Country Road taking Lew home

"Part of the condition on the offer for Country Road is that the David Jones deal goes through, which means that it is in Lew's interest not to upset the apple cart. The rationale for Woolies was that they had to offer a big enough premium to Lew on the Country Road shares so that he wouldn't turn down the offer."

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To market, to market to buy a fat pig. 5 months to the day and we are presented with an agreement, that will be inked today we are told, on the platinum belts of South Africa. We are told that this is a victory for the working class, I for one do not know what to think. All I know is that the workers feel like they deserve so much better and have been through extraordinary hardships to reach this point. There have been many lives lost, at the hands of police and worker on worker. That sort of violence is not forgotten, nor should it be forgotten in a hurry. Money can be made up, the website Platinum Wage Negotiations 2014 has an estimate of what that financial impact was/is on all involved. And because this impacts all South Africans as a result of a weaker or stronger trade balance, it is important that the strike has come to an end.

So, how hard did this impact on the shareholders? We know that companies forfeited 24 billion Rand in revenue, employees forfeited 10.669 billion Rand in wages. But how did the five months turn out for the shareholders of these businesses? Well, it turns out very differently for each of the major three platinum mining companies, if you held Lonmin for instance five months ago, and you still hold them, in Rand terms you are down 20.3 percent. If you held Implats through the strike, then you are down 10.42 percent. However, if you held Amplats, you are up 12.67 percent. Huh?

It turns out that all mines are not exactly the same. Of course not, because each ore body is not exactly the same. And each individual mine worker is not the same either, we are after all individuals. For a little more information on the nearly there deal, read David McKay's piece in Miningmx titled AMCU extracts 3-year platinum wage deal. I think that once this has been signed, once victory is proclaimed by all sides, once everyone is back at work, we will see the real landscape when the proverbial dust has settled. The long lasting impact of the strike on broader society and in particular the people who live around the mines. What decisions will be made by the mining companies when allocating capital to new projects, that will be interesting to see.

It feels hollow, as if there were no real winners really. Although workers will eventually move towards that mark that AMCU drew in the ground, I suspect that many marginal mines will be mothballed. What worries me about the consumers of the metal, specifically on that autocat side is that they may be making different plans, perhaps reengaging with the Russians (on palladium usage), or finding new supply in North America. What was pretty amazing about this strike was that the likes of Johnson Matthey having built in lots of supply prior to the event, and were able to withstand a very rocky time. Rocky time for their customers. I keep asking the question though, with recycling being more and more important for the producers of autocats, what does that mean for the primary supply side?

On the Johnson Matthey conference call of their 2014 results, they said as much, that they are investing money in their refining business:

"We're investing money in this area. It's a very strategically important area for us. We're the biggest pgm refiners of secondary material, and that's a very nice place to be when there's uncertainty in supply from the primary producers."

There is a certain irony in that with every motor vehicle that is scrapped and extra demand comes into the market, the supply of recycled platinum increases. There has to be a point (seeing as the first commercial autocatalytic convertor was only fitted in 1971) where there is enough of the metal above the ground to meet the demand. I am just not sure when and where that is, because whilst I think that jewellery demand will remain strong, there are many richer people in the world now than at any other time in humanity. And rich people like nice things, which is very understandable, most people like nice things. Equally the threats of alternative energy can change the motor vehicle industry, the Tesla opening of their patent books is a good example. Do not always think that your customer is there forever, and their loyalty is only as good as their demand, equally what the price is currently.

So what has the platinum and palladium price done over the last five months? It turns out that the platinum price is flat, whilst the palladium price has been a little more active, up nearly ten percent over the five months, below is a graph courtesy of Johnson Matthey from their website.

The next big question is then, why has the platinum price been flat for the last six months? You can take a two year graph and the price of platinum is DOWN from a high of over 1700 Dollars a fine ounce, the low being around six months ago. Because there is strangely enough supply around, everyone had provisioned for this event.

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Michael's musings: 3 to become 1

This morning Woolies announced that they have made an offer for the outstanding 12% of Country Road, which is listed in Australia. The offer is at a premium of 21.4% to yesterday's closing price, will value the offer at A$213 million, which based on today's Aussie Dollar of R9.99 (let's call it R10) is R2.13 billion.

The reason for the offer is due to an Australian business man named Solomon Lew, who has been a thorn in the Woolworths side since they tried to delist Country Road back in 1997. Solomon Lew owns the majority of Country Road shares that Woolies doesn't own and has been blocking a delisting. The other big deal on the table for Woolies is the purchase of David Jones, where they have already had the voting date for the deal pushed back by two weeks due to Lew. Lew owns 10 – 15% of David Jones and threatened to block the purchase.

Part of the condition on the offer for Country Road is that the David Jones deal goes through, which means that it is in Lew's interest not to upset the apple cart. The rationale for Woolies was that they had to offer a big enough premium to Lew on the Country Road shares so that he wouldn't turn down the offer. They would rather "overpay" on a A$200 million deal than have to raise their price on the A$2.2 billion David Jones deal.

All in all, owning 100% of a company is much better than owning 88% and the funds for the purchase will come from Australian banks, which Woolies say will not impact on their dividend. The share price has not done much on the news, unlike when the news of David Jones came out and the share price dropped below R70 a share. Currently the share price is around R78 which will means that Woolies will be able to offer fewer rights to raise the cash to complete the David Jones purchase. So a higher share price does not only look god on your statement but will also mean you as a shareholder gets less diluted with the rights offer down the road.

If all goes according to plan David Jones and Country Road will fall wholly in the Woolies stable, adding 40% to the current market cap and in the process creating the Southern Hemisphere retailer desired.

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Home again, home again, jiggety-jog. Markets are lower here this morning, US futures have sold off. I guess the strike being officially over means something, the currency has strengthened somewhat. All good, keeping calm and carrying on in the mantra here.

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Sasha Naryshkine, Byron Lotter and Michael Treherne

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Bob the builder for Naspers

"But the growth in their ecommerce business has been nothing short of astonishing. Whilst Jeff Bezos of Amazon.com might be the genius of ecommerce and the first fellow to get it right, Amazon.com remains an unprofitable business. Why? Because they are investing an enormous amount in the infrastructure, Amazon spent 3.8 billion Dollars in their infrastructure, everything from automated warehouses to bigger depots. And this is where Naspers are spending all their money, in their ecommerce part of their business. Whilst there was a very impressive 64 percent increase in revenues to 20.355 billion Rand (from a mere 3.085 billion Rand in 2010), that segment registered a loss of 5.329 billion Rand in this last financial year."

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To market, to market to buy a fat pig. On Friday locally we managed to eke out a marginal gain, not a lot, but with the small gain it meant another closing high for the bourse. We are now also over the hump, the winter and summer solstice has passed depending on which hemisphere you live in. It says on the Wikipedia page about the Southern Hemisphere that between 10 to 12 percent of the global population lives this side of the equator. So....... All of the action happens on that side of the equator, from here. Because of the skewed nature of developed versus developing nations, you will probably find that a larger percentage of the wealth of the world is on that side of the equator.

