Slasher's coffee beans

Jozi, Jozi. It was good slash bad. Good that the governor made the cost of money cheaper by a 100 basis points, the repurchase rate is currently 7.5 percent. Prime was reduced to 11 percent on the rate cut, still, not the cheapest place in the world to borrow money that is for sure. Judging from the tone of the speech of the Governor of the Reserve Bank, don’t expect any further cuts in a hurry as inflation remains sticky. Session end the Jozi all share had lost 206 points to 22315.

The Rand moved firmer through much of the day, looking to crack the 8 to the US Dollar mark, and this interestingly as the Dollar started to reverse the weaker trend to currencies. That is a complex world, currencies. I heard some fellow on the box say with an enormous amount of conviction is that his next stop on the Euro Dollar cross (I did not catch the time frame) is 1.47. Good.

Back to the Reserve Bank decision here, you can read the full statement from the Governor after the two day meeting of the MPC. PPI data released during the day yesterday showed the hugely volatile data plunging. These are prices at the factory gates, falling sharply. This bodes well for consumer inflation a little further down the line, although the consensus is that inflation should stay outside (the wrong side) the band for the foreseeable future.

The last couple of lines gives you a look into some economic speak: “The evidence which was presented to the Monetary Policy Committee suggests that the output gap has widened further. This is expected to contribute to an improved inflation outlook, notwithstanding some current inflation inertia”. Translate the last line as the inflation outlook could get better or worse.

Indian GDP for the first quarter came in showing 5.8 percent growth, beating the 5.2 percent forecast. Good? For sure, a beat of that magnitude is very encouraging, even if the read is lower than most of the decades growth. A Bloomberg story from half a day ago suggests that Chinese GDP forecasts have risen when measured versus a February forecast. 7.1 percent was the measure then, the new measure is 7.5 percent. Heck, two more decent month and at the end of July we might be at that 8 percent mark. Who wants to be an economist?

I really liked this interview, it is so very short. David Einhorn is a guy who shorted Lehman four months before the stock price went kaput, by revealing the short to the world, of course there is a little juice in it, don’t you think? But in a very short time he makes some good points, he is short Moody’s, destroyed brand, no longer credible, and various other reasons, including some stretched valuations. Check it out here.

Pimco, these are the guys who are the worlds largest bond fund, have been talking about a new normal, my favourite guy there is Mohamed El-Erian, even if his moustache gets in the way. I do an El-Erian skit pretty well, or at least I think so. Read what he has to say about the changing world, or at least in Pimco’s view, they have been bashing on this one for ages.

New York, New York. Equities staring at the bond markets and a seven year note auction by the treasury that went off without a hitch encouraged the guys on the other side of the fence. So, treasury got the notes away no problem and in fact the subscription went around the same as the others before it. So, even if there was a little anxiety short term, particularly this week. Session end on the Dow we saw 103 points to the good to 8403, the nerds of NASDAQ better by 20 to 1751, with the broader market S&P 500 up 13.77 to 906.

General Motors saw their bond holders accept an equity swap, but their bankruptcy is inevitable. The White House is looking at around a ninety days maximum ordered bankruptcy, or so the folks in the know say. Good, bad, indifferent, don’t and never owned the stock. GM about to exit the Dow and the S&P 500, replacements for the Dow include Google would you believe, some even suggested Toyota. The S&P 500 is a little more cut and dried, it looks like First Solar will make their way in.

Getting the bulls running again were some better than expected durable goods orders for April, even if the previous months data was revised lower. That only really has an impact if it is a sizeable revision, but don’t miss on the original number. Crazy.

Twitter. A strange new method of communication. It is almost like an open sms line, someone sends to those folks who want to read it. Or so that is what it seems to me. I signed up and have started tweeting, I think that is the word. If you are on the web a lot and are have a Twitter login, lookup sashanaryshkine. Now, about not being a twit.

The oil price is much higher at 65.44 Dollars per barrel. The copper price is much better at 2.16 Dollars per pound. The gold price also gaining momentum at 968 Dollars per fine ounce, the platinum price also much higher at 1162 Dollars per fine ounce. The Rand is strong, 7.97 to the US Dollar, 12.81 to the Pound Sterling and lastly 11.17 to the Euro.

We are poised for a stronger start here, following through from Wall Street last night and having trickled through to Asia and Europe. Excellent, that will be a good end to the week.

Best wishes

Sasha Naryshkine
sasha@vestact.com
011 447 8790

Jozi, Jozi. Who wants to be Tito Mboweni? Who wants to be part of the MPC? Folks might know who you are on the MPC, but there is at least a bit of anonymity. With the governor, he is the face of the MPC and the Reserve Bank and often all the decisions are placed on him. Session end and near the lows of the day the Jozi all share index closed at 22521, up a mere 80 points, it was looking much better at midday, 150 points better at that stage.

With the MPC releasing the results of their findings today one would guess that if there was anyone sitting on half a percent Tuesday, perhaps the ugly GDP numbers would push them to one percent. Still, inflation remains sticky, it is not coming down as fast as some might have hoped, higher energy and food prices are not helping matters.

Often folks have said in the local context that inflation targeting has crimped growth, but I think both are equally important, because of our high unemployment rate, there are many that inflation is felt by most by the poor. As the poor have no debt or savings, prices are more important. I think that in the South African context that is changing fast, there is a huge emerging middle class that ultimately will be responsible for job creation in the future. And this is where cheaper money makes a big difference.

Standard Bank releasing commentary from the chief Jacko Maree from the AGM that will be held today. Got that, Jacko is going to talk later in the day, the commentary released so that you don’t need to go if you don’t want to. The current operating environment is tough, very tough, with a third of the year past us, we get an idea of what the numbers are to April so far.

