Slasher's coffee beans

Jozi, Jozi. We were up and away yesterday, it was a good thing that we were strapped in. Resources rocked, markets surged, and I am of course happy to say that most of these moves have been earnings driven. And all out of the US. You know, we talk about why they are so important, the US that is, they might only be around one quarter of global GDP (a bit less) but of all of the investable assets globally, that is around 150 trillion Dollars a fair chunk of that is still in the US. That is set to double in the next five years. India has overtaken Japan for most billionaires in Asia. Its happening chaps. Session end the Jozi all share index closed at 24067, up 478 points.

Anglo American out with results this morning, the six months to June, expectations were for around 67 US cents per share, the company topped 90 by a penny, so it looks like a handsome beat, perhaps expectations had been pretty low balled as the story unravelled. They are playing up all the positives, cost reduction, long lines of credit available, debt looking manageable. 2.1 billion Dollars in operating profits off of revenue of 11.1 billion Dollars.

Revenue falling 38 percent, operating profit down 65 percent. Earnings per share down 68 percent. So a little better than expected, and I guess if costs have been contained, they expect to save 1 billion Dollars in the full year, commodity prices have improved, generally the landscape looks better. Perhaps a bit of a dividend would have been a good idea, but again the group has skipped that part.

I liked this from the company, in the key headline risks: Commodity prices, Liquidity and counterparty risk, Currency risk, Inflation, Safety, health and environment, Political, legal and regulatory, Supplier risk, Contractors, Reserves and resources, Exploration, Natural events and damage to assets by fire or machinery breakdown, Employees, Operational performance and project delivery, Acquisitions, Infrastructure, Community relations, Joint venture relationships and Critical accounting judgements and key sources of estimation and uncertainty.

Got that? All that “stuff” remains key headline risks. So other than about everything missed, covered in that last line, there are many risks not only to operating businesses and investing, but to life. I can imagine that Anglo is going to come under pressure for skipping the div, but at least this time investors are prepared. We wait for commentary. Oh, and Xstrata, Cynthia Carroll has said that the Xstrata approach is a distraction. What a hoot.

Two bank announcements yesterday, FirstRand and China Construction Bank signing a MOU. Not a MOU cow, but a memorandum of understanding. This is again a sign that China want to be heavily invested on the continent and are ready to use local knowledge to explore investment opportunities on the continent. I like. There will be more services offered between the two later.

AngloGold Ashanti out with results this morning. And this is about where I want to leave it, but that would be unfair to a whole host of investors (really?) out there. Okes who reckon that the stuff in the ground and not the business, deserves a different business valuation. Why it works that way is lost in history for me, but so goes it. Very quickly, the company for the half made 81 US cents per share, 47 US cents per share for the last quarter.

OK, so annualize their last quarter (generous) and you come out at 2 bucks for the next four quarters. That is less than 16 Rands. The stock trades at about 290 bucks. So, 19 times earnings on record quarterly earnings. Don’t know, but at least they look reasonable compared to their peers. Gold Fields trades on 48 times earnings, Harmony 38 times. Gotcha, not for us thanks.

Good news for platinum usage. Yesterday I found two links to stories that should be good news for the platinum producers. The first is a cash for clunkers program in the US, which after just six days has burned through the 1 billion Dollars allocated to it. Scrambling to find more money, I guess the consumer is a little stronger than they thought.

How it worked was that you handed in your old fuel inefficient vehicle, and then got back 3,500 to 4,500 bucks off a newer more efficient vehicle. With better emissions control. Over 250 thousand folks have apparently taken up the offer. No ways? But what do you expect, that might sound like a lot, but with vehicle sales around 10 million (very low by their standards) that is around an extra week been added.

And then the other perhaps more exciting news for the platinum market, the Beijing city authorities are set to ban older vehicles from the city if they do not comply with stricter emissions control laws. How it will work is that petrol and diesel vehicles not complying with National emissions standards will not be allowed to travel specific routes, and everything inside of that.

The second is more important, because it has a long lasting effect and again underscores why we like an investment inside of the platinum complex. Emissions control standards globally are set to become more stringent and not relaxed. India and China are struggling to see the merit of them joining tighter emissions controls globally, but they are doing it anyhow.

Imagine being Sergeant James Crowley. Who? Well, he is the police officer at the centre of the arrest of Professor Henry Louis Gates Jr. I doubt that there was a professor Henry Louis Gates Sr. Off the subject for a while, do you only become Sr. when there is a Jr? Possibly. Well, the good professor was arrested in his own home, trying to open his jammed door, this after returning from a trip to China.

And he took exception to this, rightfully so, he was only trying to open his jammed door, a neighbour alerted police. As Wiki put it – The incident spurred a politically charged exchange of views about race relations and law enforcement throughout the United States. Gates is black, Crowley is white. A big public debate then opened up when the president called the police stupid, Gates is a friend of Obama you see.

So, the whole situation got out of control and the Obama A Team (who are not sucker fools) decided to make a PR exercise out of it. So yesterday afternoon late, the good professor, the president and vice president of the USA and a police sergeant from Cambridge had a beer together on the White House lawns, away from the media, an attempt for everyone to say sorry to each other.

And the point to this story? It was more important what beer each party had, would you believe. The president had a Bud light, Gates prefers Red Stripe or Becks, whilst the sergeant likes Blue Moon, a Coors beer. And the advertisers for Bud have been going mad. Another reminder that Obama is the real deal.

New York, New York. Running out of space. Me, not Wall Street. Markets fell away in the last half hour, but still managed sizeable gains. Once again driven by earnings, good company results beating expectations, but there are still a few laggards out there. Q2 GDP today. Lots of folks wondering about this number, I hope that the Obama take on it was taken before the beer session and not after. At the bell on Wall Street, the Dow had added 83 points to 9154, the best July since 1939, when they first made a colour picture, thanks Bertha Coombs. The nerds of NASDAQ 16 better to 1984, it had topped 200 at the start of the session. The S&P 500 added 11 and a half to 986.

