You are browsing the archive for 2009 December.

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by sashan

Ah yes, the Dollar is the safe trade.

December 9, 2009 in Uncategorized

Jozi, Jozi. First it was the headwind Bernanke comments and then it was concerns over Greece and their credit ratings being downgraded. So, in short flight to the Dollar (is that really the “safe” trade?) and away from equities and commodities. Really? US Dollar at a one month high to the Euro, back at 1.47. Got that? The safe trade is the Dollar. So not the Rand, which weakened and not our equities markets which weakened and not resource stocks underpinned by the commodity prices (which weakened).

Resources lower by comfortably over a percent, platinum stocks were crushed, notwithstanding record Chinese motor vehicle sales. Session end the Jozi all share index closed at 26990, down 153 points. Banks closed better even as the Greeks had the worst possible day for their banks, see below for more details.

BHP Billiton have announced that they will be exiting that Ravensthorpe Nickel mine, they have managed to sell the asset to First Quantum Minerals, the Aussie subsidiary of the Canadian mining company. For 340 million Dollars. BHP Billiton took a huge impairment charge on this mine, to the tune of 630 million US Dollar. After tax 441 million. But the asset is now out of their hair so to speak. Not a great outcome.

Why this car is automatic
It’s systematic
It’s hydromatic
Why it’s grease lightning

OK, not really John Travolta and one of the favourites of all time, the ratings agencies are starting to ditch a A in front of the Greece credit rating. Why? Well, Greece’s deficit to their GDP has reached 12.7 percent and the ratings agencies are unconvinced that the country will be cut that very same ratio to just over nine percent. OK. Fitch is not convinced. As the FT points out, this is the first time in a decade that any ratings agency have given Greece anything but something starting with an A. BBB+.

So, all of that spooked people across the globe, the equities market in Greece on the broader measure closed down 6 percent, the top twenty down 7 percent. The banking index down nearly 8.8 percent. The biggest bank on the exchange, National Bank of Greece, down 9.95 percent. Yech. Check out the FT article on Greece and their downgrades.

And then perhaps the most telling, this graphic from the FT blog sphere.

OK, so there are problems in Greece, they have the worst credit rating in the Euro zone. There are a couple of other countries being called into question in the region, Hungary and Turkey spring to mind, but they are nowhere near some other basket cases worldwide.

I was scrolling through the money rates email that I get every day, all US data and was amazed to see that the Treasury bill auction yesterday saw the 28 day bill away at a 0.07 percent yield, 13 weeks at 0.05 percent and at least the 26 week yield spiked to 0.165 percent. Hah. Meanwhile the effective Federal Funds rate is 0.12 percent. The one year Libor rate is 1.01 percent. Cheap money. Yes. Not for everyone, the safety is still the dollar, not Greek Euro bonds.

OK, so we all admire that Chavez so much (!!??) that people will be so glad to give him a loan when Venezuela defaults. No. Chavez and his cronies have run such a brilliant job that Venezuela according to the guys at the Business Insider as the most likely country to default. That is right guys, not Lithuania or Latvia, Dubai or Pakistan, the biggest risk is the great example of nationalisation and the brilliance of Hugo Chavez in Venezuela. And thanks Hugo for the third term for your ultimate plan, complete economic failure, we have an example just up the drag. Was anything in the above paragraph anything but sarcastic?

So, if anyone can please send this link to the geniuses who once again have called for the nationalisation of the mines as the right way to go about trickling down wealth to many more folks who are have nots, then feel free to forward. I will be the first to admit that the wide gap between haves and have nots is nothing more than a disgrace in this country.

Check this out via the Econompicdata talking about the gap between rich and poor in the US.

“We based our list on the U.S. Census Bureau’s Gini Index, which ranks income inequality in cities on a scale of 0 to 100. Imagine two islands, each with only five people, and a total income of $100,000. On one island, each person earns $20,000. This island has total income equality, and a Giniscore of 0. On the other island, one person earns $100,000 and the other four people earn nothing. This island has total inequality, and a Gini score of 100.”

“The United States as a whole had a Gini score of 46.9 in 2008. By comparison, incomes are more equal in Europe (the E.U. has a score of 31), and less equal in South America (Brazil has 56.7; Bolivia has 59.2)”.

For the world, see that Comrade Julius is right, the gap is huge between haves and have nots. Something that we have to address and come up with innovative ideas, nationalisation is a path to bankruptcy. Venezuela, well we sit and wait, but my sense is that it is coming.