Being a science geek I was out at midday on Saturday and paid careful attention to the shadows. Yes, the longest midday shadows of the year were on Saturday, at least if you happen to get some sun. At one of the most Southern points in South America, Ushuaia, which is right there at Tierra del Fuego, there is a total of 7 hours and 12 minutes of daylight today. Joburg today? 10 hours and 29 minutes, no complaining about the cold please, we have it relatively easy here.

Having it relatively easy too have been the bulls, the equities market in New York touched another all time high on Friday, the S&P 500 at least. The Down Jones industrial average is within one decent session, just over one-third of a percent higher. If you suffer from market vertigo, just relax, because one of the most reposted bloggers in the financial world tongue in cheek had this tweet on Friday:

OMG, it's a bubble! The S&P 500's P/E has SOARED from 15.5 at the start to the year all the way to 16.6 today. RUN! http://t.co/oZSzIVqzYX

— Eddy Elfenbein (@EddyElfenbein) June 20, 2014

I guess what Eddy is trying to say here is pretty simple, if you are throwing the bubble world around because markets have reached a new all time high that is the wrong way of looking at it. You should rather be focusing on the valuations and whether or not markets are expensive at this moment in time. And in Eddy's mind, and I agree with him, a move from 15.5 to 16.6 represents a 7 percent increase in what the overall market is willing to pay for the next set of annual earnings. Again it is down to multiple expansion driving the equity markets with a less gloomy outlook. Whilst the Grexit from the Euro zone never happened, from the world cup football it is almost a certainty. Bother.

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One of the most followed stories and right in the heart of the debate around bubbles and valuations in the local market, Naspers, reported numbers this morning. These results are for the full year to end March 31. And in so much that things stay the same, they certainly move forward with a lot of pace. There are many segments of the market that have been telling everyone else, with a lot of energy, that you should not buy Naspers and that it is completely overvalued.

From an earnings point of view, that is the case, BUT when you have a combination thereof (what the TenCent stake is worth) and what the earnings are worth on their existing businesses, then it becomes clear that South Africans are applying a discount to the Hong Kong price. In other words, South Africans inside of the Naspers share price believe that the valuations for TenCent are too high. I have seen some analyst reports that suggest the opposite, that Naspers is woefully undervalued, yes, woefully undervalued.

One of the reasons for this divergence of views (which you would not find with a normal industrial company established decades ago) is because of their quick progression from one business to another. You will recall in our message about when Koos Bekker announcing that he was retiring: Bekker departs as CEO, steps in as chair, we went through the four technology spurts in 29 years, meaning that there was something new to think about in terms of business evolution roughly every 8 to 10 years. Currently that growth spurt is in the form of ecommerce, which Naspers set their starting point as 2008.

And as we pointed out, Bob van Dijk, the new Naspers CEO (who is only 41, around Victor Matfield's age - ha-ha!) comes from an ecommerce background, having run eBay Germany. eBay Germany are the second biggest market for that company outside of the US. In fact in these recent results there is a graphic that points to ecommerce slash mobile. Check it out:

Ironically, in their minds Pay TV is two transformations behind. Pay TV, let us focus on this for a moment, added 1,3 million to be 8 million strong. That is a massive jump and yet it hardly gets too much of a mention. Of those, the Compact bouquet (43 percent of growth) is the big driver but not as much as before, indicating that people are paying up. In fact the PVR base increased to 1.1 million. And the BoxOffice product attracts 529 thousand rentals a month. 27 Rand a movie, that translates to 171.4 million Rand per annum. This business is a mere three years old. That is all. So let me get this right, from a standing start, with the existing infrastructure they are able to roll out a business of this magnitude? After all the investment in the TV business is around 1.3 billion for the year, but the profits were only 13 percent higher at 8.5 billion Rand. On revenues of 36.3 billion Rand, increasing 20 percent over the last financial year.

What would you pay for a standalone business of that magnitude? 100 billion Rand? 80 billion Rand? Somewhere in-between? Let us settle at 90 billion for the time being, I think that is fair to value a business at around 10 times trading profit. The current market capitalisation of Naspers, as per Friday close? 529 billion Rand, so the Pay TV business, which accounts for more than half of their profits is possibly worth only 17 percent of the current market cap. Give or take a bit here and there. If you had to value the Pay TV business across 50 countries at a say more lofty 15 times trading profits, that business could be worth as much as 127 billion Rand, or nearly one quarter of all of Naspers. What is clearly currently a growth business is seen by Koos Bekker as an old business. Funny how that works. Meanwhile GOtv continues to attract many more content starved folks across our continent.

Their internet segment is a little less easy to value, first let us take the obvious one, the TenCent stake, what is that worth to Naspers? Well, that is pretty easy to work out. Naspers owns 33.85 percent of the Chinese business TenCent that is listed in China. The market capitalisation of TenCent is 1.07 trillion Hong Kong Dollars or at the current exchange rate 1 Hong Kong Dollar to 1.37 Rand, the Naspers stake is 496 billion Rand. No really. Or with the fall today of the TenCent share price, around 488 billion Rand. The difference between the Naspers TenCent stake Friday and the market cap of Naspers Friday was all of 33 billion Rand. Or roughly at the modest valuation of the TV business, around one third of that.

So quite clearly you can see that South Africans apply a discount to the price that people pay in Hong Kong for TenCent. Quite clearly, without a shadow of a doubt, we apply a massive discount to the holding, because obviously we are smarter than the investors in Hong Kong, right? Sounds too arrogant, the TenCent price is what it is, until it changes, it won't. As you saw from analysis that we did in May: TenCent numbers blow the socks off expectations. My simple analysis suggested that TenCent was not that expensive if the growth rates are maintained, herewith an extract from that message, dated 15 May, 2014:

The previous close was 513.5 HKD. Annualise (you shouldn't, if the company is growing that quickly) the quarterly earnings and the stock is suddenly trading on 29.5 times. Which is hardly a bargain, but the earnings expectations are going to have to be ramped up. If earnings grow by 50 percent per annum, then it may be quite acceptable to pay 30 times earnings. The PE unwind is simply astonishing. BUT, in order to maintain these lofty rates, TenCent will continue to have to grow their other businesses aggressively. Both their advertising and e-Commerce businesses were disappointing in the prior quarter, when compared to the previous one. Seasonality, Chinese New Year puts a spanner in the works.

OK, so if you believe like me that business (TenCent) is NOT expensive and commands a premium because of the growth rates, then it is fair to say that the major internet portion of Naspers is OK, provided that the growth rates remain. That is the tricky part you see, if growth rates fall, then it is fair to say that TenCent will take a heavy hit.