In Standard Banks case they can see that both personal and business banking headline earnings to be 18 percent lower, corporate and investment banking earnings much better, up 4 percent. A big increase in impairments is felt in both divisions. An extract from the speech tells you what you need to know for the rest of the year: “Given the trend established in the first four months, it is unlikely that last year’s normalised headline earnings per share will be achieved”.

Last year that number, normalised headline earnings grew 8 percent from 2007 to 14.15 billion Rands. If Standard Bank don’t expect to achieve that, the what is the right price for the stock right now? I would suspect that the markets would be expecting that this sort of result would be in the pipeline. As ever, matters could improve quite quickly. For the time being, matters are looking very ropey.

The big story overnight is the rising cost of debt in the US. As folks get a little more adventurous, they are starting to sell off US debt. At one stage you could just not get enough of this, running at US government debt, because it was the only thing that you could trust.

And talking things that you could trust, I saw that Goldman Sachs stock price was the for first time above the level of September 13. Why is that date important? Because the next trading day after that was when the fellows at Lehman Brothers had to go out of their normal line of business, the middle of September and that week specifically was the one week where we were staring at a credit ice age. That week. It must be the most dramatic in at least two decades.

Right, but back to that big story, the worry that is starting to emerge now is that with the surge in government bond yields could mean that corporate’s could find the going a little more tough with their own debt issuances. Hang on a second here, is there not a feeling that US and UK government debt is not the best quality anyhow?

But, there you go, the yields on the longer dated US debt surged last night, the 30 year bond is now yielding 4.651 percent, the ten year note 3.738 percent with the shorter five year note yielding 2.439 percent. Hardly anything to get awfully excited about, but at the end of December, 2008, when risk tolerances were about as low as you could get, the ten year note was yielding as low as 2.064 percent. You get the drift.

At the same time, and this is quite ironic, Jeff Immelt, the chief of General Electric, said hang on a second here, capital markets have improved dramatically. The worst is over he says and he is starting to see the green shoots that Bernanke called a number of weeks ago. So whilst the worry of higher yields remain on government issued debt and what that might mean for corporate debt issuances. I suspect that whilst folks still feel a little nervous, they will buy US debt. Because the yields might just be too juicy to ignore.

The president of the US has also seen his pay package made public, that is just the way that it goes, Bloomberg gave quite a nice breakdown. Free accommodation, security, entertainment, healthcare, travel (including limo), a personal chef. A salary of 400 thousand Dollars, plus an expense account of 50 thousand Dollars. For what is the expense account I wonder? His trip to the Bahamas and his stay at the Westin there? I doubt that.

There is talk of a super regulator being setup in the US, someone to regulate all the banks, rather than being regulated by the likes of FDIC, the Fed and Treasury, who all have separate roles to play. Good luck with that folks, too many regulators over time mostly came about because of a previous crisis.

New York, New York. Yech. With GM on the way out of the most famous index of them all (perhaps Citi can hit the streets too), plus the aforementioned rates rising spooking equity markets. And that I think was the catalyst for the sellers to make their move. Sell at the end of May and then buy back at the begging of June, at the risk of seeing your assets pruned. Silly sayings.

Session end the Dow closed down 173 points to 8300 points, the broader market S&P 500 lost 17 and a quarter points to 893 with the nerds of NASDAQ down 19 points to 1731. The aforementioned ten year yield surged 5.37 percent, yowsers. The Dollar actually gained momentum relative to the Euro.

The oil price is trading lower at 62.86 Dollars per barrel, the gold price is lower at 947 Dollars per fine ounce. The copper price is at 2.09 Dollars per pound. The platinum price is at 1127 Dollars per fine ounce. The currency is much stronger, I suspect in anticipation of a larger than expected cut in rates. Currently 8.17 to the US Dollar, 11.33 to the Euro and 13.02 to the Pound.

Asia well off the lows, in Hong Kong the market up over five percent. Aussie down 1.1 percent. US futures are flat. The fellows over in Europe are expected to sell off around one percent, I would think that we would open quite soft here.

Best Wishes

Sasha Naryshkine

sasha@vestact.com

011 447 8790

Jozi, Jozi. A horrible GDP number at the end of the morning was met at the same time with a sell off in Europe, so you could have been forgiven for thinking that we just sold off here based on reaction to those numbers. Later in the day, as matters were improving a little, we got a shot in the arm from consumer confidence numbers out of the US. Much better than anticipated. And would you believe that we ended the day in the green after wallowing for most of it in the red. Session end the Jozi all share index added 33 points to 22440.

OK, so those non growth numbers. Lets go, GDP for the first quarter showed a contraction of 6.4 percent quarter on quarter and remember that the quarter measured against was the one where the lights were out. Much worse than anticipated, the middle road suggested around three and a half percent contraction. I wonder why economists got it so wrong? Agriculture, which was starting to show some decent signs fell badly.

Construction still runs strong, just shy of double digit growth. These poor numbers suggest that the fellows over at the MPC probably have little choice, but to cut rates by 100 basis points tomorrow. And those who thought that perhaps we were done for the time being, again these numbers suggest that there might be some more at subsequent meetings. I guess the size of the cuts is an important matter. The new finance minister is set to brief folks on matters this afternoon.

MTN fell quite sharply yesterday, following a cracking day Monday. I guess some are running the numbers and there are a few question marks about both parties raising their debt levels higher than the comfort levels of current investors. I think that if the deal was to go ahead that Bharti, the secondary listing could be a compelling buy, in part because you get the India business full freight, plus you get almost half of MTN. We wait and see, still lots left in this deal, the exclusive period is a long time in this world.

Marius Kloppers has very different views to his peers over at Rio Tinto. Perhaps the fellows over at Rio Tinto are desperate because of their now excessive gearing. Kloppers said today (down under) that he saw a stabilization in prices but did not expect a sharp rebound in metals prices, BHP’s official view is that growth will be slow and protracted. The fellows at Rio thought there would be a V shaped recovery, saying this yesterday.