There are still lots of folks who are worried about the recovery in the US, there have been very recent signs that the temporary hiring of folks on the US has been huge. Excuse the spelling, but you get what I am talking about.

Aw come on Ronald. Or come on folks who visit the big golden M in the sky. I cant tell a lie went for an ice cream with the family on Saturday afternoon as it was so very hot after a long swim. Unsize the share price please, down over two percent. Same store sales in the US and our region, plus Asia and the Middle East disappointing, no worries Europe, up 2.5 percent. The French love MCD’s, it is the companies second biggest market. But slowing sales in the US, that means that the US consumer is still reluctant to spend.

GE Capital. Remember the credit default swaps of GE soaring at the end of last year? I remember it well, the stock was falling in a heap as folks said hey, what is with that accounting? GE defended themselves, these assets are not for sale and neither should you worry, but as in most cases, sell first and then ask questions later.

New York, New York. Ronald McDonald and 3M weighed on markets, plus the Greece debt situation. Forget the unemployment rate lower and more jobs in the system, time to wring hands again. Again with materials and energy under pressure, stocks slid badly, the Dow ended off the worst levels but was down at 10285, down 104 points by the time the closing bell rang. The nerds of NASDAQ closed 16 adrift to 2172 whilst the broader market S&P 500 closed up shop at 1091, down 11 and a third of a point.

The Rand is last at 7.55 to the US Dollar, 11.12 to the Euro and 12.29 to the Pound Sterling. As folks run to the Dollar when they don’t know what to do, the natural sell is commodities, the oil price is lower at 73.24 Dollars per barrel, the gold price is lower at 1135 Dollars per fine ounce. The copper price also lower at 313 US cents per pound, the platinum price also lower at 1413 Dollars per fine ounce. Phew, a marked sell off across the board.

Lower start. And as Gump says that is all that I have to say about that.

Sasha Naryshkine
sasha@vestact.com
www.twitter.com/sashanaryshkine
011 022 5440

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by sashan

Bernanke breeze in the wrong direction.

December 8, 2009 in Uncategorized

Jozi, Jozi. It was all fall down here, but we managed to get some back off the worst levels of the day. Resource stocks were largely the boost given to the broader market to ensure that we closed more than the lowest point of the day, the Jozi all share down 245 points at the end to 27144.

Exxaro out with an announcement this morning talking of the Medupi power station which is currently under construction in Limpopo province. Because of the delay that Eskom have put on their immediate plans to finish by the timelines first given. As a result the first coal shipped by Exxaro to the fellows over at Eskom have been moved out their plans. Hmmm…This is up at Grootegeluk.

So obviously the delay in building power stations is starting to have a negative impact on Exxaro’s real business prospects going ahead. Just a delay is my sense and nothing structural. What about the country committing to lower carbon emissions in the future? What does that mean for Eskom’s plans to build big coal fired power stations? Should we all get a bicycle?

Australian business confidence has risen to levels last seen in May 2002. Business conditions however were lower. And all the while folks who had lower expectations of next year and beyond are starting to ratchet them up. And that is the human element in markets. Taking recent back data and extrapolating it forward. Efficiencies have improved globally across all the major markets, consumption has remained subdued, governments have remained involved.

Recent signs such as the Bank of America (don’t forget the Merrill Lynch part) able to raise 19.3 billion Dollars in the open market, looking to repay their 45 billion Dollars worth of TARP money received. So, a year on after all the hand wringing, Zombie banks called, credit conditions easing, for the banks at least, executive pay disputes slash worries, we have finally seen government money replaced and with confidence. Government does not want to own banks, bank shareholders don’t want government involvement. And as we all know, bank employees are desperate to throw the government monkey off their backs.

Greece’s credit rating is looking rather slimy right now. Get it? Slimy, Greece? It is not electrifying. They better shape up. Basically S&P have put Greece on watch with a view to perhaps downgrading them. A FT article I read says Greece currently has a A minus credit rating, but Standard & Poors have put them on negative watch.

To make matters worse the Greek government is not commenting and to make matters even worse, riots to mark the anniversary of the youth shot dead by police are taking place. Huh? Perhaps a peaceful march guys, not another riot.