Then next onto the part of their business that is currently in growth mode, the ecommerce business. Now you will know all the businesses here locally that Naspers own, OLX (which is global), Kalahari.com and PriceCheck. How many times do you use these? And because you are reading this newsletter that means that you are definitely a little more advanced that many here in South Africa, who do not have access to the internet, you are the future of these ecommerce businesses. It is far easier to sit at your desk at home or at work (do not let the boss see you) and buy something than it is to get into your car, fight for parking, fight the traffic and queues and get that item that you want. Plus you can only do that when you are not working.

But the growth in their ecommerce business has been nothing short of astonishing. Whilst Jeff Bezos of Amazon.com might be the genius of ecommerce and the first fellow to get it right, Amazon.com remains an unprofitable business. Why? Because they are investing an enormous amount in the infrastructure, Amazon spent 3.8 billion Dollars in their infrastructure, everything from automated warehouses to bigger depots. And this is where Naspers are spending all their money, in their ecommerce part of their business. Whilst there was a very impressive 64 percent increase in revenues to 20.355 billion Rand (from a mere 3.085 billion Rand in 2010), that segment registered a loss of 5.329 billion Rand in this last financial year. Yech. That hardly sounds like a good outcome, it sounds awful in fact.

Why? Because Naspers through all their ecommerce businesses spent a whopping 5.6 billion Rands in growing them. Online classifieds, the OLX model. I have tried it and it definitely works, that is my own personal experience. And businesses like PriceCheck are marvellous for consumers, absolutely amazing. The outlook segment tells you all that you need to know, there is going to be more focus on this line of the business, the ecommerce part. And if that entails a larger spend in the coming years, then you have to accept that as a shareholder of Naspers, as a percentage of revenue spent more now, 12.2 percent on development than in any of the last five years.

It is not too different as a shareholder of Amazon. Not different at all. You are going to have to have to be really patient as the new part of the business ramps up, the speed at which this is happening is mind boggling. And as such, it is going to be difficult to value from three months, to three months. As you can see, we tried to value the above businesses. eBay trades on a price to sales of 3.9 times, Amazon.com on two times. If you use the eBay price to sales metrics, you can see that the ecommerce business (which is growing revenue at a rapid rate) is worth close to 80 billion Rand, using the Amazon.com metrics it is closer to 41 billion Rand. Either way, this segment is only valued, by those metrics at less than their Pay TV business, which is not where the future is, according to the management and development spend.

We continue to hold Naspers and acquire on weakness, believing that the sum of the parts (fast growing parts at that) undervalue the business. On a pure earnings basis the stock is expensive, but remember that, like Amazon.com, when the huge spending on their current business transition has taken place, the company will shift a few gears in that regard.

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Michael's musings

One of our core holdings in the US, Google has announced that they are buy video monitoring and security company Dropcam Inc for $555 million. The actual buyer of the company is Google's subsidiary Nest, the "smart appliance" division. The long term goal is to have all your house appliances controlled by a cell phone running the Android software.

Dropcam's current product allows you to monitor what is going on in your house through live streaming of video to mobile apps and through alerts that are sent to you. Security is a big component of being able to interact with your house and environment. Looking forward a couple of years, you will be able to see what is going on in your house to know it is safe to enter, turn on the heating and geyser, turn lights on and having music playing when you walk through the front door. All this will be able to be done on your Android phone, using your voice through Google's artificial Intelligence technology called "Google Now".

In other Google news, this week is their I/O conference, which is where they get to show off their new products. Google's Android is now on every 4 of 5 smartphones sold, breaking the 1 billion mark last year. Having that many people already in the Google ecosystem, the idea will be to keep them there through expanding the places where you can find Android. The conference is expected to give more details on "Google Wear", the wearable tech products, Android in cars through partnerships with manufacturers and further development on Google Now.

Currently Google still gets 90% of its revenue from advertising, but as the Android ecosystem expands along with other products like their Driverless car technology we should see a shift in revenue flows. Even though the word "Google" is in the dictionary as a verb and is something that modern society cannot live without, I think that Google will be an even bigger part of our lives going forward, and this is the reason why we own the shares.

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Home again, home again, jiggety-jog. There has been the first positive PMI read in China for a while, that is boosting resource businesses across the globe, which is to some extent being dragged lower by industrials. And in particular Naspers, that stock is down over three percent on these results.

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Sasha Naryshkine, Byron Lotter and Michael Treherne

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Larry is actually the Oracle

"Ellison is wildly wealthy and plans to give almost all of what he has made away, to help other folks. And that friends is when people appreciate money, they work hard making it, they are strangely a lot more giving. Encouraging entrepreneurs and allowing capital to grow at a fast rate leads to adding to the national fiscus, creates jobs and opportunities and inspires many. Less state and more private enterprise, thanks very much!"

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To market, to market to buy a fat pig. A day after the Spanish got booted, their pride was somewhat restored with a new king. I wonder what is going to happen in England this morning? Oh well, it is not for us to make any snide remarks about football teams that are in attendance at the world cup when our team did not even make it there. Heck, we did not even get close. So, it is left for us to talk about the place we love, the markets and more importantly the associated companies that are listed on the exchange.

Yesterday was a massive day, it was huge for local equity markets, following on from markets overnight which were, I guess boosted by the Federal Reserve's outlook that inflation would not be a problem for a long time. And as such we were in a low rates environment for a while, perhaps another four odd years. In the EU about the same could be said. I remember when the term ZIRP (Zero Interest Rate Policy) was first brought forward, many were convinced that by 2012, the end thereof, we would see rates start to tick up. Well, here we are, nearing the end of the first half of 2014 and the ECB has gone lower, with negative interest deposit rates, albeit small and the Fed indicated that because inflation was pretty benign that they would be in a position to keep rates low.

However in the developing world it has not been that easy, with currency ructions forcing central banks to act against inflation even though the economic outlooks (most of them) are not as favourable as we/they would have liked, domestically that is. Higher commodity prices have meant higher energy prices and higher food prices. But back to the scoreboard for an instant, the local market ended the session off at a record high, up over a percent at 51264. From a volumes point of view it was also huge as it was futures closeout. Was that right, did I see 26.86 billion go through the market, in terms of value of trade. Gosh that is a lot.

Over the seas and far away on Wall Street, stocks ended the day barely unchanged but that masked a half a percent down at one point for the nerds of NASDAQ, Oracle weighing on the tech heavy index. Not the Oracle, the one that bakes Neo the muffins in the Matrix, but rather the business that is run by that fellow Larry Ellison. Larry is 69 years old and still has a lot of energy, he clearly looks after himself. Larry cofounded Oracle Corporation with Ed Oates and Bob Miner. Bob died sadly nearly twenty years ago, he would be marginally older than Larry now, Ed apparently is a budding scale model builder with H0 scale trains. That is 1 to 87 scale, why that number I have no idea.