Kloppers added that resource companies with low levels of gearing that are well managed have a positive outlook. Of course he is referring to the company he manages and not that of Rio Tinto, which I suspect he feels does not have the best management and lets just say their dirty laundry on the excessive gearing has been aired for all to see.

New York, New York. The green shoots theory was just starting to be rubbished, people referring to weeds emerging from the rubble, others saying that the cold is here to stay. Some housing prices numbers in the form of the Case Shiller index seemed to back up that theory, the markets shrugged at the data as if to say, we know the housing markets are bad, and besides the data is from March. That is around 60 days ago, a lot happens in that time.

So, judging from the reaction to the blogs about the housing numbers, folks seem happy that the rate of the annual decline seems to be about the same, and the fact that house prices measured in the metro areas that matter suggest that the decline from the highs are 30 percent, hardly means there is anything to cheer about. And the same bloggers suggest that the move lower could be as much as 40 percent, so we are not out of the woods yet. Experience tells me that folks tend to overshoot on both sides and perhaps the data forward wont be as bearish.

What stoked markets in New York, and in a matter of minutes, was a much more cheerful consumer confidence number for the month of May, this is more recent. Folks obviously feeling that better equity markets and a stabilization of falling prices is something to feel cheerful about. Asset prices are looking better, therefore I am going to feel better about life. And feeling better about life has real implications for the economy.

General Motors on the brink of restructuring. I really do wonder how much of these headlines are having on consumers. Would you buy a product from a company that will be different in months? I guess you could argue that the company should emerge all the better for it. Don’t know the answer to that. Session end the Dow had managed to add 196 points to 8473, the nerds of NASDAQ added three and a half percent, 58 points to 1750 with the broader market S&P 500 up 23 points to 910.

The oil price had a heroic time in New York last night, and is still trading up at 62.47 Dollars per barrel. The copper price also had a great time of it, and currently is trading at 2.13 Dollars per pound. The gold price has been old off a little at 950 Dollars per fine ounce. The platinum price is lower at 1131 Dollars per fine ounce. The Rand is a little steadier again this morning at 8.26 to the US Dollar, 13.19 to the Pound Sterling and 11.54 to the Euro. One Rand is worth 5.76 Indian Rupees. And the Euro Dollar cross is 1.39.

US futures are slightly lower, Asia had a good time. As should we at the beginning of the day, some higher commodity prices, in particular the oil price.

Best Wishes

Sasha Naryshkine

sasha@vestact.com

011 447 8790

Jozi, Jozi. It was a day dominated by MTN, in India the Bharti news was equally important. With both London and New York closed, there were tumble weeds blowing gently between the bid offer spread, MTN managed 1.8 billion Rands of the 6 billion Rands traded for the whole day. Yowsers, that is a lot in a very thin day.

There was a lift in the day in the afternoon, but the closing auction was disappointing, lots of majors sold lower than where they were trading just before the closing auction. Session end the Jozi all share index had lost 18 points to 22407.

Right, MTN up 8 and a half percent at the end of the trading session, trading up in the last couple of hours of trade, after a big flurry in the morning. Bharti this morning down again, down four and a half percent to 775 Rupees per share. There are some valuation issues with Bharti, but around ten percent in two days south, tells you that investors over in India are not pleased.

There were comments yesterday about Bharti valuations being a bit stretched, I think at the start of trade, before the deal was announced, Bharti was trading on twenty times earnings. The price of Bharti is back to where it was over ten days ago, some juice in the run up to the deal, remember that post the elections the whole market in India took a real leap forward.

So, having sucked it all in, I think the general consensus is that both companies want to do the deal this time. Cynics are suggesting that it is a cash in option for some of the MTN execs, but last I checked, all parties were participating in the deal, it was not exclusively the execs. If management engineer such a deal, everyone should be so lucky.

I guess it comes down to what you are left with after the deal happens. OK, so of you have 100 MTN shares, the current offer will see you with 64 MTN shares which participate less in earnings, because of the 25 percent dilution. You will be paid 86 Rands per share for your 36 shares and you will get 18 Bharti shares at 776 Rupees per share. 1 Rand is 5.7 Rupees, convert that back and you have 136 Rands per Bharti share.

100 MTN’s currently equals 12,990 Rands. 64 MTN’s at that price is 8313.6 Rands. 86 Rands for 36 shares are 3096 Rands. 18 Bharti’s equal 2450 Rands. Add the three together and you get 13860 Rands for your 100 shares. 870 bucks, 8.7 bucks a share in it currently, to close the gap. Remember that you will get diluted with both sets of shares. For the time being the gap will remain whilst the deal is still thought through, by law makers and shareholders of both sides. Ebbing and flowing, the Bharti price has fallen back, the MTN price is better, the gap is closing.

What is up at Impala Platinum? Two days of spectacular moves. Perhaps a bit of Dollar worries and metal moves helping the stock out. Perhaps more people worried about emissions control, lots of noise over the last few weeks. Plus there is a global climate change conference in Copenhagen. Or perhaps there is a little more to it, and if so we will hear over the following days.

Rio Tinto could possibly have set the bar, with regards to iron ore contracted prices. In a deal done between Rio and Nippon Steel, the companies have agreed on a 33 percent lower price. Listen up, because this is fun, Pilbara and Yandicoogina fine ore will sell at 33 percent less than last year. And if you can say that right first time, you belong closer to the Pacific. Some could argue that this is a bad number, but 33 percent lower is probably in-between, the Chinese steel makers were pushing for 40 to 50 percent lower. It remains to be seen what the other majors, BHP and Vale will come up with.

A story in the mix of the headlines on Bloomberg this morning is reporting how Libor is just heading lower, but the spread between this rate and the actual real rate is wider. Bloomberg with just a headline now, put the headline as follows: Lowest Libor Hides ‘Exceptionally Wide’ Bank Spreads. Indicating that the banks are still fearful.

