statement from one of our recommended stocks which indicated a 24%-26% growth in earnings for the 6 month period ending 31 March 2012 compared to the corresponding 6 months last year. In that period the company made R1.095bn or 136.3c per share. Taking the middle of the range, 25%, that means we should expect around 170c for the 6 month period. Before we talk about the fundamentals let's look at the valuations.

Last year the company had a better second half, making 155c vs. the 136c in the first half. The company has been growing fast on a 6 month basis so we should expect the same. Let's say they make 180c in the second half and 350c for the year. The share is trading at 3888c and a forward PE of 11. Last year they had a very generous dividend cover of 1.57. Assuming they maintain this we should expect around 220c at a current yield of 5.7%. Those are some (very) favourable valuations and a great yield.

The two biggest risks for this company are increasing competition and a possible unsecured lending bubble which has been discussed by many analysts. Let's talk about competition first. Competition is always going to happen in a market where companies are making big profits. Capitec have done really well and now the big 4 are targeting this market because the return on equity is so strong. African Bank have also ramped up their book very aggressively using the Ellerines stores as kiosks. This has been their niche which has been very successful and finally showing some returns to that Ellerines purchase. Although competition is strong I think Abil are more than equipped to face up to this challenge whilst the SA economy still has ample room to provide clients.

So what about this so called bubble? I don't think there is an issue. According to Rene Van Wyk, the registrar of banks whose office is currently conducting a survey on the issue, there is no bubble being caused by the increase in unsecured lending. Unsecured lending only makes up 8% of total credit assets. I also believe that our informal sector is heavily underestimated and these people who earn reliable salaries have to use unsecured lending for credit. Wages are increasing fast in SA, way above inflation and if rates do increase, we are at 25 year lows, we can still handle an increase.

All credit to management for growing the book and therefore the earnings so well. We believe this can be maintained going forward and continue to add at these levels. More analysis will be done when the results are released.

New York, New York. 40^o 43' 0" N, 74^o 0' 0" W. It could have been a whole lot worse than the final print, but I guess with a disappointing ADP employment read we should have been happy with the final number. The monthly precursor to the nonfarm payrolls number registered only 119 thousand, whereas the expectations had been closer to 175 thousand. Weirdly though, remember that last month the ADP number exceeded expectations, but the actual nonfarm payrolls number was a sizeable miss, relative to expectations. Perhaps the opposite could happen on Friday? Who knows. What I do know is that Standard & Poor's upped the Greek credit rating to triple C, what is thought as a largely symbolic move. Not sure if it means anything.

There were results from the folks over at MasterCard, it looked like a beat to me, versus consensus, but the stock fell in ordinary trade. Payment systems companies, some folks are starting to get excited about eBay because of course they own PayPal. The precursor to PayPal of course had names like the South African Elon Musk (who now is into fast electric cars) and Peter Thiel (who is perhaps the smartest Facebook investor, he bought 10.2 percent of the company as an angel investor back in 2004), but those two have since made money elsewhere. We prefer Visa (ha-ha) as an investment, the stock took some heat afterhours with an announcement that coincided with their earnings release, and a US anti-trust investigation.

So, Visa had results post market yesterday, here is the full release here:Visa Inc. Posts Strong Fiscal Second Quarter 2012 Earnings Results. EPS of 1.60 Dollars per share, which was a beat of ten cents per share, and a dividend of 22 US cents per share. Net income increased 23 percent when compared to the prior year to 1.1 billion Dollars, with GAAP net operating revenue higher by 15 percent to 2.6 billion Dollars. Total transactions processed were a whopping 13 billion, which was 8 percent higher. Or, 141.3 million transactions per day. I said to Byron that does not sound like a lot really, and he pointed out that 85 percent of all transactions globally are still in cash. WHAT? And which way do you think the regulators want this to move? Electronic payments will tell you everything that you want to know of course, all governments from a safety point of view. There is a holding cost of cash.