Equally, why Larry Ellison sees fit to pay himself so much when he owns so much of the business is a little baffling, admittedly most of the compensation is stock based. He did however stick the most money in at the beginning, according to his Wikipedia page, investing 1200 (1977 Dollars - out of a total of 2000 Dollars) to establish Software Development Laboratories, the original Oracle. 1200 Dollars in 1977 would be 4549.82 Dollars today.

Larry Ellison owns 1,112,434,580 Oracle shares, by one measure that I saw -> Ownership. At the closing price that is worth 47.289 billion Dollars. Yowsers. But with the Oracle share price indicated down 5 percent and a bit at 40.38 USD, that stake is worth 44.9 billion Dollars. I hardly think that Larry Ellison is going to lose any sleep over the company that he still runs.

Now we do not have any interest in Oracle Corporation, but what I find very interesting about a whole bunch of technology titans that saw their valuations stretched during the go-go days of 1998-2000 is that many of these businesses were founded in the 1970's. As the hardware improved, the software improved alongside at an absolute rapid rate. And because Moore's Law possibly still applies, we should continue to see this trend continue. Moore himself was the co-founder of Intel alongside Robert Noyce. Intel was founded in 1968, it makes sense that the big hardware manufacturers are older than the software ones.

The other thing that interests me is how an idea and a small investment of 1200 Dollars in 1977 turns into 45 odd billion Dollars in 2014. A company that employs 120 odd thousand people. And no doubt contributes handsomely to the US economy. And Ellison has joined the giving pledge to give 95 percent of his wealth when he dies to the charity founded by Bill Gates (a competitor) and Warren Buffett, whom everyone knows well. It is a moral agreement and nobody is bound by this.

Ellison is wildly wealthy and plans to give almost all of what he has made away, to help other folks. And that friends is when people appreciate money, they work hard making it, they are strangely a lot more giving. Encouraging entrepreneurs and allowing capital to grow at a fast rate leads to adding to the national fiscus, creates jobs and opportunities and inspires many. Less state and more private enterprise, thanks very much! Pity that Oracle missed the streets number last evening in fourth quarter numbers post the bell, in other words the analyst community was a bit heavy in their estimates. The company did not miss, the company reported what they did, the analyst community missed. Fear not, Oracle shares have risen with the rest of the market, up 25 percent over the last 12 months.

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Home again, home again, jiggety-jog. The market is trading at another record high. This morning. I see many people talking about bubbles. Perhaps it is market vertigo. Perhaps it is warranted. Biz Stone, the Twitter cofounder reckons that stock valuations in his sector are not in bubble territory. I guess he expects (not like everyone I tell you) earnings to grow at a breakneck speed to justify the current prices. Time will prove him right or wrong!

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Sasha Naryshkine, Byron Lotter and Michael Treherne

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Yellen not shouting

"It is possibly the better for society to have people set the rates for us, even if it feels condescending. Not everyone has self control. If they did, then there are many businesses that would not exist at all. I for one am thrilled that we all have many choices and by function investment opportunities. To presume that someone like Janet Yellen does not know what they are doing, you would probably find those same folks tend to agree that the moon landings were done in NASA studios somewhere else too."

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To market, to market to buy a fat pig. Not just sayin' but yellin'! The FOMC statement from last evening, about half way through the trading session and just after the Aussies had provided a scare to the Dutch and just before the old champions went crashing out of the world cup, courtesy of Chile. So my group, the one that I drew in the office draw has the Netherlands and outsiders Chile as the only contenders. I suppose that the Spain and Australia match will not quite be one that folks expected.

Football aside, the FOMC, Janet Yellen and her team have been hard at work themselves in the science of economics. This is not chemistry or math, where the outcome is binary (I think in almost all cases), this is economics. Where, to use that overused idiom, the goalposts are always moving. You can have a look see at the release and see what all the talking points are in the media currently.

So what are these talking points? What is everyone focusing on? First things first. Tapering continues, down another 10 billion Dollars a month. Treasury purchases down to 20 billion Dollars a month and mortgage-backed securities now down to 15 billion Dollars a month. As with the stadiums having been completed on time and the fans enjoying themselves, the taper event has not caused the equities market to fall in a heap. If your whole strategy was to wait for the Fed to do this or that or thought that was more important than companies doing X or Y, then I am afraid that you are doing it wrong.

And then perhaps the last paragraph that sent everyone running around trying to figure out what this means: "When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run."

It basically means that rates may stay lower for longer as the Fed expect inflation to stay lower for longer, even after the one objective of the long term mandate had been met. Maximum employment is one of the parts of the dual mandate along with stronger economic growth, the other being price stability. So if one part of your mandate is met, but the economic growth part is not met yet, nor you expect it to reach the required levels any time soon, then it is appropriate to keep rates lower for longer. And of course that means people with cash on deposit are forced out of that investment and should explore something riskier.

Not always a good thing, people taking on more risk, because the Fed's job of course is to yank the punchbowl when the loud music starts to get louder. William McChesney Martin, Jr., have you heard of him? Well, he was actually the fellow who coined that phrase about the punchbowl, he was the 9th Chairman of the Board of Governors of the Federal Reserve. And in fact, he led the Fed for longer than Alan Greenspan. True story. The so called punch bowl speech took place in 1955, it went like this:

"The Federal Reserve, as one writer put it, after the recent increase in the discount rate, is in the position of the chaperone who has ordered the punch bowl removed just when the party was really warming up."

So it turns out, that even something written nearly 60 years ago is as apt as it is now, if you would like a permanent copy, you can actually download it in the archive from the St Louis Fed. Broader society and business as a collective needs oversight to prevent them from doing harm to themselves, rather than the purists who would rather have a boom and bust type cycle, to clear the greed and the air and allow the risk takers at the bottom of the cycle to benefit in the next cycle.

It is possibly the better for society to have people set the rates for us, even if it feels condescending. Not everyone has self control. If they did, then there are many businesses that would not exist at all. I for one am thrilled that we all have many choices and by function investment opportunities. To presume that someone like Janet Yellen does not know what they are doing, you would probably find those same folks tend to agree that the moon landings were done in NASA studios somewhere else too.

Anyhow, I am sure that the only thing that we should care about is whether or not the Fed, or any other central bank for that matter, read the cycle better than anyone else. And the answer to that is no, they sure as hell try hard and make predictions, but almost always, like anyone else making predictions, you are prone to big changes in conditions. All I know is that they are probably the best people for the job in almost every instance. So. Keep calm, carry on, stay invested and as Cullen Roche put it a couple of days ago, this remains the most disliked recovery for many. His words are of course stronger than mine: The Most Hated Economic Recovery Ever. It is almost always better to be in the market than out the market, aim squarely for quality.