Markets closed in New York. So no Frank Sinatra last night belting out the tune. The oil price is trading lower ahead of the OPEC meeting in Vienna, currently at 60.75 Dollars per barrel. The gold price is slightly lower at 953 Dollars per fine ounce. The platinum price is lower at 1040 Dollars per fine ounce, as is the copper price, lower at 2.07 Dollars per pound. The Rand is steady to firmer at 8.29 to the US Dollar, 13.19 to the Pound Sterling and 11.60 to the Euro.

Europe called slightly lower, those crazy North Koreans have launched two more rockets moments ago. A mixed bag I think until the Americans give us some direction later in the day. At almost midday you can expect local GDP data for the first quarter. And remember that quarter was riddled with power outages, so if you say, oh, that is not so bad, remember what we are comparing it to.

Best Wishes

Sasha Naryshkine

sasha@vestact.com

011 447 8790

Jozi, Jozi. OK, so the UK and US are taking on enormous amounts of debt to kick start their economy? That we knew. We worried about it and now the ratings agencies might say OK, your ratings is going to change. So, these fellows are old enough to print their own money it was pointed out, there will always be at some level an appetite. Friday in Jozi was a good day for equity markets, the lunch time levels were where we ended the session, although it had threatened to fizzle in the mid afternoon.

Resource stocks ruled the roost, the broader sector up by three percent and a little more, the gold and platinum miners had a great time, the gold stocks outpacing the rest of the market. Harmony Gold up nine and a half percent, the biggest gain of the majors. Session end the Jozi all share had tacked on 409 points to 22425.

Anglo American was given the thumbs up into the buy stable by Goldman Sachs. Phew, the horse has bolted there guys. Or maybe not. And then perhaps the biggest story of the day, the one that is going to capture most of the imagination here in the local market. A small story for now, but it is going to snow ball.

A day after the IPL has finished, what a magnificent show, we speculated at the start that there might be positive implications for South African business, and today the wires suggest that Bharti Airtel, India’s largest mobile operator, could be looking for a 49 percent stake in MTN. And it starts getting very complicated so I suggest that you pay attention here.

As an MTN shareholder you will see the company that you own take around a 25 percent stake in Bharti Airtel. MTN will issue around 25 percent of existing share capital, plus shell out 2.9 billion US Dollars to Bharti. Bharti will then acquire 36 percent of currently issued shares in MTN, for 86 bucks a share plus half a newly issued Bharti share, a Global Depositary Receipt, or GDR. Each GDR will be equivalent to one Bharti share in India and will be listed here on the Johannesburg stock exchange.

Bharti takes a 49 percent stake in MTN, MTN takes a 25 percent stake in Bharti. Plus Bharti lists here and as a shareholder you get half a Bharti share plus 86 bucks for every MTN share. I guess it all goes to how much is half a Bharti share worth? Of course these things are never a done deal until the till rings and many will be trying to figure out what the right value is for MTN this morning as we open. Both groups are at pains to say that discussions are at an early stage. Err… judging from the ratios, someone has thought through this a bit longer.

Bharti trades at around 865 Rupees per share. Half of that (half a share) is around 430 Rupees, or 75 Rands a share. Using 5.68 Rupees to one Rand. 75 plus 86 is 161. But you are going to be diluted and the company you own is going to shell out 2.9 billion Dollars. But you get a 25 percent stake in Bharti Airtel. A company with a market cap of what looks like 288 billion Rands. MTN at the close on Friday had a market cap of 222 billion Rands.

The attraction of Bharti, very low gearing, the company has net debt of 1.367 billion Dollars at the last official count. Bharti has access to one of the most amazing markets on earth, India. And that is very attractive. For Bharti, MTN has access to Africa, the last frontier for investors.

And the most bizarre thing of it all. The headquarters are on Nelson Mandela Road, in a district of New Delhi. The combined entity would have sales in excess of 20 billion Dollars and have over 200 million subscribers. Again, don’t get too excited until we have something a little more concrete, but to me at face value the first take is that this is a lot more solid than when we came out the gates last time with the original talks with Bharti.

The main guy at Bharti Enterprises, Sunil Bharti Mittal, a self made man, who has a net worth in excess of 10 billion Dollars. His company has a JV with Wal-Mart in India. He does not have a connection to any IPL team that I can see, but I am sure that he supports the Delhi Daredevils, this is where he lives. If you want to know a little more about the guy, check out this old interview from the Times of India.

In amongst all of this was a release of half year numbers from African Bank Limited. Headline earnings up, but per share down, the dilution from the Ellerines transaction still filtering through. The dividend down too, still, a handsome payout of 85 cents per share for the interim period. Headline earnings per share at 116 cents per share.

The group does not expect matters to improve for the better part of the year, and I guess that means that earnings this year will be muted. The furniture division still bumbling along, the company has consolidated brands and done a lot of weeding with regards to cost saving. The main core business, sales up, yields down, bad debt charge better, costs slightly up, the cost of funding a lot higher. We will explore these results a little further of course.

New York, New York. A quiet session in New York ahead of the Memorial day weekend, that holiday today. Financials lower. Lower on account of no participation from buyers. The short selling ban has ended in Australia, it has been in place since September. Down under aside, some are starting to wonder whether the financials valuations are looking a bit stretched. And that is why the selling took place in that sector.

General Motors crashed as it emerged that bond holders did not want to convert to common stock. So what now? Well, it seems that the unions have made some concessions and that GM might not be forced into bankruptcy. Seeing is believing. Markets in New York and Chicago closed today as Americans observe a rare public holiday. Holiday in London today too. Oh deary me.