The oil price is last at 66.85 Dollars per barrel. The gold price better at 938 Dollars per fine ounce. Copper, the price that is, last at 2.59 Dollars per pound. Platinum price, last at 1185 Dollars per fine ounce. The Rand, strong, 7.77 to the US Dollar, 12.87 to the Pound Sterling and 10.97 to the Euro.

Expect a mixed bag here today. That GDP figure will determine where we end up.

Best wishes

Sasha Naryshkine
sasha@vestact.com
011 022 5440

Jozi, Jozi. Away from the screens yesterday, I was moving home, and really it was tough to see at all. The phone helps and you feel a little useless, but the wireless also helps a little too. It was most pleasing to see consumer price inflation falling to its lowest levels in nearly two years, but still outside of the band. At least the good governor can leave knowing that inflation is coming under control.

We started lower here and it never got better, losses across the board, resources lagging with lower commodity prices, I would have thought that banks would have had a better showing, as well as retailers, but it was not to be. Perhaps more reacting to the fact that there seems to be no more cuts. Even if the CPI data does fuel the debate about a one and done approach. Session end the Jozi all share index down 179 points to 23589.

So falling inflation is good, but the economy is still stinking up the joint, job losses in the second quarter were comfortably over a quarter of a million folks. Credit demand is plunging, , check out this Bloomberg chart for the last five years, the three year graph tells a very different story.

PPI out today, that is inflation as measured at the factory gate. On the way out. It is from the perspective of the seller. PPI really has plunged and has been much wilder on the way up and down than CPI.

My least favourite industry, or one of them, is tobacco. Not that the companies inside of that space don’t make good money, British American Tobacco reported their half yearly numbers this morning. Revenue up over 20 percent, profits too, EPS up 17 percent. Those Asians can smoke. But I still maintain that cigarettes will become more heavily taxed, the consumer will find fewer places to use their product. Imagine if you had demarcated zones for eating chocolate.

Goldman. OK, the Rolling Stones magazine published an article written by Matt Taibbi in which he called Goldman – “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” What is that? FT tried to illustrate it, check it out:

And now the latest, this has been knocking around for about ten days or so, flash trading. Do a search on flash trading. You will see that some of the major exchanges want to implement a ban on flash trading. We are talking about marginal stuff here, automated trading that gets an insight of an order before it hits the screens. And then places short term trades. That humans cant detect in real time.

So, and bear with me here, complicated computer trading models which have pre-defined algorithms can act milli seconds before big institutional orders are placed. And now suggestions are that the “vampire squid” has made a lot of money doing this. I swear, if I thought that I did not know better (I thought about that) Goldman’s head offices are deep underground at Roswell in New Mexico. The secret sauce trading code was delivered by a large headed skinny guy with three fingers on each hand via flying saucer in 1947. Really!

Are some quarters of the market justified in their beliefs that Goldman overstep the mark, or are the unwritten rules wrong? I suspect the debate will rage for a while yet, but one thing is for sure the rules around derivatives and other under regulated industries will definitely become more restrictive. But like scientists pushing boundaries, financials institutions push boundaries too. To make money for themselves. Money and greed, and now add speed.

Oil prices have dived as inventories built up, so much for driving season. As you can imagine with the unemployment rate rising, folks in the US, who view driving as a pastime and a necessity, are having to drive less. And driving less means less refined product consumption. Folks are warning that a warmer Northern Hemisphere summer could lead to lower oil prices. Oh, what about hurricane season? Too short term I tell you.

New York, New York. Yahoo! For Microsoft, perhaps not for Yahoo! shareholders, the stock down a lot. This as the two companies announced a sharing agreement, but it is not immediately apparent whether or not the anti trust regulators will like this. Jerry Yang must be feeling really smart about his stuff round about now. Or not. A bit of a lacklustre session closed up shop with the Dow down 26 points to 9070, the nerds of NASDAQ down 7 and three quarters to 1967, with the broader market S&P 500 down four and a half to 975.

The oil price is up a touch after a horrible session last, 63.53 Dollars per barrel. Ditto the gold price, last at 932 Dollars per fine ounce. The copper price is 2.48 Dollars per pound, the platinum price is last at 1169, also a big drawdown on the price from two sessions back. The Rand is relatively firm this morning, 7.85 to the US dollar, 11.04 to the Euro and lastly 12.95 to the Pound Sterling.

We could see a mixed bag here today, futures in the US indicate a better start, Europe should also be better at the get go.

Best wishes

Sasha Naryshkine
sasha@vestact.com
011 022 5440

Jozi, Jozi. If you looked at the scoreboard you would be forgiven for thinking that the day was a little boring. That was definitely not the case, there was a tearaway start and then the pace lightened and markets turned red, but then we made a recovery towards the end and basically ended flat, but on the wrong side of the thin red line. Some folks suggesting that the market is starting to feel a bit toppy. I don’t know, I just think that it is more a case of re-pricing of risk, and the beats on company earnings so far. The Jozi all share index down 12 points at the end to 23931.

AECI out with half year numbers this morning. Remember that they service the mining and manufacturing sectors with chemicals and explosives. And both those sectors have seen quite a big drawdown. In fact the numbers for the full year are likely to look more than just a little ropey. I looked at the half year numbers this morning, and it is amazing how a stock that looked about market inline, in terms of how cheap they were, to how expensive it has got. I suspect that the market will have to adjust their expectations, and sadly that means a sell off.

Anglo American also announcing that they have sold their residual stake in Hulamin. Remember that in the bad old days the company needed to utilise their cash, and that meant buying businesses that they don’t want to own today. They don’t need to own a manufacturer. And this has been part of the strategy for the last decade, divesting from assets that are not key, think Hiveld, GM South Africa, Terra in North America, effectively they have dispatched Mondi to shareholders. And their results are likely to change the recent mood. Lets see.

The US and China are in three day talks about relations between the two superpowers. President Obama said something along these lines – The relationship between China and America will shape the 21^st century. Agreed. The Chinese of course are the biggest holders of US debt. Got that.

If they stopped buying this, or supporting this investment, by buying more, then that would send long term rates much higher. Not good for the housing market in the US. Not good for asset prices in the US. And not good for the Dollar, which is not good for the Chinese investment.