The upshot of the Fed being more accommodative for longer, that is the interpretation, and as such the S&P 500 reached all time highs. The Dow Jones was close, but heck, you know that the NASDAQ all time high was reached on the 10th of March 2000, at 5048 points. Last evening the tech heavy index closed at 4362 points. Another 700 points or so from the highs. That is 5215 days ago. Which is a LONG, LONG time ago. If that feels like a long time, then you need to use the Japanese example. The S&P took 25 years to recover from the great depression drawdown, the Nikkei 225 (which is also calculated by using a News publication) is not even half of what it was back at the end of 1989. 38957.44 is the 29 December 1989 high. As of close of trade today? 15361.16 points. It is best not to complain.

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Woolworths have announced this morning that the David Jones board plan to give themselves and their shareholders a couple more weeks to decide, the meeting will now take place on the 14th of July. Why? Well, actually it is more about Australian regulators being sensible. "The Federal Court of Australia has granted this postponement to allow sufficient time for the David Jones Board to assess the implications of entities associated with Solomon Lew holding 9.89% of David Jones shares."

What I guess is important for you and I is that in the eyes of Woolworths, this does not change the fact that the David Jones Board are unanimously recommending the Woolworths bid to their shareholders. Because of course their is not a superior bid from any other party currently. So we might well see the same outcome, Michael did say that it gave Lew two more weeks to hoover up more David Jones shares, I agreed with that, but whether or not it makes sense for Lew, that is another story entirely.

Let us say that Woolworths walk away, David Jones would go back to 3.20 Aussie, a fall of 70 odd cents a share, and then Lew would be stuck with all those shares. Posturing with real money, egos and agendas, we just hope that Woolworths are sensible here, but I am pretty sure that they are. Wait and see, that is the best route, David Jones shareholders will vote accordingly.

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Michael's musings: Amazons new handheld shopping device, that makes phone calls too.

Yesterday Amazon released another product to their offering, the Fire smartphone. In terms of looks, it is similar to an iPhone with a slightly larger screen.

Why the move into the very competitive smartphone industry? The reason is because people are increasing their mobile spend by billions each year. The Wall Street Journal says it well, " U.S. retail spending on mobile devices is expected to reach $57.8 billion in 2014, representing 19% of total e-commerce sales, according to eMarketer. That is more than double the dollar figure spent in 2012. By 2018, eMarketer sees mobile commerce rising to $132.7 billion or 27% of e-commerce sales."

The way that Amazon plans to get people onto their site and spending is through software called, Firefly. Firefly is some awesome looking software, using the phones camera and sensors the phone can recognise merchandise, music or television shows. Once the phone recognises the item you are then taken to the Amazon store where you have the option to purchase the item with a simple tap on your screen. The result will be that you can walk around a shopping mall, see an item, scan it and then see if it is cheaper to get it on Amazon. The odds are that Amazon will be cheaper than your brick and mortar store.

A further feature of Firefly is that the user can point the phone at a painting for example and get all the facts about the artist and painting. This type of information at our figure tips is the future, not only for the retail sector. So from that point of view the phone is great.

My biggest problem with the phone is that Amazon do not have the best track record when it comes to hardware. Their standard Kindle is great, but their tablet less so. The bigger problem for me though is that the phone does not have access to a large app store. The Fire will be running a form of Google's Android, but you will not have access to the play store.

Apps (Google Maps, Facebook, Running Apps, Games) are the reason that you buy the phone that you do. The Amazon "ecosystem" is very small, so as an App developer you have very little incentive to create an Amazon app over and above the iOs and Android app already created.

Some cool features of the phone is that it comes with unlimited photo storage on the Amazon cloud servers, it has a 3D looking display and it is $100 cheaper than the iPhone on a comparable two year deal through AT&T.

The goal of the phone is to guide more people to the Amazon store which is where the money will be made. This means that not very many phones will have to be sold for smartphone addition to the family to be a success. Exactly how many phones need to be sold is not clear, Amazon are not very forth coming with numbers.

Going forward the Amazon ecosystem is going to be central to their plans to get people spending online. It still has a long way to go to get anywhere near the ecosystems built by Apple and Google, but they are heading in the right direction. Amazon is still a stock that I like and as people move to online retail, Amazon will continue to grow.

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Home again, home again, jiggety-jog. Markets are racing away this morning, the Jozi all share has touched new highs. For those who sold in May and went away, good luck with coming up with a new rhyme for July. Time to buy, it is July. Pity that all the zigging and zagging and the angst about the highs left many feeling like that. I should not be so smug, there are always geo political hot spots that can cause anxiety. But for all of those, the enduring qualities of the businesses still remain and if anything get better as time goes on.

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Sasha Naryshkine, Byron Lotter and Michael Treherne

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David Jones walking a fine plank

"So it seems that because of the relationship between Woolworths and the Solomon Lew fellow that David Jones is not a done deal and it could go down to the wire. Of course my knowledge of Australian corporate laws and takeover percentages is very sketchy, but as Paul pointed out, it is probably the same as here, coming from British law. As the article points out, Lew does not have the ammunition, he can put up a big fight, but unless he has another 15 percent of shareholders on his side to reach the three quarters majority to give the blessing to the deal, he might find himself with a marginal score, because he quite possibly bought these shares just below the Woolworths bid for David Jones."

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To market, to market to buy a fat pig. Mr. Market locally managed to end in the green, having been in catch up mode for the day, having missed work with a public holiday on Monday. Remember that the term public holiday means that the law makers put that day there because the law makers thought that it was important. In this instance, Youth Day, the commemoration of an event on that day back in 1976, that is important in our history. Ironically celebrated as youth unemployment continues to be the stinky corner of the topic board, not only here, but in many places around the world. I heard that fellow that everyones loves, because he speaks a lot of sense, Professor Jonathan Jansen suggest that young adults are always optimistic and always full of energy.

I guess that is why you know everything when you are twenty and realise ten years later at thirty how wrong you were. But as one person once put it to me, in this industry, financial services, you need newer and younger people to replace the old cynics from time to time. I guess the same could be said for any industry really. So young people for the future. The irony is that people want to hire others with experience, but if you are young, you have none to speak of. I guess the moral of the story is to make sure that you get your young people working as soon as possible, part time work in order to at least have some experience, any experience is better than none.

Confidence is something that you "have", it is conditioned from an early age I guess. Parenting, sigh, that is another chapter altogether in life! A tough one at that, everyone likes to believe their children are far superior to others. Milton Friedman said something along the lines that he could never quite figure out, on human behaviour, that people were selfish but yet for their children, they would sacrifice everything. Makes sense, you want your child to be the best and are willing to give them your all. I guess what is important in that equation is making sure that you remember that you too were once as tiny as that baby on that new doting parents shoulder.

Enough! I know nothing about behavioural economics! All I want to add to that is that having won the Ovarian lottery (a term coined by Warren Buffett), Patri Friedman, the grandson of Milton, went on to "cash in" at the World Series of Poker no less than four times. Not too sure what that means exactly, but it sounds like something that you might have to be smart to be able to do.