The oil price is trading at 61.4 Dollars per barrel, the fellows from OPEC meeting in Vienna. The gold price is 955.4 Dollars per fine ounce, the platinum price at 1152 Dollars per fine ounce, both precious metals lower. The copper price is trading higher at 2.10 Dollars per pound. The Rand is firmer at 8.30 to the US Dollar, 13.19 to the Pound Sterling and 11.62 to the Euro. The Dollar at 1.40 to the Euro, starting to lose some ground.

We should start better here today, we have very little to benchmark ourselves against though. UK and US closed, many major stocks listed in that environment. Asia better, notwithstanding the North Koreans trumpeting their nuclear capabilities. Now, about feeding your own people. Data out locally this week, GDP numbers and an MPC decision. No word yet of the bank chiefs versus the governor.

Best Wishes

Sasha Naryshkine

sasha@vestact.com

011 447 8790

Jozi, Jozi. Most of yesterdays hand wringing was about the credit rating of the United Kingdom being placed on negative ratings watch by Standard & Poor’s and perhaps at risk of losing their AAA credit rating. There is a turn up for the books, where has S&P been? And are these the same guys who rated wooden house owners in the deep south of the US a collective triple A? Sis, not quite that bad, but you get my drift, these guys were instrumental in the great credit crisis of 2008.

That set a pack of cats amongst a flock of stationary pigeons in Trafalgar square, it is going to take more than this website to save them.

Session end we were happy to get away from the screens bathed in red, virtually every listed sector was deep in the red pool, swimming with the hippos. We know that is not fun, once as kids we swam in the one of the tributaries of the Zambezi. Silly. Stupid. Session end and looking equally stupid the Jozi all share had sunk nearly three percent down to 22015, down 658 points.

OK, so what are the real implications of the UK losing their triple A credit rating? And will all the credit rating companies act in unison with each other and downgrade in one big go. I suspect the likes of Fitch and Moody’s will put equally bearish notes out on the UK’s debt concerns. Because the real concern is that debt levels reach 100 percent of GDP. Again everyone knows where that ends up, it gets ugly. That is a big Teletubbies Uh-oh! UK not OK.

This spread across to pundits in the US who started to worry that perhaps they would fall into the same category soon as the fellows across the Atlantic ocean. A trip that used to take three and a half hours with old technology, but now takes seven and a half hours with new more fuel efficient one. And costs a fraction, amazing that we can get slower and be more efficient.

So, the US worrying about their own credit rating, really GE and Berkshire have lost their triple A, why should these two countries be any different after the current chill. Pimco’s Bill Gross, oh he with high pitched voice and co-founder of the worlds biggest bond company, Pimco, reckons that eventually the US will lose their triple A rating. Much anxiety leading up to that event no doubt, just like it was the credit default swaps of GE and when Berkshire lost theirs too. If you really want to drill down into the nitty-gritty of it all, check out this middle of March BusinessWeek story about those companies left with three A’s.

The cost of borrowing money would increase for these governments. And with all the borrowing going on now to boost economies that are in desperate need of a kick start, it might just be a very bad time. Talking about that Stephen Koseff, the chief of Investec put it very well on Bruce Whitfield’s show on 702 the world at 6 last night. He compared the credit freeze to a heart attack and suggested that the rehabilitation period and returning back to something resembling normal take a while. Well put.

Investec results I guess inline with the market consensus view, it is always bad luck to put your results out on a day when the broader market is under pressure, but it happens all the time. Banks as a whole down nearly three percent inline with the market, Investec PLC down 3.7 percent. A 31 percent decline in headline earnings, with a 46 percent decline in the dividend payment is hardly pleasing, but in the UK context the bank is well capitalised and has weathered the storm. Again, another analogy that Koseff used, the storm has passed.

Erin Burnett, one of the CNBC New York based anchors has done a whirlwind tour through the continent, visiting the places that I guess her producers thought were most important to portray to the viewership back home. So, she was reporting from the biggest city in Africa, Lagos. Home to around twenty million folks, so roughly 40 percent of the population of South Africa.

But she was down here, and interviewed Jacko Maree, the chief of Standard Bank, the continents biggest bank. Down here in Jozi, I could not quite figure out where it was (if you know, please let me know), here is the clip of Jacko being interviewed by Burnett. Jacko Maree seems to roll off the tongue quite nicely with that American accent. The intro ad is a bit ominous, but hey, they need to pay for the clip, have a look here.

Some interesting views here from Jacko. Hey, he drives himself to work. If you spot Jacko in the traffic take a picture. Watched the video and it seems like it is downtown, with the new (not so new) parking built just next to the highway. Sometimes it is quite interesting to see what other people think of the place that you live in.

New York, New York. Not bad considering that the markets opened poorly and then just hung around at those levels for most of the day. I guess what I am saying is that the selling did not accelerate, even if VIX, the volatility index spiked by around seven percent. VIX is down around 70 percent since the poor (poor slash rich) employees of Lehman carried their cardboard boxes with their possessions out of 745 Seventh Avenue, New York. A building that Lehman bought for 700 million Dollars, after nine eleven. That is a whole book for another day.

And talking books, I was doing a search for the new book out documenting the last 72 hours of Lehman and came across a blog note in the New York Times.

Again, wow, I remember the rumours going on at that time, and the quote from the blog edited by a very good financial journalist, one of the best I have seen (he does some TV time at CNBC), is from a fellow called Jon Najarian. An options trader, with a different hairstyle, a short ponytail with a shiny top. Jon is good, from what I have seen and back then the options suggested Lehman had gone already. They were toast. And right.

Back to yesterday and the agonising over the ratings agencies, whom we still seem to take very seriously, the economic news picture was mixed. And when it is mixed, and the mood is iffy, the sellers trump the buyers. This is what happened here of course. Session end the Dow Jones Industrial Average closed 129 points down to 8292, the nerds of NASDAQ lower by 32 points to 1695 with the broader market lower by 15 points to 888.