What I found quite interesting is this line: "International transaction revenues, which are driven by cross-border activity, grew 17% over the prior year to $733 million." Cross border activity? That means that people are buying stuff from other countries and using Visa's secure network. Or, tourists are using their debit and credit cards for buying stuff or services, trusting the network more and more. Which is interesting in a way I guess, but not surprising really. 17 percent? And as we said, look at that, still there are many cash transactions. And strangely, as they mention on their website: "70 percent of Visa payment transactions in the United States are not credit, but debit and prepaid" So, folks are transacting in electronic "cash" transactions.

Back to these results, which were a beat of course, and guidance for the full year which was as follows: "Annual net revenue growth in the low double digits", I read that as around 12 to 13 percent or so. Perhaps higher. Marketing expenses under 1 billion Dollars looks a little high, bearing in mind that the quarterly marketing expense ran at 170 million Dollars. Just looks "high", but perhaps just guidance. As ever there are always risks, they spell it out, rules capping the charges and further government "reforms". And then Visa talks about economic conditions like European sovereign issues, other global "problems" and currencies are also an issue too. On balance, the stock forward looks cheaper than MasterCard, and we will continue to accumulate shares of the major electronics payments system globally.

Currencies and commodities corner. Dr. Copper is lower, last at 380 US cents per pound, the gold price is also lower at 1642 Dollars per fine ounce. The platinum price is also lower at 1550 Dollars per fine ounce. The oil price, well the NYMEX WTI price is last at 104.73 Dollars per barrel, the price of Brent was last at 117.65 Dollars per barrel. The Rand is last at 7.74 to the US Dollar, 12.52 to the Pound Sterling and 10.16 to the Euro. We are marginally lower here this morning, just a little bit though! The ECB meet today, expectations are for no rate cute, but I have a sneaky outside suspicion that they could cut rates here by 25 basis points.

Parting shot. Art. I certainly do not understand the willingness to pay 119.9 million Dollars for the Norwegian artist, Edvard Munch's "The Scream". There are four of these, not all the same, but this one is the pastels version on a piece of cardboard done in 1895. The third version. I wonder what they would be sold as a set? Anyhow, this is a unique piece, so you cannot actually compare this to any other investment. Or so that is what the art people will tell us. But if you bought 120 million Dollars worth of stock, would you be better placed? Or enjoy it as much? Perhaps the enjoyment factor would be so much less, for some people. There is only so much you can get out of staring at the same painting, or have I got this wrong? Anyhow, the idea I guess will be to sell that version of "The Scream" for so much more and make a large capital gain. One just hopes that it neither burns, nor gets spoilt along the way. Pastels on cardboard? That was my initial reaction, madness, but then as far as art is concerned, I am an absolute heathen.

Sasha Naryshkine and Byron Lotter

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Yes! Cry for Argentina

"Well, since the incumbent won a landslide victory last year, as the FT reports, the countries macro accounts are worsening. So, they are in short looking for extra revenue streams. And in their view, Argentina, Repsol has just been milking a national asset."

Jozi, Jozi. 26^o 12' 16" S, 28^o 2' 44" E. The market was a bit like a lazy afternoon of getting on and off the couch, hugging the line between slightly positive and slightly negative. Alas, the overindulgence meant that the market was lower at the end of the session, but it was not without trying hard towards the close. The financials led the decliners, with Old Mutual shares falling hard on being ex their hefty special and normal ordinary dividend, slightly cushioned by the share consolidation. Lending positive support were industrials, beverages (read into that SABMiller), construction found themselves in a very bad place, down another one and a half percent.

There is very little happening on the local companies front, I did mention that earnings season is going to be huge in the US, starting yesterday with a disappointment in earnings from CitiGroup, but the stock actually rallied after having been down in the pre market. There is a Spanish debt auction of shorter term debt today, just after a German sentiment number from the ZEW. But the big one for Spain is going to happen on Thursday. I laughed at John Robbie (or is it Robbie Johns?) when he said about Spain, "Things theem not thoow good". I think that the ECB will restore confidence and be participants here in the Spanish bond auction, just to lend a little bit of a hand and settle things.