US equity markets were marginally higher overnight, the main event on the gunslingers calendar this week is the Fed meeting and the conclusion with the statement. Fedspeak is the science of being able to unpick the FOMC statement and determine by that what will happen next with interest rates, or what the health of the economy is, in the committee's minds anyhow. There are of course the projections for the US economy too, this is an important event and traders no doubt have been cursed with a lack of liquidity and volatility, I am pretty sure that camp is hoping for something fresh. Guidance on when rates will rise, the prediction market is suggesting this time next year.

Further winding in of the bond purchase program too, that no doubt will signal that the Fed are more than halfway to reducing that program to zero. Of course the Fed still has all those assets on their balance sheet. Before the financial crisis (the last one and not the next one being cooked up), the Fed's balance sheet was less than one trillion Dollars. Currently that is approaching 4.5 trillion Dollars. Well, as of June the 11th it was 4.340904 trillion Dollars. Most of that is made of Treasuries and Mortgage Backed Securities, quite long dated in nature so I am guessing that there is absolutely no hurry to unwind them. If anything, the Fed could actually hold all these assets to maturity, but I doubt that would happen.

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On the local front we had the Woolworths shareholders suggesting that the South African shareholder base had given the board and company the necessary authority to proceed with the David Jones acquisition down under. Overwhelmingly, although not all resolutions, number 4 only got 97 percent, whereas the other resolutions gained in excess of 99 percent of the votes. I tried to look on the Woolies website under investor relations for the specific circular, but alas, it was not there to be found.

So what next? Well, Woolies now has to see the other folks, the David Jones shareholders are going to vote on the matter. As per the original times and dates in the initial SENS, this happens on the 30th of this month, in just under a fortnight. And because the time difference between Australia and here, we should know before market opens here in two Mondays time.

The purchase price is still, as it stands in Rand terms, a sizeable 21.5 billion. The funding thereof I guess will only be announced post a successful David Jones shareholder vote. But is it as easy as that? No, according to the Sydney Morning Herald (my favourite acronym - SMH), a fellow by the name of Solomon Lew (who as the article points out owns 11.8 percent of Country Road) has acquired 10 percent of David Jones in his personal capacity. Huh? Check it out -> David Jones a hostage in 17-year Country Road war.

So it seems that because of the relationship between Woolworths and the Solomon Lew fellow that David Jones is not a done deal and it could go down to the wire. Of course my knowledge of Australian corporate laws and takeover percentages is very sketchy, but as Paul pointed out, it is probably the same as here, coming from British law. As the article points out, Lew does not have the ammunition, he can put up a big fight, but unless he has another 15 percent of shareholders on his side to reach the three quarters majority to give the blessing to the deal, he might find himself with a marginal score, because he quite possibly bought these shares just below the Woolworths bid for David Jones.

I am not sure, all you need to know is that the deal is not a deal until the money is in the till, that is what a fabulous old client once told us! The sad part is that he is no longer with us, but the saying lives on!

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Home again, home again, jiggety-jog. Markets are flat. All eyes not on Will.I.Am and his friend, but rather on the Fed this evening, tune in if that is your thing. State of the Nation? Well, the cynic in me said that you must read the five year ago SONA and see if anything of that has been achieved. Luckily for politicians, "things" have to go seriously wrong in order for people to change their minds.

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Sasha Naryshkine, Byron Lotter and Michael Treherne

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Sasol sizzles

"I guess as a Sasol shareholder you have to be cognisant of the lack of recent volatility and as such the reliability of earnings increasing has been largely the Rand and NOT the oil price. It takes time to shunt volumes higher, loads of time. I guess the difference with Sasol is right now you are in a wait and see whilst we ramp up and de-risk the business geographically. And what I mean by that is the plant in the US, at Lake Charles in Louisiana, is a monster change in the makeup of Sasol as we know it. As a company with a serious US presence a rerating could and should come."

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To market, to market to buy a fat pig. It is always interesting to reflect on the crazy history that we have in our beautiful land and the thanks I guess that we should give for relative stability around. Standard & Poor's ratings agency however were having none of that Friday, caring less for the history and rather more about your future and ability to meet those obligations into the future. The ratings agency downgraded our credit profile, and by our, I mean South Africa. There are both short and long term profiles, there is both domestically funded and internationally funded profiles that the ratings agencies give an opinion on.

Reason cited for the credit downgrade at lower growth, higher relative current account deficits and rising government debt, as well as rising costs of external funding and the fickleness of those flows. Standard & Poor's expects more of the same from the existing government in terms of economic policy, no radical changes and more of the same. Which translates to slow growth, not quick enough sadly. The only worrying part I guess is that South Africa now, according to Standard & Poor's, issues government back debt that is at the bottom end of the scale of lower medium grade. A single notch above non-investment grade and speculative in nature.

That is at the core of the ratings teams and their decision on South Africa, although I do find it pretty laughable that if you were going to invest YOUR clients or pensions money, you would ask someone else that had no vested interest before making or taking a decision. That seems to me like asking someone who is not going to eat your dinner whether or not they would prefer fusilli or penne.

They are not even invited and they are not going to eat it, so why ask whether or not which one is better or tastier with a specific dish? I clearly understand that independent research is required when making complicated investment decisions and that is why the ratings agencies make valuable contributions when selling their research and advice onwards to investors, but clearly if you are at size and scale you should do your own thorough research? We do live in a complicated world and as such independent reports, where an enormous amount of work has gone into looking at all permutations hold weight, but do your own homework when making an investment decision.

As many pointed out post the financial crisis, the ratings agencies had made money, like everyone in the feeding chain, on giving the incorrect ratings at the time to specific wraps or products sold onwards to risk averse investors. A ratings turned into D's, in other words something that was supposedly completely safe and very investable was suddenly in default. I suspect that the ratings agencies and corresponding financial systems were all burnt in the same manner and we have gone from a time when everyone was gung-ho to a much more cautious and measured world. That is a personal held view, which is why the banking and financial regulations landscape is far different than before, the same applies to the ratings agencies.

But, it is all very well blaming X or Y for your problems, it is much easier to do that than to have to introspect. The Reserve Bank governor Gill Marcus made it clear that many of the problems that the local economy experiences are self inflicted. The ruling party bizarrely blames the government, for many, including insiders, it is one and the same. Again, these heated debates about the economy and the direction thereof are "robust" in part, but solutions for now are few. Capital will follow the opportunities, there is a single objective, to grow.

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Talking about capital and objectives, the Russian gas company, Gazprom, has turned off the taps to the Ukraine, the country owes around 4.5 billion Dollars to the company. This is not the first time, as the FT article titled Russia cuts off gas supplies to Ukraine points out, this is the third time in eight years. First question, the end users are the Ukrainian people, is that right? Second question, why is such a large debt allowed to a foreign country? Is it a matter of living on the so called edge, the Ukrainian politicians were looting the state coffers instead of paying for the gas?