The copper price is 2.05 Dollars per pound. The gold price has reached 950 Dollars per fine ounce, the Dollar under some real pressure and this benefits the gold buyers. The NYMEX read on crude oil is higher at 61.45 Dollars per barrel. The platinum price is steady at 1148 Dollars per fine ounce. The Rand is firmer at 8.32 to the US Dollar, 13.21 to the Pound Sterling and 11.59 to the Euro.

European futures looking slightly better and look to open firmer. US futures are flat, whilst Asia, although not great, closed off their worst. We should start better here too.

Best Wishes

Sasha Naryshkine

sasha@vestact.com

011 447 8790

Jozi, Jozi. Another magic day for the bulls, the bears must be getting tired of saying, oh well, this is a bear market rally. I read in a note from a stockbroker that the reason behind that is possibly that there is so much money sitting on the sidelines and that so many proactive money managers (the guys who try and time the markets both ways) are so wrong, the wish is for it to be so. A bear market rally that is, because if all the folks saying that are wrong, and you can be sure that they are talking their own book, they are in with some serious problems.

Thumbs up for South Africa yesterday, a Dollar bond issuance from the Treasury was oversubscribed six fold. Treasury obliged by bumping their issuance up from the original 1 billion to 1.5 billion Dollars. You know what astonishes me, is the size and scale of some big companies, Microsoft issued 3.5 billion Dollars worth of corporate bonds and it was a big story in business headlines, but not such a big one. This news is capturing imagination of the local media, I think in part the relief that the ZA inc brand remains strong after the elections.

The rally on the local equities front was largely driven by the guys who own the monster trucks, the resource companies. Gold stocks flew. MTN also had a bumper day, I think that this stock really is a proxy for ourselves, South Africa as an emerging market play. Session end the Jozi all share index closed at 22674, up 275 points on the day, one and a quarter percent. For the year, five and a half percent.

What is the sudden return of the debate about the interest rate differential between the South African Reserve Bank repurchase rate and the prime rate offered by banks. I think that the point that the governor Tito Mboweni is trying to make is that the percentage between prime and Repo increases dramatically as rates are lowered by the reserve bank.

Currently Repo is 8.5, prime is 12 percent. OK, at its worst in recent times mid 2008, the Repo rate was 12 percent and prime topped out at 15.5 percent. The cost of borrowing by the banks from the reserve bank has gotten cheaper to the tune of around 30 percent. The differential that Mboweni is pointing out here is that the 350 basis points between Repo and prime has not reduced.

At the top of the cycle the difference of 350 basis points (the difference between prime and Repo) to prime was 22.5 percent. Now it is a little closer to 29.1 percent. You get his point in a long convoluted explanation. So whilst the consumer is able to meet obligations at a higher rate, the margins of banks are less, as rates drop and that becomes even easier, the banks margins increase. The banks will argue that this is the risk that they take in lending to a certain customer, they will decide what rate they get relative to prime.

I am interested in this angle from the governor, it has been tried before, around two years ago, if I remember right. And met with fierce resistance from the banks. OK, so perhaps the governor should approach it from a different angle, support the tier two banks and encourage them with cheap money to extend loans at a cheaper rate. But we have seen that story before and know it well. Mboweni meets the local bank chiefs today, in a high level meeting that will determine what consumers might see out of that.

Gold rallying as the World Gold council released some statistics that suggested that demand came from the investment side and not the jewellery demand side, for the first quarter of this year. Do you think that is hot money? I guess folks are worried somewhat by the inflationary pressure of exhausting the printing presses, but we are not talking about our disgraced northern neighbours, talking economics.

OK, so I we can quantify what the buzz is all about here. 1015.5 metric tons of gold demand in the quarter when measured against 733.9 metric tons in Q1 2008. A difference of 281.6 tons of gold. One metric ton is equal to 35273 ounces. So, we are talking about 9.933 million ounces of gold. Or roughly 110 thousand ounces gained per day. Lets be generous and use the current gold price, 943 Dollars per fine ounce. That is a change of 9.3 billion Dollars in demand. That is 104 million Dollars per day more demand than there was the whole of the last quarter.

The overall demand for gold in the first quarter, being generous and using the existing price, is 33.8 billion Dollars. Bank of America traded 1.198 shares last night, a massive day for them. At around 11.49 Dollars a share the stock traded 13.76 billion Dollars worth of trade. Which was around one fifth of all trade on the NYSE. You get my drift. And by the way, Bank of America in these tough times for banks managed to raise 13.47 billion Dollars in a share issuance. Lets see 13.47 is to 33.8, nearly 40 percent. Over a couple of days.

So let me get this right, in the worst financial crisis of our time (for now), Bank of America managed to raise 40 percent value (and being generous on the average price) of all the gold demand for the 90 days in the first quarter. No prizes for guessing which one is spoken about more. I am not saying that the implications of higher inflation are not unimportant, they are, but there seems to be some historical blur with the amount of attention gold gets. I shall do a commodity value produced per annum insight tomorrow. Just to get a sense of where the focus should be.

New York, New York. A good turned bad, some worrying that the green shoots might have to grow in the cold for a little while longer, this as the Fed statement released lowered their expectations for the US economy. Hang on second here, we thought that we would weather the storm better. So, could it be true that we beat the Feds lower expectations at this point?

The sellers stepped into the rubbish the rally after this cool wind led to some head scratching from the market participants. As long as these green shoots are not baobab ones. Session end the Dow closed at 8422, down 52 points, the nerds of NASDAQ worse off by six and seven tenths to 1727 with the broader market S&P 500 down 4 and two thirds to 903 (and a half).

The oil price at six month highs, currently trading at 61.58 Dollars per barrel, the gold price much better at 943.5 Dollars per fine ounce. Copper, the price that is, down at 2.08 Dollars per pound. The platinum price is at 1157 Dollars per fine ounce. The Rand, stronger as the Dollar slides, 8.34 to the US Dollar, 13.17 to the Pound Sterling and 11.49 to the Euro.