SABMiller yesterday announced that they were going to be expanding into the rest of the continent (ex South Africa) and investing around two and a half billion Dollars. They plan, as far as my reading is concerned, to revamp existing operations, and build new breweries. Meeting growing beer drinking demand, remember that whilst beer for rich people is not necessarily a luxury, premium beer products amongst middle class folks show that they are upwardly mobile. Even if it is just the facade of being upwardly mobile, beer is a cheap luxury. And Africa as a continent is a growing market with a big growing (and better earning) population for many fast moving consumer goods businesses. Not an industry that we like in the long run, you can already see how the ban in advertising of alcoholic beverages is getting the brain gears moving.

But that is a separate story altogether, another one that we are watching is the Australian cigarette packaging ruling -> Tobacco Firms Challenge Australia Plain Packs. I can see how this is an issue for both sides, just where do you stop telling people what you can consume and what you can't. BUT, if you are paying for their healthcare at the states expense, perhaps you can tell folks what their consumption habits must be. Nannying? Or just simple economics? Whilst the tax revenues on cigarettes is still big, what is bigger is health related economic losses. Check this from the tobacco atlas piece titled New Tobacco Atlas Estimates U.S. $35 Billion Tobacco Industry Profits and Almost 6 Million Annual Deaths: "During 2000–2004, the value of cigarettes sold in the United States averaged $71 billion per year, while cigarette smoking was responsible for an estimated $193 billion in annual health-related economic losses."

Notwithstanding that, from the same document: "More than 43 trillion cigarettes have been smoked in the last ten years and cigarette production has increased by 16.5% in that time period, according to The Tobacco Atlas. Annual cigarette consumption has also increased significantly during this time period." WOW! That is amazing. So, whilst my long term theory remains intact, the share prices of the listed stocks, especially the one (and only one) that we have access to here, BAT has been a massive winner for shareholders. HUGE. But I have suggested that the stock looks quite expensive now, and perhaps will lose the defensive qualities in due course. But for the mean time folks still rate the stock a buy and better than all of their peers. I wonder what the Chinese government will do, as deaths directly attributed to smoking are going to rise to 3.5 million people per annum by 2030. So, that is enough to wipe out the whole of South Africa in 14 odd years!

New York, New York. 40^o 43' 0" N, 74^o 0' 0" W. Phew, there was major hand wringing around the Apple share price falling 4 percent in normal trade and one percent post market, the folks have been real nervous here. Real nervous that they did not miss out and now real nervous on the selling front. Amazing! The market cap went from 600 billion just a few days ago to 540 billion at the close of business last evening. That is like wiping Nokia and RIM out three times over. Sounds more dangerous when you say it like that. The nerds of NASDAQ sank three quarters of a percent, the broader market S&P 500 ended about flat, whilst the Dow Jones industrial Average added over half a percent.

Byron's beats takes a look at retail sales in the US yesterday:

Yesterday we had retail sales figures come out of the US which showed some healthy growth. Sales grew 0.8% for the month of March which was way above the expectations of 0.3% thanks to a stronger jobs market. Most of the growth came from increases in building materials, autos, furniture and clothing.

This is great news for the global economy because we all know how important the US consumer is to the overall mix. It also shows that the US consumer has been very resilient to the increasing fuel prices. This has been a major concern for economies across the globe as disposable income gets sucked into transport costs rather than general consumption thanks to the elevated oil price.

I stumbled upon this interesting article from the WSJ which highlights a few factors explaining this consumer resilience. What interested me was the part about fuel economy. According to a study done by the University of Michigan the average vehicle sold in March got 24.1 miles to the gallon compared 20.8 four years ago. That is a 15.8% increase in millage per gallon. They also mentioned that alternate sources of transport are being used and people are actually driving less.