But it was good to see the US and China getting together and making headway to demystify each other. Everyone can talk about the Chinese growth story, but the facts often escape one. Do some mental calculations yourself. The fastest growing economy at that scale on the planet, what is their nominal GDP and their GDP per capita? Once you have answered those questions, name ten Chinese companies off the top of your head. Difficult you see.

Paul and I had the pleasure of talking to a potential client yesterday who first visited China in 1978 and used to visit around every nine months or so. He talks highly about the efficiency of the labour force. Inside of factories, there is no radio playing, no speaking, just work. When he asked the factory manager how these guys were motivated, he simply said, they have a job.

Other interesting facts, when he used to visit in the old days he travelled from Hong Kong by train into the industrial China, he noted that nine months later where there was a mountain, that was now gone and a factory was in its place. Major buildings went up inside of six months, from ground level to completion. He was completely convinced about the story.

Whilst we are still on the subject of China, the authorities are looking to relax the one child policy. Just to recap, the one child policy was started in 1979, China at the time had already reduced their birth rate from 5 per woman to 3 before the decade was finished. And then it became one. At the time the predictions were that China would have 1.8 billion folks by the year 2008. By 2008 the population had reached 1.33 billion, so I guess a saving of resources.

The problem is that the Chinese government recognizes that as the country becomes wealthy, it will also become older. So they are talking hard about perhaps relaxing this policy in order to play catch up. And then there is the question about internal consumption in China. And how that will play out over the years. Watch history unfold, it is actually exciting. What a geek.

New York, New York. Some economic data to cheer at the beginning, new home sales jumping for the month of June after a very troubled two years in the mortgage market, we get the sense that it is starting to bottom. The sharpest rise in nine months the FT tells me. Earnings were mixed, the US’s third largest supplier of healthcare hit some headwinds, a worse outlook. All this whilst the great healthcare plan rages.

Honeywell and Verizon’s results were decent enough, market moves were muted. Session end the Dow Jones Industrial Average closed at 9108, up 15 points, the nerds of NASDAQ up nearly two points to 1967 with the broader market S&P 500 up nearly three points to 982.

The oil price is steady at 68.58 Dollars per barrel, the gold price is at 957 Dollars per fine ounce. The copper price is off the best at 2.55 Dollars per pound. The platinum price is better at 1214 Dollars per fine ounce. The Rand is off its best levels at 12.82 to the Pound Sterling, 7.75 to the US Dollar and 11.06 to the Euro.

European markets are called flat. We could struggle a little here today to find the momentum to keep this up, but I am always hopefull.

Best Wishes

Sasha Naryshkine

Jozi, Jozi. Oh no, after a cracking middle of the day, we kind of fell back at the end to reflect a very modest day, the Jozi all share index added just 30 points to close at 23944 points. Hey, what’s in a level? I tell you, when the index goes up, suddenly everyone from my father in law to friends who are so-so interested in equity markets, know the level. Ask them six months ago, perhaps I am being rude to my father in law, he probably knows, but the others, they struggle. What’s in a level.

Murray & Roberts just before the clock struck five announced that they had landed a project in the Middle East, on an island called the Saadiyat Island, or the Island of Happiness according to the official website. Murray’s will be building a hotel and residences on the island. The master plan for the island will be to build 29 hotels, the one that Murray’s have the contract for, St. Regis, seems to be one of the two anchor five star hotels. Place looks beautiful, 700 metres from Abu Dhabi.

The project is a big one, 1.8 billion United Arab Emirates Dirham, 2.11 Rands to the Dirham, that equates back to 3.8 billion Rands. Two years worth of work, and with better oil prices, I suspect that more work could return in the region, that would be good for the likes of Group 5 too. And Stefanutti Stocks too.

Something I have been thinking about for a while. Price discovery and current valuations, that is what we are all involved with on a daily basis, trying to determine if the price in front of you adequately reflects future prospects, and adequately reflects the level of the overall markets right now. If a company is going through a tough time and needs to restructure, recapitalise, you can bet your bottom (US) dollar that this would have been reflected in the price, a long time before the event takes places.

Recently some heavyweight mining companies globally had to raise money at deep discounts to the ruling price, which already had plummeted as a result of falling commodity prices. Others did not quite experience the same turbulence, but that is in part because they had set themselves up along the smoother path, perhaps that took longer.

And interestingly one of the suspects that I was going to discuss has released their results for the six months to June, Anglo American Platinum, Amplats, and they were fairly well signalled to the market. Headline earnings per share, and that includes some once offs with the conclusion of the BEE deal around Mvela and Anooraq, those were down 95 percent, or 405 million Rands in total. Basic earnings which are more reflective of the core business, those were off 68 percent to 1144 cents.

So, at least Kumba pulled it through for Anglo American, it is starting to look a little ugly, Amplats and De Beers not adding much. Anglo American results soon, but I guess that folks are starting to crunch the numbers. And then perhaps the questions are going to be asked again of the management team. Expect a second round of “merger of equals” talk from the guys at Xstrata.

So Anglo American Platinum is the key for Anglo American in the short term, much of their defence according to the mainstream media will be on the home front just down the drag. So these numbers short term will be pounced upon, I have no doubt. Volumes are better, but not by much, remember that the June half last year included major production interruptions.

New York, New York. A turnaround in trade towards the end of the day, sadly not for Microsoft, that stock down over eight percent in normal trade and that was off the worst levels. And that weighed on tech stocks, energy and healthcare was strong, internet retailers were not, courtesy Amazon.com, who were inline, perhaps the stock has run hard. And perhaps a strange acquisition. All this talk about Ben Bernanke and his reappointment. I hope that he gets the job again, he is a legend in my mind, even Nouriel Roubini had an interesting piece in the New York Times about why Bernanke should stay. Ben the measured.

Session end the Dow closed at 9093, up 24 points, the nerds of NASDAQ down 7 to 1965, with the broader market up just shy of 3 points to 979. And the ten year also rallying, good for the US mortgage market. A strong move in commodities, the oil price was last at 68.95 Dollars per barrel. The gold price is also better at 960 Dollars per fine ounce. The copper price is better at 2.57 Dollars per pound. The platinum price is also on a tear, 1204 Dollars per fine ounce.