Today, red for starters here. The US futures market slightly down. Asia, a red session today. Europe, lower too.

Best Wishes
Sasha Naryshkine
sasha@vestact.com
011 447 8790

Jozi, Jozi. Up and away here yesterday, there was a moment when some party crashers got rowdy mid afternoon and threatened to spoil the show, but they left and we carried on. Favourable equity markets across the globe following through from a strong Wall Street Monday night continued. Even with some really unfavourable US housing data we managed to keep the party going this side. The rally was pretty much broad based, banks and construction having a good time. Session end the Jozi all share index closed at 22398, up 453 points and at an 18 week high. That is around when young Barack Obama assumed office. Is that right, assumed office?

Sasol slapped with a bigger than first thought fine when they admitted guilt to the Competition authorities. The fine now stands at 250 million Rands, which is a lot more than the 188 million first put on the table. Lets just say that the anti competitive nature of the claims where skewed to the negative for the authorities to slap a bigger fine on Sasol. Very bad PR, news sent the stock lower and then the price shifted higher in the afternoon after the oil price gathered extra momentum. This is around one and a half percent of revenue, not good.

Vodacom with results out yesterday morning. I guess that is why they had to go ahead with the listing. These were for the full year to March. Revenue of 55 billion Rands and profits after tax of 6.089 billion Rands. Earnings per share of 409 cents. Lets just say that the price looks a little stretched at the close, R56.80, down nearly three and a half percent yesterday. OK, so the most historic earnings ratio is 13.6 times.

So, what do you pay for a business that has their biggest presence, by far and away in one geographical location, namely South Africa? The market participants clearly did not like the results, the stock underperforming the broader market by well over 5 percent. Dividends, you will get that from the Telkom unbundling and then don’t expect any until the interim reporting period in 2010. Is that right? So, new dividend policy is 40 percent of earnings to be paid out of earnings, that is roughly equivalent to the banks, two and a half times cover. Lets get to valuations later.

Telkom, well they put out a trading update that I guess surprised on the downside, most of it had to do with that Multi-Links business in West Africa. Expectations from BJM in their morning note this morning are for full year earnings for the financial year 2010 to be 552 cents per share. They are expecting fixed line revenue growth to be lower by 4 percent. OK, so at R58.89 are they a good buy? Remember that they are going to be around twenty bucks lighter come Monday next week, as they are still trading with the special dividend.

After that the stock will be on less than seven times earnings. But I suspect that the generous dividend policy will continue, it is all about not overpaying, or perceived to be overpaying for assets. And in the case of Multi-Links short term, it seems that Telkom have done just that. John Biccard from Investec Asset Management once said that you must view the company as a zero growth bond, they are going to make profits and pay out earnings over time, but fixed line revenue will undoubtedly decrease.

And then there is MTN, the one that we follow closest for over half a decade and I can remember buying for clients at a little over ten bucks. In that short time they have breached 100 million subscribers, outstripping their peers at Vodacom by a factor of more than two and a half. MTN for the full year has revenue of over 100 billion Rands. Profits of 15.3 billion Rands. They trade on a 14 times earnings with a weak dividend policy for now. Forward that falls to about 11 times earnings for this year, next year it falls to below 9 times earnings.

Other local company news out included results from Steers holding company Famous Brands. Under a bit of pressure, but they are still doing well. Steers apparently took the award for Best Burger, for the 13th consecutive year, and Best Chips, for the 11th consecutive year. My colleagues Paul and Byron are amazed. They say that this can’t be true.

Mediclinic updated the market on its progress in the consolidation of its interests in Swiss hospital group Hirslanden. Like their competitor Netcare, Mediclinic has a debt burden the size of the Matterhorn mountain. I remember Netcare had an opportunity to have sell their property portfolio in the US around three years ago. I guess that they wish that they had done that.

Reinet, the listed private equity fund in the Rupert family, just printed its results. They look odd. Not doing much, preserving cash, holding their British American Tobacco shares marking them to market, that is down. Commenting on their cash holdings, Johann Rupert says: “As ever, our principal criterion is to ensure the return of capital rather than attempting to maximise the return

on capital on our liquid funds”.

Trans Hex is doing badly. Diamonds are not currently a girl’s best friend. Diamonds are, in fact, a highly cyclical commodity, with a very negative cyclical stockpiling dynamic. So now you know. I saw some talk that De Beers were thinking of following a strategy of convincing investors of diamonds safe haven status. Good luck with that.

New York, New York. Markets on Wall Street were mixed overnight. After trading in positive territory, a slump in the last twenty minutes of trading pushed the Dow down in to negative territory. Bank of America issued a whopping 13.5 billion Dollars worth of new shares to rebuild its capital base, in line with the findings on the Feds in their recent stress test. Phew. That is also stressful. Session end the Dow closed 29 points lower to 8474, the nerds of NASDAQ better by two to 1734 with the broader market S&P in-between the two, down one and a half points to 908.

The oil price has cracked 60 bucks a barrel, currently at 60.31 Dollars per barrel. The gold price has also benefited, 927.9 Dollars per fine ounce, the copper price last at 2.07 Dollars per pound, better than the previous session. The platinum price has picked up at 1137 Dollars per fine ounce. The Rand is firmer at 8.41 to the US Dollar, 13.10 to the Pound Sterling and 11.53 to the Euro.

Markets in Asia turned over the last few hours, as did the futures markets, Europe and ourselves called higher. Good, and that is what we should start with, where we end up has to do with the days news flow.

Best Wishes

Sasha Naryshkine
sasha@vestact.com
011 447 8790

I just saw Patrick Craven on CNBC in an interview on Power Lunch with Stephen Gunion, talking about the Vodacom listing, talking on behalf of COSATU. He makes no reference to the capital expenditure that the networks roll out. Nothing. That must just appear. He makes no reference to a service that exists before, nor the fact that the South African government owns a pretty big stake in Telkom and Vodacom.