I may be going on a tangent here but this data makes me think of our situation in SA with regards to fuel increases and the e-tolls. We often forget or don't even know that we are consuming less fuel and that the cars we drive are much more efficient than in the past when fuel was so cheap. Yes inflation is certainly an issue when it comes to fuel increases but I do not think that the e-tolling and petrol increases will have too much of an effect on our strong consumer. People will find alternatives. Drive less, use lift clubs, use the Gautrain. It is human nature.

Retail sales locally grew by 3.9% in January year on year and I do not believe this trend will slow anytime soon. I really do believe consumption of the developing market will be the next big growth theme of the future. The fact that the US consumer is still strong is a great underpin. We continue to like stocks that play towards both the US consumer and the growing developing market base. These include Nike, Visa, Apple, Richemont, McDonalds, Massmart, Woolworths, Mr Price and African Bank.

Currencies and commodities corner. Dr. Copper last traded at 364 US cents per pound, a multi week low. We have seen some very average looking Rio Tinto production numbers and Chinese weaker FDI data which is not helpful for Dr. Copper's health. The Reserve Bank of India cut rates unexpectedly. That is an event which might be good for commodities. The gold price is slightly better at 1652 Dollars per fine ounce, the platinum price is ticking up, last at 1572 Dollars per fine ounce. The oil price is slightly higher at 103.68 Dollars per barrel. The Rand is firmer, at 7.85 to the US dollar, 10.37 to the Euro and 12.51 to the Pound Sterling. We are slightly better here, a "favourable" Spanish bond auction and a better than anticipated ZEW number is to thank for that.

Parting shot. Dumb, dumb, dumb. Stupid, stupid, stupid. Nobody I read so far this morning thinks that the Argentinean government taking a 51 percent stake in oil company YFP is a good idea. Let me rephrase, the Argentinean government in nationalising 51 percent of YFP and thereby taking control away from Spanish oil company Repsol. Repsol will now own just 6.4 percent of YFP, as they lose 51 percent. Argentina is going to throw a few Peso's in Spanish companies Repsol's direction. How many state owned entities are there in the USA? They helped the banks and the motor manufacturers only because they had to, the stock has been sold off, in some cases for a sizeable gain. But Argentina is not nationalising YFP because they need to help the company. They are doing this because their own internal finances are in a bad place. 100 years ago they had the world at their feet, but for various reasons, political wrangling and personalities, Argentina lost their way, and the USA won.

So why are Argentina scrambling? Well, since the incumbent won a landslide victory last year, as the FT reports, the countries macro accounts are worsening. So, they are in short looking for extra revenue streams. And in their view, Argentina, Repsol has just been milking a national asset. No guys, those dinosaurs and ancient forests were there long before humans were there, this is where the oil comes from. Bloomberg has this take: Argentina Seizes 51% of Oil Producer YPF to Stem Imports.

The imports of oil are as a result of the Argentinean government putting a cap on export prices, you can't get market prices. So naturally nobody is going to push the envelope from a production point of view. Another disaster in the long line of Argentinean economic meddling. Economists are not even allowed to question high inflation numbers. Yeah, good luck with this, I bet..... in the next half a decade, you will see another credit event, as once again governments prove that they are not able to control economies and resort to desperate measures. Buyers of Argentinean bonds? Venezuela! Crazy. This is going to end badly again for Argentina.

Sasha Naryshkine and Byron Lotter

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Harmony feels the heat

"But, that crazy guy Jim Cramer said that the market participants could actually be captured by a poorly performing Spanish bond auction, which he actually expects. But, earnings ultimately drive share prices levels in the long run. But I am well aware that sentiment makes up around half in the short term, perhaps even more of that."