Righto, the main story of the morning impacting stocks out East are a speech given by Fed chairman Ben Bernanke. Quote, the US economy faces “formidable headwinds” plus Bernanke expects inflation to remain subdued and rates low for the time being. But the headwinds part and the word formidable in front of it is having an impact on markets this morning. Really Ben.

But Bernanke echoed that credit is still tight for individuals. And we are starting to see the first signs of what the future might look like for financial institutions. Too big to fail might be replaced with a roadmap is the scenario does unfold next time around. Here is the problem for me though, I still think that all of these institutions are all interlinked. They all have exposure to each other. Allowing one of the big institutions down the line to fail again could spell another bout of credit contraction.

So perhaps we will see a lot stricter rules when it comes to reserve ratios. I suspect that will be the case. But these crises come and go and right now somewhere another one is being primed. Humankind is smart and greedy and a different kind of financial engineering is being built that will test the global financial system.

Whilst on the matter of banks, more scrutiny of bank bonuses and even special taxes levied on bankers could scare talent away. Who would want to be a school leaver now with a view to becoming an investment banker? Anyone? Not in the UK, check it out, Alistair Darling indicated that there could be big tax levied on bank year-end bonuses. And here is the point that I make very often, if you come down hard on one industry as a result of past indiscretion for perhaps political reasons, how is that going to force folks just to stay and suck it up.

From the WSJ a British Bankers association spokeswoman said that a tax regime should be business friendly to keep business operating in that environment and not chase it away. Darling has said that they did not want to do anything that was to undermine an important industry to Britain. Hello. A bit late for that.

What? The Bank of Korea has a different take on the recent rally in the gold market. And the holding of gold. “There’s an illusion in gold” according to a Bloomberg report on the matter, and that comes from the head of the central banks reserve-management department. Interestingly the fellow, Lee Eung Baek said that they are following the trend of 200 countries and how many of them have bought gold? Point made and taken. South Korea has the worlds sixth largest reserves and is a testament to how a country can change their fortunes over half a century, if there is the will power.

At these levels Lee says gold offers little value and will return very little. That is what makes a market you see, India say thanks and buy a whole wadge, Lee seems to share Buffett’s view that once bought the gold just sits in a safe. Ah well, someone asked me the question on gold this morning again, and I said I was unsure as to where the price was going in the short term, but I suspect there will be demand in the long term that might be an under pin for the price. See more on Summit, DSTV channel 412 tonight as our very own Paul Theron tackles Clive Roffey again on the subject of gold. Watch stock watch tonight with the host Bruce Whitfield at 19:30.

New York, New York. Stocks traded sideways on Wall Street, falling in the afternoon part of the trading session. The Dow Jones managed to eke out a gain of just three and a quarter points to 10392, the nerds of NASDAQ lost nearly five points to 2189 whilst the broader market S&P 500 lost two and nearly two thirds of a point to 1103 points. Financials and the energy cluster weighing on the broader market. Utilities the only real sector benefitting, perhaps some lost money searching for yield, ah yes, power utilities, green ones, they should do well.

Finally the Americans have done an about turn on emissions. The EPA, the Environmental Protection Agency said Monday that greenhouse gasses are a threat to peoples health. Really? So you mean breathing in CO2 is bad for you? There are new rules coming for car emissions in March 2010 in the US. Good news for an uptick in platinum usage? Methinks so.

The oil price is trading lower at 73.74 Dollars a barrel. The gold price is also lower at 1157 Dollars per fine ounce, whilst the copper price has actually gained some traction at 318 US cents per pound. The platinum price lower at 1446 Dollars per fine ounce. The Rand is weaker at 7.46 to the Us Dollar, 12.21 to the Pound Sterling and lastly 11.06 to the Euro.

Lower Asian markets from those headwinds talk that Bernanke sees does not help matters today.

Sasha Naryshkine
sasha@vestact.com
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011 022 5440

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by sashan

Jobs trump expectations. You are not fired.

December 7, 2009 in Uncategorized

Jozi, Jozi. It was all about the non-farm payrolls Friday and the lead into that. Our market basically popped 300 points after the announcement that the jobless situation in the US is starting to improve dramatically. The gold price fell, the Rand weakened as the US Dollar gained a lot more traction, if matters economic are not as bad as they are mooted to be in the US, then that would help both equities and the US Dollar, not often that those move in lock step with each other. Session end the Jozi all share index closed at 27390, up 76 points. That was much better than around three in the afternoon, where we were nearly 300 points lower than where we ended up.