Telkom is still stuck in a quasi government mode and recently have scrambled to improve their service offering. I cant afford to stay on a call for an hour to speak to a call center agent who could not care about my problem, let alone solve it. Just because it would be perceived as a poor show if the in-house call center were to be outsourced.

Well, Comrade Craven, the fact that I have a choice and have switched to Neotel because of service delivery does eventually result in job losses. I understand the need for socially responsible capitalism, I would not mind a reliable bus route past my house either. Say what you want, check out the results from the poll on CNBC Africa

http://www.cnbcafrica.com/pls/cms/cm_vote_new.show_results?p_vote_id=6146&p_popup=N

The capitalists have spoken. I am really excited about the new government mining company, a big sarcastic excited. Communism works, only in text books. I wait to see the response with regards to network boycotts.   

Jozi, Jozi. Bottom left to top right, just the way I like to look at a days movement represented on a graph. I was watching the box last night and a crazy end to the trading day in New York, which we started to feel in the afternoon with improving US futures, and folks were shrugging their shoulders citing more buying activity. I guess suggesting that markets are building a bottom where folks are slightly more comfortable with the outlook of the world.

At one stage our own Jozi all share was down around two thirds of a percent, at the get go, but we managed to end the day 1.1 percent better, 239 points to close up shop at 21945. Up two percent for the year. Winners yesterday were the banks, a bank upgrade for some majors from the guys at Goldman Sachs saw the spread around of happiness related to the banks. Our local banks ending up three percent.

On the flipside of the coin were the gold miners, interestingly US government debt being sold off sharply, the gold price not falling or flopping, the Rand firming up. Perhaps the world looking a little better and folks feeling that they need to risk up again. Risking up means selling gold and selling the geared players. AngloGold Ashanti downgraded by the fellows over at UBS. Plus their bond issuance not exactly appealing. 575 million Dollar convertible bond issuance. The company of course trumpeting their results.

Undoubtedly the top story yesterday was the unbundling of Vodacom from Telkom. Although embarrassingly it almost never happened, the legal process dismissed a joint application from COSATU and ICASA from trying to delay the listing. A very bad PR exercise for South African capital markets, bearing in mind that Vodafone now own 65 percent of Vodacom. Those fellows must have been fuming.

Vodacom closed at 5880, Telkom, still trading with the nearly 19 Rands worth of special dividend closed up shop at 60 bucks exactly. 11880 is the closing price if you add the two back together. Which is much better over the days. So, at last we can value the two companies separately, although experience tells me that you have to see at least three reporting periods from Telkom to really get a sense of how important that Vodacom stake was.

And the jury tells you very important. Vodacom reports today, their full year numbers. That should be fun. List yesterday, report today. I must say that I saw a poll on CNBC Africa which asks the question: Has Cosatu’s failed bid to block Telkom from unbundling its shares in Vodacom, 15% of which to Vodafone, tainted SA’s image as an investor-friendly emerging market?

There are three answers, “Yes”, “No” and “Telkom should of sold to China”. The poll (not sure how many participated) showed 50 percent said yes, 30 percent said no and 20 percent said “Telkom should of sold to China”. China who? A Chinese telecommunications company I am sure. But there you go, a spot poll is sort of split here.

Impala Platinum with a production report for the last quarter yesterday morning, and the quarter was higher by 9 percent of all PGM’s when compared to last year. And remember that we are comparing this quarter to the one where the lights were out for a bit and the country was worried where their next amp was coming from. So not a great performance, but lets face it, the auto market is staring under the hood.

On a rolling basis, nine months of the financial year compared to one another, we see lower production across the board, platinum, palladium, rhodium and nickel production from Impala are all lower. OK, so on the plus side Impala see a stabilizing Zimbabwe helping down the line with an expansion of the existing producing operation planned before the year is out. In time this asset will become a bigger part of their business. About that fellow called Bob.

Iron ore negotiations are still on the go, I see that Chinese Steel companies have been buying more and more of their stock on the spot market. Of course these negotiations are a push and pull event and this latest event telegraphed to the market is seen as an attempt to pressure the majors, BHP Billiton, Rio Tinto and CVRD (plain Vale) to get cracking on completing their price negotiations at the lower level. Lets see.

New York, New York. A monster session for the all indices thanks to the guys at Goldman and their upgrades of the banks and several consumer discretionary stocks, plus an upbeat earnings outlook and better than expected numbers from home improvement stores Lowe’s. Banks overall up over seven percent and added to that story, news that the aforementioned Goldman Sachs, JP Morgan and Morgan Stanley were looking to pay back 45 billion Dollars worth of the TARP money. The tricky part of whether these companies will be allowed to be able to sell that idea to the fellows from Treasury. Yip, there might be some push back from Tim the toolman Geithner.

Session end the Dow closed 235 points higher to 8504, the nerds of NASDAQ better by 52 points to 1732 with the broader market S&P 500 better by 26 points to 909 points. Energy stocks also had a good time of it as the oil price rebounded nearly five percent. Currently oil trading at 59.30 Dollars per barrel.

The gold price is steady at 922 Dollars per fine ounce, the copper price also trending sideways at 2.07 Dollars per pound. The platinum price is slightly better at 1127 Dollars per fine ounce. Some positive noises from Johnson Matthey on the platinum price. But I have seen those predictions before, it is tough enough to call equity markets tougher to call commodity prices. The Rand this morning is slightly weaker across the board, around half to one third of a percent lower, 8.54 to the Dollar, 13.09 to the Pound Sterling and 11.58 to the Euro.

We are called higher here, as is Europe on the follow through from the Us market intraday in their session. Asia is looking good for the bulls this morning, expect a stronger start here.

Best wishes
Sasha Naryshkine
011 447 8790