Jozi, Jozi. 26^o 12' 16" S, 28^o 2' 44" E. It was a strange sort of a day here in Jozi, I expected worse because of the lower than anticipated Chinese GDP numbers, but, 8.1 percent growth is still the envy of the rest of the world. Unless you are Ghana, which I saw grew at around 16 percent in the fourth quarter, driven by a boom in the oil sector. But not off the enormous base that China has grown too, remember the message Friday? Resource stocks sold off in the second part of the session, they were actually comfortably in the green at the beginning of the session. The Jozi all share index closed off one third of a percent, down 111 points on the day to 33705 points. The same old worries emerged, Spain and their funding issues and the impact that is having on Italian borrowing costs. At much irritation of the Italians as I can understand!

Yech. The Harmony Gold stock price took some heat Friday, down at a 52 week low, 7869 ZA cents per share. The loss on the day was three and a half percent. The reason why the stock declined on Friday? Well, there was a production report for the first quarter, which was ugly, the company expects 18 percent lower production than the previous quarter. Now remember that gold production in the previous quarter was up 5 percent to 344592 ounces, whilst cash operating costs were actually lower at 249 thousand Rands per kg, or 958 Dollars per fine ounce. AND, there was a very modest dividend of 40 ZA cents for the first half.

BUT, 18 percent lower on the quarter? Wow. That is around 282 thousand ounces produced last quarter. And the gold price and currency have actually been working against them in this quarter. More so the currency, although that has been really weak in April, but that is outside of the last quarter. First, in Dollar terms, the quarter was about the same as the previous one, check it out, courtesy of Kitco directly off their website:

BUT, this is a much more important graph, the Rand gold price versus the Dollar gold price, you can see that the local currency weakening has really helped out holders of GLD (the Rand gold price instrument) and the gold producers locally, but not as much sadly. Here it is, again courtesy of Kitco:

The part that I want you to look at is the January to March Rand gold price, which is lower than the prior six months. So, what I am trying to say is that it could be uglier than at face value. So why was production so much lower? The company lists a few reasons, let me do a Jackie Selebi copy and paste, first reason:

"The festive season and public holiday disruptions associated with the March quarter, being less shifts worked than in the December quarter, as well as slow start-ups post the holidays;"

Huh? Public holiday disruptions? New Years day and Human rights day? Or is it just a case of the workforce only getting into the swing of things after a couple of weeks in January? Perhaps.

"Safety stoppages;"

We know that one, you know my views, perhaps a closer look at the shaft versus mine debate, when there is a fatality. Don't get me wrong, one mining death is one too many, but it is a very dangerous profession. And a poorly paid one too, in large part because the skills for the poorly paid jobs (in almost every industry) are lower. I do not know what the answer is, but it is impacting on one of our main industries in South Africa. But one death is one too many. So the balance needs to remain.

OK, next:

"Shifts lost due to the one day protected strike of the Congress of South African Trade Unions (COSATU);"

One day, that basically is 3745 ounces, or 6 percent of the ounces "lost" relative to the last quarter, so perhaps not the biggest issue that Harmony had. And then Harmony talk about the heavy rains in PNG at their Hidden Valley asset, remember that at the half year stage production had ramped up 25 percent. There is nothing that you can do about the weather. And then the upgrade of infrastructure at the Doornkop asset, but that was not a surprise. This resulted in a loss of 44 percent in production relative to the previous quarter. Doornkop represents around 9 percent of all South African revenue, and about the same amount from a production point of view. So I am guessing that this has about one quarter to one third of the production losses when measured against the last quarter. Next and perhaps most disappointing, the grades are lower, in particular at their biggest South African asset, Tshepong:

"Lower than expected grades at Tshepong, Masimong, Unisel and Joel contributed to a 12% decline in underground grade."

All in all, they, Harmony are disappointed. As was Mr. Market. And I am guessing that the trend of higher costs will remain. I am guessing that the gold will become deeper, more dangerous to find and that most of the "easy" stuff has been extracted, so perhaps grades are going to be impacted further. In a world of what I consider investment grade, sadly they do not get a podium placing. Sorry gold bugs, but the last thing, and most important, I still do not understand the fundamentals behind the product that they produce, the yellow metal, that still captures a lot of appeal as an alternate investment class. You know the argument, the only real currency. Why is that so? Because someone told you that it was so. From a share price point of view, the stock might actually look cheap at these levels, having been squashed.