Non-farm payrolls. All about that on Friday, there clearly was no other story. Other than the build up to the world cup Friday where Long Street Cape Town looked absolutely packed, well done to the mother city for putting on a great show. Charlize Theron looked irritated, was it just me, or did she looked out of sorts? Cape Town aint Benoni Charlize, what do you expect, the mountains there are not mine dumps. Sis, she is our golden girl, even if she has a fancy American accent, not so?

Back to those jobs numbers that saw the market turn tail, kaboom, launch equities northwards as the US futures climbed. The actual read was minus a mere 11 thousand jobs for the month of November, versus consensus of somewhere in the region of minus 150 thousand. More importantly there were revisions of 261 thousand to the good for the previous three months. OK, so by my count around 400 thousand jobs more than it was thought. And perhaps at face value more importantly, the unemployment rate, which was expected to be 10.2 percent, came in at 10 percent.

Joe Weisenthal, one of my favourite blogger types put out a note saying that this was his best blog of the year. So I clicked on the link and all that was there was a punch bowl and the words good bye. The reference was to William McChesney Martin, Jr. who coined the term as to what the Fed should do when controlling interest rates: “to take away the punch bowl just as the party gets going.”

So, Joe reckons that rates are going to rise sometime soon, which is what people are starting to say now, if December yields a positive read and the unemployment rate gets under 10 percent, then you will see folks getting real excited.

That would make James Paulsen, Chief Investment Strategist at Wells Capital right. Back in the middle of the year he said, would not be surprised to see a positive print before the end of the year. That would make Nouriel Roubini wrong, OK, hate to harp on about this, but he said at 7100 points on the Dow Jones in mid March that this was an unsustainable bear market. He (Roubini) said in mid April that stock would test March lows, that was when the Dow Jones was at 7800 points.

At 9700 points on the Dow he said that stocks were ripe for a 10 to 20 percent fall. Where is he now? Nassim Taleb was so upset that Ben Bernanke was reappointed (or on the cusp of being reappointment) that he was retiring from the spot light for the time being. Perhaps Roubini should do the same.

So what happens then when the Dollar and equities move in the same direction? The natural flow is to reverse some of those commodity prices that have been roaring, the gold price, the oil price, the platinum price have all come under pressure, the copper price interestingly has held up, but is lower, just not as much as the others. Real demand versus slight speculation at the fringes? Perhaps.

It is important. No matter which way you look at it, these climate change talks are very important. What the outcome will be is anyone’s guess. The UN summit in Copenhagen. The best outcome I guess would be whether or not developing markets can get a bit of a reprieve and developed countries can get a little more serious. That’s all. OK, so lets see what happens, remember that we are the worlds 14 biggest polluter. Bigger than we are an economy.

OK, BHP Billiton and Rio Tinto have announced that they put pen to paper over the weekend for the JV in the Pilbara, the iron ore JV, and have released the specifics. Read here. OK, so what needs to happen now? Regulators need to approve the deal. And that will possibly be the deal breaker is my sense. No use me explaining what is written in black and white, worth a read.

OK, New York, New York. Good jobs data gave way to commodity selling and you saw last week that energy stocks still have a huge weighting in overall markets. Plus the talk that higher rates just down the line might mean that easy cheap (perhaps not easy) is gone. So equity markets cheered good news like bad news, that happens you know. The punch bowl could be removed, my sense is that it will take several reads on the employment front before the Fed acts with great gusto.

Session end the Dow Jones Industrial Average closed 22 points better at 10388, cresting 10500 for the first time this year. The S&P 500 closed half a percent better at 1105, up 6 points. The nerds of NASDAQ added 21 to 2194.

The oil price is lower at 75.35 Dollars per barrel. The gold price is lower at 1154 Dollars per fine ounce. The copper price is lower at 318 US cents per pound. The platinum price is lower at 1430 Dollars per fine ounce. The Rand is weaker as the US Dollar firms, 7.43 Rands will buy you one Dollar, 12.24 Rands will get you a Pound Sterling whilst the Euro was last at 11.06 to the Euro.

We should start lower as commodity prices have been beaten up.

Sasha Naryshkine
sasha@vestact.com
www.twitter.com/sashanaryshkine
011 022 5440

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by sashan

Jobs day. World Cup Draw day. No really, jobs day.