The local unit, the Rand is at 12.76 to the Pound Sterling, 7.73 to the US Dollar and 11.01 to the Euro. We should start much better, some follow through from Asia here.

Best Wishes

Sasha Naryshkine

Jozi, Jozi. We stumbled in the middle of the day, but by the time it came for the US markets to open, mid afternoon here in Jozi, We were flying again. We closed at levels last seen at the end of September 2008 on the Jozi all share, for the indices in the US, they were seen testing levels from January in the case of the Dow and November in the case of the S&P 500. Lets bask in it for a while, the sun is much needed here, it is a bitterly cold 13 degrees, and the wind is blowing here. Easily the coldest day of the year so far, markets on fire yesterday, the Jozi all share index up 306 points to 23914.

De Beers out with first half numbers. They managed to eke out a 3 million Dollar gain, saying that the second half was much better than the first half. Tiffany’s are having a bad time, so I guess all this is telegraphed, I remember reading somewhere that half a carat is the new three carats, folks just cant afford big rocks anymore. And it is not just rocks, Henry Blodget, a fan of him I am, points to a Bloomberg story where art sales by the auction house Christies were 35 percent lower than the same period last year. It was the big ticket items, over a million bucks that sold badly. No surprises.

Woolies trading update yesterday. They looked ordinary, without the big once off gain from selling half of their loan book to ABSA. Sales looked anaemic, particularly clothing. Oh dear, but I guess this could tie into the story above, Woolies are a little more upmarket and try and set themselves apart from most of the other retailers.

And then Investec with numbers this morning. Perhaps also in the same company as Christies, Woolies and De Beers, even if that is a gross generalisation, you know where I am going with this one. Investec with a trading update for the last quarter, and the company seems to have contained costs, that is the good. Bad loans continue to sour, but it seems to be stabilizing.

A bit mixed, and still a tough operating environment, but if you have made it this far you would have seen the and bypassed the remains of Northern Rock, Lehman Brothers, FirstCity Bank, Kaupthing Bank, amongst many others. In fact if you need to, you can go and have a look on the FDIC website and see what the impact was on those folks leveraged in the local housing market. Yuck.

Things that boot up in the night. Like Microsoft. In this case for investors it was the dreaded blue screen of death, you might have seen it before, the one which refers to a stack error. Microsoft sadly had a stack error after hours as the company missed earnings expectations. Sales down 17 percent. Goes against some of the decent numbers from Apple, Intel and IBM as the FT points out, and more recently (half an hour or so ago) Ericsson looked like they had a handsome beat.

Do you think that Microsoft saw revenue fall away as folks deferred their personal computer purchases, choosing to wait for the Windows 7? Well, it does not matter, they seem to think that the rest of the year will still be tough. And some interesting insight into the world at work, you know the small netbooks, my wife has one, that now accounts for 11 percent of all PC sales. So say Microsoft.

I thought that Windows 7 was on sale in August, but it seems October, Microsoft are expecting that to go well. I like the company, it has a great product, one that everyone knows well and thinks it is the only operating system out there. I used a Linux GUI for a while and it worked well. It was fast and reliable. Never had any problems. Strangely it is hard to convince some people that free software really works. The long and the short of it all is that after enjoying a nearly three percent rise in normal trade, after hours Microsoft traded down nearly seven percent.

New York, New York. What a ripper. Strong numbers from 3M (post-it people), AT&T (some say boosted by the iPhone), as well as a beat from Ford lifted equity markets on Wall Street. The Dow crossed 9000 for the first time since January, finishing at 9069, up 188 points. Yowsers. The technical guys were all abuzz talking about “key levels.” In French it sounds better than the English whatever – N’importe quoi, that is my view on key levels.

They are just levels of pricing. That old statement, if it breaks this key resistance level it could go higher. I see, so if it goes up, then it could go up some more? Hmmmm… but that is my view on technical analysis. Session end the S&P 500 closed at 976, up 22 points with the nerds of NASDAQ better by 47 to 1973.

The oil price is trading at 67.11 Dollars per barrel, the copper price has stabilized above 2.50 Dollars per pound, a cent better than that. The gold price has given back a bit and is last at 949 Dollars per fine ounce. The platinum price is currently trading at 1169 Dollars per fine ounce, also lower. The rand is still strong, 7.69 to the US dollar, 10.93 to the Euro and lastly 12.71 to the Pound Sterling.

A bit mixed for much of the day, some key data (yes, that is key) from the Eurozone and earnings continue from the US.

Best Wishes

Sasha Naryshkine

sasha@vestact.com

Jozi, Jozi. Yes, no, wait, run-out both batsman stuck mid pitch. Run out of ideas for the bulls too, and I am not talking about the guys up the N1 here, they seem to know what they are doing. When all else fails the news networks talk about profit taking, Bloomberg actually bans that phrase, you are not allowed to use it. So here yesterday there were more sellers than buyers. Which is also nonsensical, because for every buyer there is a seller.

Market fatigue. In fact, why does there have to be a reason, now that I am finished my little rant, markets yesterday were mixed, resources sold off quite heavily and from there we struggled. At the end of the session, the Jozi all share index closed just over a percent down, 250 points off to 23607. Resources sold off 1.8 percent, there is your reason.

Staying on resources, I was fascinated to see that iron ore spot prices have risen to 93 Dollars per ton, from lows of 58 Dollars per ton in April. This was the lifeline that Rio Tinto needed. The point I think that I am trying to make is that the negotiations for the yearly spot price was being set inside of this rising price environment, the poor steel makers were probably keen to wrap up, whilst you got the sense that the iron ore producers were dragging their feet.

Bharti reporting first quarter results this morning and they were nothing short of exceptional. Although the market in Mumbai (strangely, the Bombay Stock Exchange) for Bharti is telling me otherwise, the stock is down 1.9 percent whilst their peers, Idea is up two and three quarters of a percent, Reliance communications is up two and two thirds of a percent.