New York, New York. 40^o 43' 0" N, 74^o 0' 0" W. A big sell off towards the end of the days trade, after Mr. Market tried hard to make a comeback towards the middle of the session but a late sell off, attributed to a weaker than anticipated consumer confidence number at the beginning of the session. Session end all the major averages were lower, the Dow Jones just over one percent, the S&P 500 down one and a quarter percent, whilst the nerds of NASDAQ closed lower by nearly one and a half percent! Not good.

This week should be all about earnings! BUT, there is a Spanish ten year bond auction on Thursday morning. In amongst some results from Citigroup today, Coca-Cola, JnJ, IBM, Intel, Goldman Sachs on Tuesday, Halliburton, Qualcomm and Yum! Brands on Wednesday, Bank of America, Du Pont, Freeport-McMoran (from general commodities point of view) and Microsoft on Thursday, whilst on Friday we will see numbers from General Electric, McDonald's and Kimberly-Clark. Whoa! That is more than enough to get you excited, but the reason why I am most excited is simple, it can then be all about earnings. But, that crazy guy Jim Cramer said that the market participants could actually be captured by a poorly performing Spanish bond auction, which he actually expects. But, earnings ultimately drive share prices levels in the long run. But I am well aware that sentiment makes up around half in the short term, perhaps even more of that. Good companies able to be bought at good levels will stand you in better stead in the long run, trading markets, that is just hard and requires a large amount of luck.

Currencies and commodities corner. Dr. Copper is last at 364 US cents per pound, the gold price is ticking up a little, 1649 Dollars per fine ounce, the platinum price is last at 1574 Dollars per fine ounce. 102.76 Dollars per barrel is where NYMEX WTI trades. The Rand is trading mixed, 7.87 to the US dollar, 12.63 to the Pound Sterling and 10.37 to the Euro. The market is mixed today, up and down.

Parting shot. Don't be confused. Old Mutual today goes ex dividend of 21.5 UK pence (which includes an 18 pence special dividend), roughly 270 ZA cents. But the share price is down only 130 odd cents today. Why? Well, there is actually a consolidation too, for every 8 shares that you used to have, you will be getting 7 now (actually next week), a strange sort of a consolidation really, normally it is a ten for one or so, that has been my experience, or two for one, that ratio is not one that I am completely familiar with. So, let us see where the share price should have adjusted, bearing in mind that there might also be natural sellers in the form of dividend stripping folks. Those who sell post the dividend, although I am not too sure that practice takes place as much as it did in the past. So, first things, the price needs to be higher in lieu of fewer shares in issue, if the value needs to be the same as before. PLUS, the price needs to adjust for the dividend. So, don't get anxious if you own the stock (many South Africans still do through the demutualisation process), there are the two things happening.

Sasha Naryshkine and Byron Lotter

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Young one's failure to launch

"For 2011 the economy of China was 6.98 trillion Dollars, that is the estimate. So, if the Chinese economy grew by "only" 8 percent this year, the size of the economy at the end of 2012 would be roughly 7.5 trillion Dollars. An addition of around half a trillion Dollars on last year. Which was the entire Chinese economy in 1994."

Jozi, Jozi. 26^o 12' 16" S, 28^o 2' 44" E. Well, the mood improves globally notwithstanding the same old problems globally, Spain and Italian bond issuances coming in at higher yields than the last auction, there was also a weekly jobless claims number that was higher than anticipated, there went my theory, but the one thing that got the bulls going was a narrower than expected US trade deficit. That was the single event that for me anyhow saw the futures go higher, although what I read suggests that it was the repeated approach from Fed officials who said that they did not see any chance of rates changes until that official 2014 target. So why get excited about something that you know already? Strange, I am confused. There was on the local front some better than anticipated tourist arrivals in South Africa, growing at 3.3 percent I think, that is good news! And then building confidence is picking up according to an FNB construction survey, but the truth is that two thirds of respondents still think things are not better, but this compares favourably to a few months ago where eighty percent of respondents thought "things" sucked were not good right now. Moving in the right direction I guess.