December 4, 2009 in Uncategorized

Jozi, Jozi. Lower at the end of the session, we started better, it was almost a case of waiting for the big number. The big number today that is, the non farm payrolls number, which is expected to again show signs of improvement again in the US economy. Gee this has been the trend for an absolute age you know, the two sessions before this number everything goes quiet. Session end the Jozi all share index closed at 27314, down 115 points.

Sasol released a trading update that perhaps was a little expected. The stock did not really respond that well, a bit strange always for me that the company releases their trading statement long before, four weeks in fact, before the year ends. Earnings for this half, the first half of the year are expected to be around 45 percent lower than the record half seen last year. A tale of two halves for the prior financial year, R21,92 for the first half to December 2008 while the second six months to June 2009 realised only R3,50. Wow.

So 45 percent less than 2192 cents is somewhere around 12 bucks for the first half, obviously substantially better than the 350 cents for the second half. The oil price has had a great year from the lows in the mid thirties, in Dollars per barrel, the Rand weakened to 10.60 to the US Dollar and is now 50 percent better at 7.40. The oil price dropped to 35 bucks a barrel in both December last year and mid Feb this year. Currently the oil price is lets say 76 bucks.

In Rand terms from the worst point of the year for the oil price, mid Feb, was around 10.20 to the US Dollar. So, at current levels, in Rands, the price is 562 Rands per barrel. From back then when the price was around 360 Rands per barrel. The firmer Rand has cushioned the blow of a rising oil price. In the first two weeks of July, where the oil price topped out at 147 Dollars per barrel, the Rand to the US Dollar was around 7.75. That equates to around 1140 Rands per barrel, we are still half of that. So in short, much better now, but very far away from the highs.

Read the full SENS announcement, there are many ifs and buts and maybes.And that is the difficulty. I think not enough credit has been given to some of these commodity companies for having recognized these really difficult times.

Look at the likes of Rio Tinto, Xstrata, Lonmin, Aquarius, and even further down the feeding chain at the likes of Meteorex, these are all commodity companies forced to raise funds at deeply discounted prices. Sasol has through the period managed to maintain a sound balance sheet, low gearing and fiscal prudence, ratcheting down capex according to the landscape unfolding. Methinks a job well done.

I remember being on the box with Peter Major and his take on Sasol was that they were ex growth. Perhaps in a South African context, although plans are afoot to build a plant in the Waterberg, project Mafutha. Before the end of March next year gasification trials will commence in Secunda. 1 billion Rands have been invested in the project already.

Mozambique looks promising, so does the ramp up in Qatar. China and India remain interesting propositions, fruits of which could be borne in the next decade. The question remains around the oil price, but volume ramp ups and continued demand from key new areas should see sustained higher prices.

Wow, I am not one for these hearings when Ben Bernanke, head of the worlds most powerful central bank in the world is grilled by a bunch of senators in Washington, clearly with their own agendas. And making it a political issue. It makes me so mad. Ben Bernanke seems to take it in his stride. How does it help the functioning of the Fed for Bernanke to be away from his desk answering seemingly juvenile questions sometimes?

Send him an email if you have a question. Join the queue. Who cares what you think about remittance levels to the Philippines and how you see the banks and what they are doing with the TARP money. Really. Grr…….. makes me so very mad.

This time though it is a little different, these are senators who have to pass the presidents appointment, it is widely expected that it will be the case. Remember that Bernanke was first appointed by George Bush, and seconded for another term by Barack Obama during the US summer vacation.

A lot of the worry about the Federal Reserve is about the powers financial that they wield. But here is my point, the respective parties need votes to put their candidates forward. The people elect the president. The president appoints the governor. The house and the senate approve the governor. Seems everyone has a round about chance, not so. Well. We wait for the senate then to say yes, they are widely expected to do so.

And this is exactly my point, Dealbreaker pointed out what a dim bulb senator said, read and see if you agree.

You can, if you have a WSJ sign on, or if you get a thirty day free trial read through the whole transcript of the Senate grilling. Check it out and see the real pealers in amongst all those geniuses. You can see that I am clearly not a fan.

Gold. Who cares? Should we? After all you might have heard before that all the gold ever mined in the history of mankind sees enough of the metal to fill two and a half Olympic sized swimming pools. 155 thousand tons of the yellow metal have been mined and that supposedly would fit in those two and a half pools.