Bharti reported a 24 percent rise in quarterly profits, their subscriber base topped 100 million for the first time, adding 8.4 million subscribers to close out the first quarter at 102.4 million subscribers. Net profits of 520 million US Dollars, 25.17 billion Rupees or 4 billion Rands for the period, which annualizes to around 16 billion Rands in profits, more than MTN made last year.

The entire Indian market adds 10 million subscribers a month, 30 million a quarter, as you can see here Bharti has around 25 percent market share, perhaps capturing some more. And expectations are that around 770 million people will have mobile phones in India by 2013, another 360 odd million from here. 25 percent of that is 90 million more subscribers in four years. Yowsers. The negative that I can see in the results are falling ARPU’s, falling 20 percent from a year before around 5 US Dollars per person.

And most importantly for us, the company said that the talks with MTN were ongoing, 31 July is just around the corner, that is next week Friday. We wait in anticipation, but if you were at all worried about the valuations these are the reasons not to be.

Compare this to the Vodacom subscriber numbers for the same quarter. Revenue rose 12,2 percent from the same quarter last year, subscriber growth was 19.5 percent better, the group reached 41.3 million subscribers, 28.7 million from here. Strong on the data side here, at the expense no doubt of Telkom, that is where the growth in the short term is at. Still, in a world of choices you can choose MTN and that we do.

OK, so we had a little debate in the office here about the new product offering from the JSE, the Single Stock Futures offering of international stocks, even like the latest one, Berkshire Hathaway. Now remember that Buffett himself said that derivatives were financial weapons of mass destruction. And now the JSE go and offer a long dated future on Berkshire. Remember that you will have to stump up the margin money here, on the Berkshire contract it looks like 50 thousand Rands per contract.

Because Berkshire has never done any stock splits (nor paid any but one maiden dividend back in the 60’s) the price is huge. The Berkshire A shares trade at around 91 thousand Dollars, in Rands at 7.76 to the US Dollar that translates to 707 thousand Rands per Berkshire A share. Wow. There is a big decision to make whether or not you want to be owning these types of companies using gearing.

Some of the stuff on the list does not quite look like a choice, some of it is the same. For instance, why Rio Tinto and Xstrata? Perhaps my bias to BHP tells me that we should have less resource choices and more choices in other spaces. Which there are, Nokia is one we like and own in our portfolio’s in the US. Real oil and gas exposure there is, BP, Gazprom, Rosneft, Royal Dutch Shell and Total. You see what I mean, perhaps too much oil and gas exposure.

How it will work I have not come to the bottom of quite yet, these wont be vanilla traded equities, you will need to have a Safex account, you will have to stump up the initial margin, there will be a mark-to-market done daily, but most importantly for me anyhow is that you will have to pay the interest, which is expensive. And as Paul and I thrashed out yesterday, long term returns of the S&P 500 are around 8.5 percent, in an environment where inflation has been around two percent over the last two decades.

Basically what it comes down to is a currency hedge here it seems to me, because the presentation talks of the Rand having devalued to the Pound, so it almost seems like that is the angle. I don’t know, we have the luxury of having the business in New York, where you can buy almost anything.

New York, New York. A mixed bag of earnings, but on the whole they looked better to me. Boeing was better, Apple were better at the end of the market session prior, and that had a marked impact on driving the tech stocks higher. Wells Fargo were better, but fell away a little. Health care fell, even though there were some good numbers from some of the majors. Oil stocks fell as crude prices slipped, but much of the focus was still on Ben Bernanke, who remained the course on the economy, unemployment and growth.

Session end the Dow Jones Industrial Average lost 34 points to 8881, the nerds of NASDAQ ended 10 points better to 1926, thanks to Apple and lastly the broader market S&P 500 gave up half a point to 954, somewhere in-between the two other major indices.

The oil price is 65.49 Dollars per barrel, better than the close in New York, the gold price is better at 953 Dollars per fine ounce, with the copper price also better, now at 2.50 Dollars per pound. The platinum price is steady, off the best levels of yesterday, now at 1173 Dollars per fine ounce. The local currency is power. 7.66 to the US Dollar, 12.66 to the Pound Sterling and lastly 10.92 to the Euro.

We should start better here this morning on account of a better commodities complex. Flat in Europe. US futures are slightly better.

Best Wishes

Sasha Naryshkine

sasha@vestact.com

011 022 5440

Jozi, Jozi. After a very average start by ten o’clock in the morning we had turned the corner, into the green and starting to power ahead. For the most part of the day that trend continued, a little stumble at the end, but we finished strongly again. Session end the Jozi all share index closed at 23858, up 203 points on the day. Resources and platinum stocks the winners, gold and retail not.

BHP Billiton out with their fourth quarter production report this morning and giving us some useful insight into their full year numbers. In fact UBS have already run the fourth quarter production report through their box of tricks and they are expecting full year numbers to be 36 percent down on last years record numbers. But that still means that they will make over ten billion Dollars worth of profits for the full year.

The stock was up at around two percent for the session. The only negative was that iron ore production was a little light, but there was a record production from the petroleum division. So I guess that offsets a little anxiety around the iron ore division, which lagged Rio Tinto on the quarter. But all that is about to change, we wait for more news around the JV between the two companies, the authorities still have to approve it.

So I guess from the UBS guys you should be expecting somewhere in the region of 175 cents US for the full year per share, last time the dividend was generous, but remember that BHP have to stump up over six billion US dollars for the 50-50 JV if it goes ahead, in the Pilbara. So I guess the 70 cent dividend from last year might not be met.

Hmmm, for the full year number to be in the region of 175 cents, that would mean that the second half would have to have been almost half of the first half. The first half of the year was strange in that you saw for instance 147 Dollars a barrel for oil and 35 Dollars a barrel, so a wild swing. In this second half we have seen above 70 Dollars a barrel and well below 40. Iron ore prices have traded above 90 Dollars per ton on the spot market for the first time this year, but that was in the last few days.

The copper price has increased from a low of around 1.3 Dollars per pound at the beginning of the year when it bottomed out to around 2.50 Dollars per pound, so it has nearly doubled in 7 months. This time last year the copper price was well over one dollar per pound more. You are picking up the trend here, although commodity prices have recovered, they have quite a way to go, to regain those lofty height.