Session end we closed 184 points better or 0.55 percent up to 33817 points on the Jozi all share. Retailers slipped. Gold miners slipped. Resources were the real drivers, up nearly a percent and a fifth, but are still as a collective down nearly four percent this year. Banks were flat on the day and industrials were around one third better in the session. There really is a lack of local company news at this time of the year sadly. So we have to resort to making sure we scratch around for economic data, and I guess luckily from a news flow point of view there are anxieties about Spain, I know that the Italians are irritated at having to be lumped with the Spanish problems. But there was and is a small matter of the North Korean rocket launch which failed! Hah-Hah.

Beijing central. 39^o 54' 50" N, 116^o 23' 30" E You are going to read the headline today, China growth slows to 8.1 percent. And in fact misses the expected growth rate of around 8.3 percent. So this is bad news, yes? Well, yes and no, I am of the opinion that anyone you talks about a landing of any sort never did any physics of any sort. Let me be clear, Spain's economy contracting by around 1.5 percent this year, that is a landing and in fact going deep into the underground bunker for a while. Growing at 8.1 percent means that you are still maintaining an upward trajectory, albeit at a lower rate. In fact this is the lowest recorded growth since the first quarter of 2009. BUT, before you take the rest of the day off biting your nails and hiding under your desk, with your stomach full of knots (yes, he will ask you out and yes, she will say yes), check out this graph here, because this really does put it into perspective:

See? You missed 2011 in this graph, 6.98 trillion Dollars, that is the estimate. So, if the Chinese economy grew by "only" 8 percent this year, the size of the economy at the end of 2012 would be roughly 7.5 trillion Dollars. An addition of around half a trillion Dollars on last year. Which was the entire economy in 1994. The whole economy 18 years ago is expected to be added this year. So my simple take on it, is that the Chinese miracle continues, now we want it to morph into something different. And there are signs that it is happening. Because in our view, internal consumption and a lower savings rate would indicate that the economy has made the shift to a more consumer based economy which helps expand the service sector too.

But there were some metrics that we set out at the beginning of the week that I thought was key here, firstly fixed asset investment which clocked 20.9 percent year on year growth rate, beating expectations ever so slightly. And then there was retail sales that we also thought was important, that beat expectations too, coming in at 15.2 percent growth rates. Lastly, industrial production clocking 11.9 percent growth year on year, also beating expectations. The property sector was what weighed on the overall number, but for a while now many have been suggesting that the air should go out of some of the key real estate markets in China. Nothing like a bit of a softening in that sector to put it all back into perspective, for individuals at the moment. As ever, my line is going to be that you cannot grow at that same rate forever, there will be a quarter in the next decade when Chinese growth moderates significantly, we could be seeing percentage numbers with fours and fives in them. But I can assure you that the Chinese economy would be far bigger than it is now, so a five percent (or four percent) growth rate would be acceptable. Or not, I am happy with that too.

New York, New York. 40^o 43' 0" N, 74^o 0' 0" W. Stocks rocketed for the reasons mentioned above in the opening segments, markets interpreting other Fed officials saying that rates are going to be low for a while as a good thing. Again, forgive me from being stupid here, but in the VERY recent minutes release of the March minutes of the FOMC, all voting members bar for one voted in favour of low rates all the way through to 2014. So, what is new? Stocks as a collective were up just a little more than one and one third of a percent, basic materials (commodities) and Energy stocks ramped up 2.69 and 2.09 percent respectively, I guess maybe some of those gains today will be unwound. All major sectors ended in the green, that was pleasing I guess.