Luckily it is not mid winter and is rather close to the warmest time of the year in the Ukraine, a positively balmy 22 degrees maximum predicted for Kiev, the capital, today. Johannesburg? As cold as it feels and felt this morning, the maximum is going to be a chilly 18 degrees. To put it into context the average high for all 12 months around these parts is 21.9 degrees, the daily mean is 15.9 degrees and the average low is 10.1 degrees, which in Celsius is very agreeable. Let us just say that in Kiev, there is an even chance of snow being on the ground for three and a half months a year. It gets cold.

But this is all part of the bigger picture of ongoing conflict between Russia and the Ukraine. Where it is going to end is anyones guess, I suspect that both countries believe that there has to be peace, conflict is good for nobody in the long run. I believe that you also have to pay for what you use, nothing in life is for free. The beach, the sunsets and the sky I suppose are for free, if only because governments have not figured out a way to tax those yet. Perhaps the long lasting impact will be that the Ukraine will push for further reform and ironically make huge progress on renewable energies as a result of necessity. Humans are after all reactionary. Equally, do not try and understand the history and the conflict in the region, you will pull all of your hair out. And you need that. Just understand that it is there.

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Also there and forcing the oil price higher and higher are the conflicts in Northern Iraq. The only real benefactor of this on the local market Friday was a massive move northwards from Sasol, up 4.3 percent on the day. This is all attributable to the weaker Rand and the stronger oil price. Michael wrote about this impact last year, in a piece titled The Sasol Hedge fund, this paragraph is important:

"According to the (annual) report, for every $1 increase in the price of a barrel of oil, Sasol's operating profit will increase by $67 million. When it comes to the exchange rate, for every 10c that the rand weakens, their operating profit increases by R 939 million under the assumption of $108 a barrel, and at the exchange rate of R 9.05."

Of course the Rand is far weaker now than in September of last year and equally the Oil price is stronger. That translates to significantly higher than anticipated profits for Sasol, we are currently in the last month of their financial year end. In their interim results, Sasol suggested in the CFO's presentation (acting CFO at the time, Paul Victor): "We estimate that a 10c change in the annual average rand/US dollar exchange rate and a $1 change in the crude oil price will affect our profit from global operations by approximately R936 million and R702 million, respectively."

Yowsers. So a four or so Dollar move in the oil price makes a considerable difference in terms of the annual profits, but of course these are all very short term moves. I read an article over the weekend that suggested in terms of the lack of volatility in the oil price, this was the best period (from a planning point of view) since the seventies, when long hair and Bjorn Borg was all the rage. And early technology was being built on back then. And Sasol listed at the end of that decade. TV became a big form of entertainment back then too, not that it was not, but more and more so.

I guess as a Sasol shareholder you have to be cognisant of the lack of recent volatility and as such the reliability of earnings increasing has been largely the Rand and NOT the oil price. It takes time to shunt volumes higher, loads of time. I guess the difference with Sasol is right now you are in a wait and see whilst we ramp up and de-risk the business geographically. And what I mean by that is the plant in the US, at Lake Charles in Louisiana, is a monster change in the makeup of Sasol as we know it. As a company with a serious US presence a rerating could and should come.

In terms of the timelines of that, if you needed a reminder, we should know on the final investment decision in the ethane cracker by the end of this year (perhaps in the final results) and the GTL plant investment inside of the next 30 months, i.e. by the end of 2016. In the meantime, do not get anxious "things" are moving fast, as per the interim report, David Constable had this to say: "In Louisiana, we have successfully commissioned our first-of-a-kind 100 000 ton per year ethylene tetramerisation unit for the production of co-monomers. We expect the plant to be fully operational by the end of this financial year."

NOW you are wishing that you had paid attention during those chemistry lessons. The announcement to build this plant came in December of 2010, it has been a long time coming. As per the original announcement, Sasol to build world's first ethylene tetramerisation unit, Sasol have dumbed down (luckily for me) what the end product is going to be used for. See here: "The products impart special characteristics of elasticity and strength in plastic used in consumer products such as food packaging, bags, toys, automotive interiors, power cable coatings and more." Stretchy plastics!

I suppose the conclusion to this piece is much the same as before, the business is changing and will continue to be in a wait and see phase for the better part of half a decade. Execution risk is a reality, but the company has done this before many times. As ever, in a fluid environment it can all change quickly. We continue to hold the stock, the dividend underpin is still impressive, even at these elevated levels. The stock touched 650 Rand this morning.

Interestingly the all time price for the Sasol ADR (the Dollar reflection of the Rand price, tradable in New York) is 65.94 Dollars set on May 16 of 2008. 6 years later and due to the weaker Rand we are at an all time Rand high, but yet the price is 59.58 Dollars in New York, as per the last close. If the Sasol ADR price was at the high, at the current exchange rate of 10.75 Rand to the US Dollar, the share price would be above 700 Rand a share. But of course the bulk of the volume and value takes place from here, in Jozi!

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Home again, home again, jiggety-jog. Markets are a little higher here in Joburg, markets in Europe are higher and US futures are higher. Spain and Portugal, oh dear, beer drinkers in Northern Europe 9 and Iberia a solitary one, where the life is more relaxed and full of cured meats and red wine. Sadly not today for those folks in Southern Europe, it is a long way back. Byron is gone for a couple of weeks, visiting some of the countries directly to the North of us here, it should be warmer, a good time to escape. Perhaps the best news is that we are a mere four/five days away from the mid point (from a sunrise/sunset) point of view through winter. Good thing.

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Sasha Naryshkine, Byron Lotter and Michael Treherne

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Fitch, flinching and Triskaidekaphobia

"I suppose that with the strike coming to an end (hopefully) and with a credit rating scare, this could force quicker action from the powers that be. As ever, one should not place too much hope on the powers that be. Talking about hope, do not stress if you suffer from fear of Friday the 13th. If you get that, then watch out for next year, three Fridays on the 13th. But what makes today special is that there is a full moon too, that doesn't happen until 2049."

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To market, to market to buy a fat pig. There is not much company news around, which is always the worst part of the market for me, the lull. This is when there is scratching around looking for reasons why the market is either up or down. If the market closed for a whole day and there was no trade the headline could stupidly read, "market flat as trade cancelled." That is a reason why it is flat, not so? But I guess rising oil prices in the spotlight are reason for concern. And why are oil prices rising? Well, it turns out that a militant group, a splinter of al-Qaeda in Northern Iraq are making progress on their way to Baghdad.