Whilst I was browsing through the comparisons I saw a market capitalisation number of some of the majors in the diversified miners. BHP Billiton Limited in Sydney has a market cap of 205 billion Dollars. Rio Tinto is only 41. Anglo American astonishingly in London is 24 billion Dollars. BHP is eight times the size, could that be right?

The Aluminum Corporation of China Limited has a market cap of 218 billion Dollars, bigger than BHP Billiton. How is that possible? Had a look at profits compared to BHP Billiton, they seem well light and trade on a much higher multiple than BHP. OK, well, pay for it if you like it, for now luckily we have access only to BHP.

Whilst on the subject of resources there was an interesting article in the WSJ about iron ore price setting. Currently the steel makers and the iron ore producers sit around a table and beat out details once a year and the rest trades on the spot prices. But it seems that in the wake of the recent Rio Tinto staff detention and dragged out iron ore negotiations, that is about to change. A quarterly price is about to be set, thus making the process easier for all sides to understand.

Caterpillar released their numbers for the quarter and they beat expectations handsomely. Plus they guided much higher for the full year and that was the part that most folks got excited about. As the worlds largest construction equipment and heavy duty vehicle maker, the company is seeing signs that credit markets have healed and that construction is picking up again. The share price still has some ground to cover.

Also, away from the heavy duty equipment side, car sales have bottomed out in the US, said a top Ford exec. Which is good news for platinum I guess, and also the cash for clunkers program at the moment will take a lot of old, less fuel economic and less environmentally friendly. But that is just to clear the inventory backlog.

New York, New York. After the bell it was a handsome revenue and earnings beat for Apple, before the bell even rang there was the aforementioned Caterpillar, plus several others that looked better than the expectations. But the main story of the day was undoubtedly the Ben Bernanke prepared testimony, where he saw good signs but also a long road ahead. Some are calling it subdued optimism. But the markets liked it ultimately and stocks rose, the broader market S&P 500 added three and a half to 954.6, the nerds of NASDAQ added nearly seven to 1916 with the Dow Jones Industrial Average at 8915, up 67.8.

The commodities complex looks better this morning that it did this time yesterday, the copper price is at 2.46 Dollars per pound, the oil price is firmer at 65.13 Dollars per barrel, with the gold price last at 948.5 Dollars per fine ounce. The Rand was last at 12.76 to the Pound Sterling, 7.82 to the US Dollar and 11.09 to the Euro.

Right, Asia a bit mixed, we were called higher, but might struggle as we run into some headwinds at these levels. Bring on the earnings guys, I am enjoying them, notwithstanding some of the bearish commentary recently.

Best Wishes

Sasha Naryshkine

sasha@vestact.com

011 022 5440

Jozi, Jozi. Hey, I met a dog named Jozi this weekend, rolls off the tongue better than Johannesburg. But that is another story, equity markets Friday managed to eke out a gain after initially looking that we would go from green to red and stay there. Thanks really to no stocks in particular, just a general lift in the markets as the US markets started looking more favourable for us. As it turned out it was a 43 point gain for the Jozi all share index, to see us end off at 23543.

And the big news from yesterday if you have not heard it already (drum-roll) is that Gill Marcus is set to take over the role of Reserve Bank governor from Tito Mboweni, who will not take up another term. So you can speculate all that you like about whether Mboweni was pushed, but the replacement seems a very good one. She was deputy finance minister, deputy governor of the Reserve Bank and more recently has been the chairperson of ABSA.

Lets just say that Gill Marcus is well equipped for the job and in fact was one of the architects of South Africa’s much debated inflation targeting policy. But she has been welcomed by the unions, probably more because Mboweni is on his way out. Mboweni and the Reserve Bank have been targets for groups demanding that the central bank drops rates and scraps inflation targeting.

One comment I saw yesterday is that this unbundles another whole can of worms about an ABSA leadership crisis. What crisis? Well, a new chief as at the beginning of this year in the form of Maria Ramos, Steve Booysen left with very little fanfare it must be said. Maybe, but I guess if this is a chance to serve your country and you are at heart a public servant, why not. So ABSA finds themselves this morning with the deputy chair, Dave Brink as acting chair.

Lastly I think that this appointment shows that despite the anxiety from business that a more leftist policy would be followed, this appointment suggests otherwise. Although Marcus has strong political ties, she grew up in a household which taught her that the differences that existed at that time were just wrong, she is very well respected across the board. In short, I like this appointment.

CIT seems to have found a short term solution in order to avert full blown bankruptcy, it seems that bondholders may come to the rescue to the tune of 3 billion Dollars. CIT have debt that matures next month, and another 10 billion over the next year. This is the immediate problem and hence the talks are watched closely by the street.

The talks between the company and the provider of funding are still secret, I guess we will hear something before the bell sounds for market open in New York. Interestingly Pimco are CIT’s largest bond holder. New normal? Bloomberg has a good take on the CIT bailout and why it is important. As a credit management type said: “CIT accounts for about 70 percent of all short-term U.S. financing known as factoring, worth about $40 billion annually…”

So you can see how important CIT is to the small and medium sized businesses, buying their loan books. Another reminder that one line of business can bring about your demise, even if you have been doing it for years, and another reminder that times are tough up and down from Wall Street to Main Street. Don’t tell the guys at Goldman Sachs though.  

General Electric. It is going to be tough to change that name, even if it is around 130 years old. The company reported Friday, beat on earnings, light on revenue, well light on the top line. And there still remains some anxiety about their GE Money business. As ever though the company remains resolute in their approach to this side of the business and dispel some of the rumours about their credit book. Remember the Credit Default Swaps jump last year late?

Still, this is a big business and I remember that the chief Jeff Immelt said that he wanted the business to get to 30 percent financial, 70 percent industrial, he was just not quite sure that this was the way to do it. Of course he said this with a smirk on his face. I like the business, I really do, although they have many challenges.  

BHP Billiton out with an official announcement this morning, I had a good old chuckle, when you get a mail from the official news release service that says that following: “Mad Dog South Well Encounters Significant Hydrocarbon Pay” what do you start thinking? Unless of course you know the project in the Gulf of Mexico, but this is a good find in a project that BHP have a minority stake, it seems a significant find a kilometer and a half under the sea.  