And then earnings after the bell from Google inc. This is a company with a market capitalisation of 211 billion Dollars, incorporated in September 1998. So, if Google were a person, they would not be able to get a drivers licence or enter into any legal agreements without consent of their parents/guardians. There is to be a stock split and the control aspect by the founders (Larry and Sergey) and major shareholders leads me to believe that they think they are the parents. Which means that the shareholders are the kids right?

Felix Salmon has this take -> Google's evil stock split. I suspect this is a bit of a problem. BUT, don't cry foul here, in the founding Google document there is a line that suggests that investors will have little ability to give strategic direction to Google with voting rights. In other words, you should have known that all along.

Here are the results release after market: Google Announces First Quarter 2012 Results and Proposal for New Class of Stock. Sales up 24 percent, international revenues were stronger than before and now represent 54 percent of group revenues. Costs have risen again significantly, but that is because the Google machine is getting bigger. GAAP operating income was higher (32 percent) as a percentage of total revenues in the first quarter this time around when measured against last time, 27 percent, BUT were lower than the prior quarter (33 percent). Total costs and expenses as a percentage of revenue fell to 68 percent from 73 percent in the corresponding quarter. Non GAAP EPS clocked 10.08 Dollars per share, well ahead of the expectations of 9.65 Dollars. Total cash and cash equivalents, and short-term marketable securities? Hold your breath, 49.3 billion Dollars.

They could buy Nokia and Research in Motion and more than half that left over. 49 is to 211 as a percentage is just over 23 percent of their share price in cash alone! So, excluding that cash portion (I know you shouldn't), you come to a share price of roughly 500 Dollars. So, annualise this current quarter and you get above 40 Dollars worth of earnings. Ex the cash on hand the stock then trades at 12 and a half times earnings! Hardly expensive, is this about as cheap as I have ever seen the stock price.

But what are the key risks here? Well, some folks have pointed out, a lack of being in the tablet space and what are they going to do with the Motorola asset now? On the conference call apparently Larry Page told someone to be patient about the whole phone thing! And the long term development stuff? Ads online? What about Facebook? I suspect all things considered Google has stayed true to their culture, they still have the energy to explore new and exciting concepts (virtual reality and driverless cars amongst other things) and they still should get more traction on their adverts, the core of their business. Even though we are all familiar with Google ads and how they work, not all of use the new methods enough. I am going to say that the company should still be accumulated, the base is very low outside of their two main territories which are the US (46 percent of all revenues) and the UK (11 percent of all revenues). We continue to accumulate the stock.

Currencies and commodities corner. Dr. Copper is last at 370 US cents per pound, the gold price is better at 1675 Dollars per fine ounce, whilst the platinum price is flat at 1596 Dollars per fine ounce. The oil price is a tad lower at 103.34 Dollars per barrel. The Rand is firmer, 7.87 to the US Dollar, 12.56 to the Pound Sterling and 10.38 to the Euro. We have oscillated between positive and negative territory for much of the trading session.

Parting shot. I saw something via my Tumblr feed (get with the program people) this funny take on the failed North Korean missile launch from a user that I follow called inothernews. Here goes:

North Korea's missile and satellite:

1) stopped halfway through the ionosphere to ask for directions
2) is called "Kim Il Sung Looking At You"
3) is actually an import
4) accidentally had its gas tank filled with ketchup
5) was the last official project of the Palm Pilot team
6) runs on Windows ME
7) knows what's in the suitcase
8) urged Rick Santorum to stay in the race
9) drives a Buick
10) thought it was heading into mySpace.

My favourite is that last one, and Windows ME, remember that operating system? The closest that you might come to a nightmare today is watching a scary movie later, or the power of Kim Yung Un, I did see some live footage of him dealing with the birth of his grandfather celebrations. What a bore, North Korea, what a tragedy for the people, who have no way of knowing how much better the lives of their flesh and blood is, just to the south. That is no laughing matter. Kim Yung Un could get a Nobel peace prize if he changed the course of history. But I bet he won't.

Sasha Naryshkine and Byron Lotter

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