And how does that impact oil markets? Well, although four-fifths of Iraq production are in the Southern part of the country, the town of Mosul, Tikrit and refining capabilities are in the northern part. I will never be able to understand how people can't just live alongside one another, but that seems like Utopia. Unobtainable when everyone has an agenda that is millennia old. I shall choose the line to stay completely away from religion, that is where I draw the other proverbial line. All you need to know is that oil prices are rising because it looks like some supply is definitely going to be off line for some time.

Brent crude oil hits a 9 month high this morning, closing in on 114 Dollars a barrel. Ironically OPEC met this week, see the statement -> OPEC 165th Meeting concludes, in which as a collective the oil producers decided to keep supply at 30 million barrels per day. And the next OPEC meeting is in November, I think. So all this means that you and I in time, because of the risk associated with the production areas of oil, will have to pay more for fuel. And the knock on impact of higher food prices as a result, someone needs to transport the stuff around, not so? And because the Rand is weaker, against the Dollar, in which commodities are priced in, there is another whole lot of pressure there.

I guess the only good news is that an agreement will be forthcoming in the platinum belt soon, staying on the subject of commodities. There is fresh news added to the platinum miners offer to employees, the subsequent meeting last evening (in which the workers chanted for Joseph Mathunjwa to sign), with the same said AMCU leader saying that a Wage deal was "imminent".

Now the only bad news (other than the strike being nearly 22 weeks) is that the union said the deal will be null and void if there were job losses. I honestly think that a modest wage reduction at an executive level, of somewhere around 5 percent. Although ironically with executives NOT taking a wage increase it amounts to the same thing, inflation eating at income. I still maintain that is a non issue. It really is. We can use Amplats as an example.

You will recall my message a few weeks back titled AMCU, corporate pay and skills which laid bare all the wages earned by the executives and the whole workforce. See that the total remuneration for executive directors and prescribed officers was 100 million Rand last year. Pay the bosses five percent less and it is 5 million Rand. The total wage bill, for 46,139 employees and 14,528 contractors, 60,667 souls in total (I am pasting and copying from my own stuff, that is fine) is 15.6 billion Rand.

Increasing the overall Amplats wage bill by 1 percent overall is 156 million Rand. A five percent increase is nearly 790 million Rand. Or nearly 8 upper management additions, the entire lot. So it does not really matter if you increase the base of the overall, or deal with management issues around remuneration. I think Chris Griffith tried to convey that. Anyhows, the knock on impact is that eventually motor vehicle manufacturers will have to pass on the price of motor vehicles to consumers.

All the while, I read "stuff" on how folks are working hard to find an alternative to fuel cells as they exist currently, with expensive autocatalytic being exactly that, too expensive. Check it out: Non-Precious Metal catalysts outperforming Pt-based one by UNIST Research Team. The consumer will decide in the end which is the cheapest autocatalytic convertor, and if it is a world without platinum in autocatalytic convertors (something else a whole lot cheaper), then the demand side will be impacted seriously:

Where did I get this image? From a presentation given by a platinum business that operates here in South Africa, but is Canadian. Called Platinum Group Metals, you can access their presentation (download), which cites Johnson Matthey as the source. Now in recent years we can see that Chinese jewellery demand has outstripped European autocatalyst demand. The other graph on the same page, page 7:

So Chinese demand is huge, jewellery that is. And that should hopefully, for the producers, become more profitable so that they can meet this demand, and make sure that the demand does not turn to gold, because supply cannot meet demand. The next piece is just as interesting and although it does not mention platinum, specifically, it is key for longer term demand.

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What is Elon Musk doing? Would you do that? I am talking about his business, Tesla Motors, and what was released on his blog yesterday: All Our Patent Are Belong To You. Huh? Quite simple:

"Yesterday, there was a wall of Tesla patents in the lobby of our Palo Alto headquarters. That is no longer the case. They have been removed, in the spirit of the open source movement, for the advancement of electric vehicle technology.



Tesla Motors was created to accelerate the advent of sustainable transport. If we clear a path to the creation of compelling electric vehicles, but then lay intellectual property landmines behind us to inhibit others, we are acting in a manner contrary to that goal. Tesla will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology."

I think that this is clever. Why? Because if Tesla release their patented technology to the folks that produce huge numbers of vehicles and have massive production facilities that will provide run of the mill motor vehicles (the ones we like to drive in this office) then where does that leave Tesla? As a luxury goods manufacturer in the industry. BMW have great margins, relative to their peers. Ironically Hyundai have very good margins too.

But Toyota, General Motors and Volkswagen (better than the first two) have much lower margins. But this is where I think it will be awesome for Tesla. Tesla will be the winners in the luxury market, where the most profitable parts of the automobile market are. And the more people who drive "ordinary" motor vehicles with battery capabilities, the bigger the pool is for the luxury market eventually.

And of course, I do genuinely believe that Musk has the planet and the collectives best interests at heart too, he confirms in the blog that Tesla will benefit.

"We believe that Tesla, other companies making electric cars, and the world would all benefit from a common, rapidly-evolving technology platform."

I agree. More motor vehicles that are electric means that Elon Musk did what he wanted to do. Wiki says that he works 100 hours a week. Yowsers. That means 7 days a week for 14 hours and 15 minutes, more or less. Wow. It must be hard for the family around him, five sons live with their step mom as far as I understand it. And to get home and back must take some time too, eating in-between and time for a shower too. He last had a long bath in ...... well, never. In the long run this is good news for Tesla shareholders, but not necessarily a positive immediately. The share price hardly budged.

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Home again, home again, jiggety-jog. Brazil won, not without a fight and not without controversy, I cannot believe that I cared so much to have a debate with Byron around that penalty. Can you believe it, what should I care! One likes to see the host country do well however, I wish we had qualified this time around. It certainly brings a different dynamic to the tournament. Ah well, here is hoping for next time. About that opening ceremony, I would have definitely had Michel Telo singing Ai Se Eu Te Pego.

Back to markets, Fitch placed South Africa on negative watch, but did not downgrade our credit rating. Our outlook, GDP outlook that is, has been downgraded. Our GDP per capita is forecast to fall by ten percent from 2011 to 2015. Government debt as a percentage of GDP is expected to rise to nearly 50 percent.

National Treasury issued a response: "Government is alive to the growth challenges South Africa faces. It has therefore, prioritised the accelerated implementation of the National Development Plan, with reforms that are aimed at unlocking South Africa's growth potential. Government will redouble its efforts to improve the regulatory environment, reduce the skills shortage and accelerate its infrastructure investment programme so as to reduce the bottlenecks constraining growth."

I suppose that with the strike coming to an end (hopefully) and with a credit rating scare, this could force quicker action from the powers that be. As ever, one should not place too much hope on the powers that be. Talking about hope, do not stress if you suffer from fear of Friday the 13th. If you get that, then watch out for next year, three Fridays on the 13th. But what makes today special is that there is a full moon too, that doesn't happen until 2049.

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Sasha Naryshkine, Byron Lotter and Michael Treherne

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