New York, New York. A bit of a too and fro session at the end of a very strong week for equity markets on Wall Street, trying to gauge better so far company earnings, in fact one of the news networks Friday revealed a graphic that suggested 3 in 4 companies have beaten earnings expectations thus far. Volatility near a ten month low, stocks moving backwards and forwards on earnings, Google not good, GE not good at all, Bank of America slightly bad and Citi sideways. Session end that translated to the Dow Jones Industrials up 32 to 8743, the nerds of NASDAQ up one and a half points to 1886 with the broader market S&P 500 off 0.36 points to 940. And a bit.

The oil price has been on a tear, currently up at 64.39 Dollars per barrel. The copper price too has been on a tear, last at 2.47 Dollars per pound. The gold price is 946.4 Dollars per fine ounce. 1177 Dollars per fine ounce is where the last traded price was of platinum. The Rand is very strong this morning, last at 7.96 to the US Dollar, 13.12 to the Pound Sterling and at 11.30 to the Euro.

We should start much better this morning, thanks to a strong show by Asia. European markets should open strongly.

Best Wishes

Sasha Naryshkine

sasha@vestact.com

011 022 5440

Jozi, Jozi. We struggled to crank it up towards the end of the day, we tried hard, but it just could not be eight in a row. Magnificent seven is where it will have to stay. South Africa got a credit rating upgrade from Moody’s to that of A3, that is in Moody’s world, in Fitch and Standard & Poor’s world that is a A-. That means that your sovereign debt goes from lower medium grade to upper medium grade. In the real world your ability to raise finance is greater, plus more importantly, cheaper.

But I had this discussion with Paul, it was more around the Calpers, the Californian pension fund that looks after 1.6 million folks and their families and how they are currently suing Moody’s, Fitch and Standard & Poor’s for losses related to ratings and SIV’s. OK. My point is that the credit ratings agencies have covered themselves with garbage and still everyone gets excited. I suppose the fact that you still have to test the waters with regards to raising the capital, that counts.

OK, back to the local beat and the short Maude Street (and Gwen lane, that is the parking entrance side) we closed 0.01 points away from 23500 points exactly, down 69.2 points on the day on the Jozi all share. Red and green everywhere a decent enough spread of both to tell you that direction was not entirely clear.

Group Five, never liked the name, don’t know why, I have nothing against the company, just think it is a lame name, well they released a trading update yesterday. This is for the full year that ended in June. Fully diluted earnings and headline earnings per share are expected to be 20 to 30 percent better than the previous years comparison. The stock looks cheap.

Still staying in the construction space, the guys from Murray & Roberts are taking an exception to the competitions authorities finger wagging into the way that the tenders were awarded for the 2010 stadia. They issued a statement after hours and it was well thought through and thought provoking. One gets the sense that the competitions authorities are on high alert and have been everywhere and on everyone’s case. Good for the consumer, but you get the sense that business is not pleased.

JP Morgan was the biggest story yesterday, the group beat the streets estimates handsomely. They cautioned on commercial real estate, in fact chief Jamie Dimon in response to a question on commercial real estate on the conference call had the following to say: “Commercial Real Estate in the United States of America is going to get worse consistently over the next several quarters. That should not be a surprise to anybody”.

JP Morgan have been on a tear, the stock up over twenty percent year to date. Dimon is a tough nut, the business is a mix between the masters of the universe Goldman and then they have a big retail presence. I like it a lot. That Washington Mutual business that they bought for a song, there is real estate exposure there, but they seem to be holding up well at JP Morgan.

Nokia out with numbers yesterday, midday our time, I struggled to find them on the major networks, they were elsewhere. Lets just say that the market liked these like dry old processed cheese. Straight into the bin. The main reasons were not the fact that as they pointed out, earnings were up 50 percent from the first quarter, it was the fact that profits were down over 70 percent when compared to the second quarter last year.

Nokia sold over 100 million handsets in the quarter, less than three percent in the US, their market share there is woeful. The only sales increases from handsets came from mainland China, elsewhere it was all down. This is a stock we like a lot, most of our New York clients own them, so it was not fun to see the stock sold off heavily in normal trade in Helsinki and then gathering momentum in New York. But, we view this as a buying opportunity.

Undoubtedly the biggest news of the day today will be the GE results released pre market in the US, so after midday here. But there is Citi and the Bank of America to navigate too. We should have a good view of where the financials are at, and GE should provide us a clear picture of the broader economy.

CIT Group, a leading player in the small and middle business financing space is on the ropes. And management have already noted that there seems to be no prospect of a government bailout of any sort. Some are hailing the lack of support and intervention as a natural lancing of the wound, you need to do that to heal. As someone put it, the Obama administration has drawn a line in the sand and CIT find themselves on the other side of that line. And interestingly government gave CIT 2.3 billion Dollars.

New York, New York. Apart from the decent enough numbers pre the market open from JP Morgan, economic news in the form of initial jobless claims dropped more than expected, and this was cheered by the market. Total continuing claims dropped, I am not too sure why that did not get enough airtime.

And then that doomsdayer chap who never gets enough sleep (my opinion why he is so grumpy) Nouriel Roubini was thought to have said that he saw the recession ending by the last quarter of the year. He said that he had said that the recession would last 24 months and we are 19 months into it, so therefore by that measure we should be out by the end of the year, but he said that his comments were taken out of context.

Who cares, he is right up there on my not-really-be-liking-you-guys list of Meredith Whitney, Mark Faber, Jim Rogers, Nassim Taleb and not going to get onto my list of I-like-you Jim O’Neil, Mohamed El-Erian, Bob Doll and other colourful characters that have something useful to say about markets. Perhaps I don’t like the first bunch because they are a bearish crowd who’s star only shines again when the next disaster hits us. Because they are always bearish.

Right, those Roubini comments gathered some traction and helped buyers ahead of big numbers from GE today, the Dow gathered 95 points to 8711, the nerds of NASDAQ better by 22 to 1885 with the broader market S&P 500 tacking on gains of 8 points to 940.

The oil price is lower at 61.56 Dollars per barrel, the copper price is slightly off their best levels to 2.38 Dollars per pound. The gold price is slightly better at 936 Dollars per fine ounce. The platinum price is also a touch better at 1165 Dollars per fine ounce. The local unit after that upgrade yesterday, 13.26 to the Pound Sterling, 8.12 to the US Dollar and 11.45 to the Euro.

We should start better here today. Key will be GE. Expect those after midday and before the market opens in New York. What about that bomb in Jakarta at the Ritz-Carlton and Marriot? Wow, not good.

Best Wishes

Sasha Naryshkine

sasha@vestact.com

011 022 5440

Jozi, Jozi. If you took a graphic of yesterdays trade on the local exchange it would be like a nice slope from the left to the right. Nice to ski on, nice to slide down, not so great to climb up. Resources ramped the local bourse, we clicked into another gear in the very last half hour of trade as US markets pushed higher. Phew, seven days in a row for the local exchange. Retail sales on the local front were better than anticipated, CPI out in the US was about inline and a manufacturing number there was better. All this saw the Jozi all share index close 591 points better to 23569. Seven days up in a row.

Lets drill into those retail sales, down 4.2 percent year on year for June. This data as far as some of the broader media is concerned fuels more rate cut ammo, as the retail sector makes around mid teens of GDP. And that is the one great thing about our GDP makeup, we have a diversified economy and are not too reliant on any one given sector. Manufacturing makes up a large element, but so does services and so does retail.

So retail slowing and I caught Nedbank’s Syd Vianello talking about these numbers, better than expected sure and he was looking for strong numbers from the clothing retailers through the next years world cup. I guess a few weeks really can make a strong showing if you have lots of foreigners buying clothes. Syd knows his stuff, lets just say that he has been around for a while.

Just as a strike might be imminent impacting the chemicals company Sasol, they announced a JV agreement with Uzbekneftegas and Petronas for a gas to liquids plant build in Uzbekistan. For those of you not big on Geography and might wave your hand to North East of the Middle East, you would be right. Direct from Wiki this makes it just as tricky: It shares borders with Kazakhstan to the West and to the North, Kyrgyzstan and Tajikistan to the East, and Afghanistan and Turkmenistan to the South.

You will still go and look it up on a map. The project now moves to what is called the feasibility study stage. The country is a stable democracy, and Sasol’s interest of course are their gas reserves.

The country also has rich deposits of uranium, coal and gold, but cotton is still key to their economy. Again, this is a sign for me that Sasol are keen to spread their technology to emerging markets where competition is very low and governments are keen to attract investments. As such your margins are better in places like this, because your costs are lower.

China out with growth numbers for the second quarter, 7.9 percent. Excellent, close to the 8 target that they are looking for. Lots of news out of the red dragon over the last few days, the Rio Tinto staff is nasty and cloudy, but also Chinese foreign reserves rise to over two trillion Dollars for the first time.

The FT’s take on it is as follows: “…money pours back into China to take advantage of faster economic growth and rapidly inflating asset prices. The flow of funds threatens to renew pressure for a revaluation of the renminbi (Yuan) at a time when the government and domestic business are focused on financial stability”.

Plus the Chinese equity markets total capitalisation has overtaken that of Japan for the first time. Say what you want about valuations but companies inside of China are growing fast and Japan, well, many companies there have been struggling for a while. Proximity to China makes Japan appealing though.

How about this news about the competitions authorities taking pot shots at ICASA and how chairperson of the Tribunal basically says he would do it all differently. And that might lead to much more control from the competitions authorities in an attempt to lower prices to customers. Dave Lewis is the chairman and he basically highlighted ICASA’s weak points (many) and lack of support for the consumer. If this is not an empty threat, expect cheaper prices as a consumer. I wonder if lower prices will increase volumes? Not good for Vodacom and Telkom who do a lot of their business here.

What do you make of the fact that one of the biggest pension funds in the world, Calpers or the California Public Employees’ Retirement System, suing the credit agencies over their triple A ratings of risky mortgage debt. One billion Dollars, the lawsuit has been filed and now we wait.

Quote the FT: “The Calpers suit relates to $1.3bn of notes and commercial paper that was issued by three structured investment vehicles (SIVs) called Cheyne Finance LLC, Stanfield Victoria Funding and Sigma Finance and that the pension fund bought in 2006”.

So, it is general consensus that the ratings agencies played a role here, but what about Calpers doing their own research though? Surely both folks are to blame. Calpers has a point here and if the ruling goes in their favour, this could open up a flood of lawsuits against the ratings agencies.

And then not really big news, but an indicator for me. The WSJ reports via Dow Jones Newswires that India’s Bharti Airtel’s Chairman, Sunil Mittal is stepping down as a non exec board member of Standard Chartered. To devote more time to his time with Bharti Enterprises. Well, I guess this if this is not a leading indicator of Mittal devoting more time to a MTN and Bharti tie up, then I don’t know what is.

New York, New York. Follow through from Intel’s sparkling numbers the session previous, lower credit card losses from the majors, Capital One, American Express and this followed through to the broader financials which in turn led the markets much higher. Much higher. Manufacturing better too, a better read on the New York area, the manufacturing index no surprises called the Empire State Manufacturing Index. Better than anticipated but still negative.

Consumer price inflation at the core, ex food and energy at 0.2 percent, include those two and you come out at 0.7 percent up, not great. Session end the Dow closed up 256 points to 8616, the nerds of NSADAQ ramped 63 points to 1862 whilst the broader market S&P 500 added nearly 27 points to 932.

The oil price is much higher at 61.64 Dollars per barrel, the copper price losing a little ground to 2.37 Dollars per pound, the gold price also off a touch at 937 Dollars per fine ounce. The platinum price is better at 1159 Dollars per fine ounce. The Rand is slightly firmer at 8.14 to the US Dollar, 13.36 to the Pound Sterling and lastly 11.48 to the Euro.

We should start off better, as we missed some of the US markets rally that European markets helped themselves too. US futures lower, Nokia out with earnings today, go you good thing.

Best Wishes

Sasha Naryshkine

sasha@vestact.com

011 022 5440