Someone did the maths, Jason Hommel, a big silver guy:
Density of gold: 19.30 g/cm-3
1 g/cm3 equals 1000 kg/m3
thus:
19,300 kilos per cubic meter for gold
1 kilogram = 32.1507466 troy ounce
620,509 troy oz. per cubic meter
1 tonne = 32,150.7466 troy ounce
19.3 tonnes per cubic meter, acts to check and prove the “kilo per oz.” and “tonne per oz.” math is correct.
19,300 kilos = 19.3 metric tonnes per cubic meter.
155,000 tonnes of gold mined in all of human history
divided by 19.3 tonnes per cubic meter,
equals 8031 cubic meters!
Volume of an Olympic Swimming Pool?
25 meters by 50 meters by 2-3 meters deep
= 25 x 50 x 2.5 = 3125 cubic meters
8031 cubic meters / 3125 cubic meters = 2.57 pools

Why do we then base our inflation concerns and hedge against Dollar on two and a half swimming pools of gold scattered around the planet. Paul will be on tonight on CNBC, channel 410, his guests the ever bullish Clive Roffey (for as long as everyone can remember) and Peter Major, one of my favourite market commentators. The show is all about gold and where these guys, who have been around for a long time think it is going in the short term. Watch it between 7 and 8 tonight. And then give us feedback. And I have not forgotten about the questions sent in, I shall deal with them before Tuesday next week, they are fascinating questions. If you would rather watch the football, then catch the repeat at 7am on Monday morning.

I was chatting to my best market historian client, he knows these markets for more than 40 years, he said he remembered old Roffey call the gold price to over ten thousand Dollars an ounce around thirty years ago, with all that nonsense around the end of 78 and beginning of 79. He also asked me to do a similar exercise for Harmony as I did with DRDGold yesterday.

OK, this is a crazy one, the US mint is running out, because they minting coins because of the herd mentality. When the price is low, there is no demand, but when it goes up folks come a running. Which leads us to believe that this is chasing, not inflation, not worries around the Dollar, but rather being sucked in.

New York, New York. A disappointing services read, if I heard right a market anchor said that this is around 90 percent of US GDP right here, was not quite sure that was right. Manufacturing can’t be that small. Before the bell there were interesting initial claims filed for unemployment benefits, and that number again lower than pre crisis levels, per Lehman. The days before the brothers. Check out this graphic.

Righto, session end and ahead of the big jobs report, there was big corporate news, GE and Comcast are going to be almost joint owners of the NBC Universal business, Comcast with the slight controlling stake. A Massive deal, but not something that GE can go out and invest with a great deal of conviction. Instead they will stick to the knitting and where they see growth.

Session end the Dow closed at 10366, down 86, the broader market S&P 500 down 9 to 1099, whilst the nerds of NASDAQ lost 11 to 2173.

The oil price is trading lower at 75.89 Dollars per barrel, the gold price is lower at 1203 Dollars per fine ounce. The copper price has also lost a little ground, last at 319 US cents a pound. The platinum price is last at 1480 dollars per fine ounce, lower. The Rand is weaker at 7.41 to the US Dollar, 12.26 to the Pound Sterling and 11.16 to the Euro.

Watch three thirty and your market screens, the expectations are minus 150 thousand jobs on non farm payrolls.

Sasha Naryshkine
sasha@vestact.com
www.twitter.com/sashanaryshkine
011 022 5440

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by sashan

Profits, what are those?

December 3, 2009 in Uncategorized

Jozi, Jozi. Up, but not away. We kind of stuck to a level for most of the day, we did gather a little momentum as we went into the US open and closed near the top end of the day, the Jozi all share index had grabbed another 152 points of gains at the end, to close at 27429. Platinum stocks led the charge in the broader resources sector, strongest of the day was Impala Platinum, which had earlier been upgraded to neutral from sell by Goldman Sachs. The session prior.

Not too much by way of company announcements, everything on that front seems to have gone quiet, even very little quiet on these fronts. I did see something that I mentioned to a friend who was once a mining journalist, now lives in London and he laughed, it was that DRDGold had sold 60 percent of their Blyvooruitzicht gold mine to a crowd called Aurora Empowerment Systems. And he proceeded to say that mine was stuck somewhere in the middle ages anyhow.

DRDGold, I sent an email to someone the other day with the changes in DRDGold’s shares in issues:

DRDGold June 2009 shares in issue: 378,001,303.
Jun 2005 – 296,206,048
Jun 2002 – 161,664,648
Jun 2000 – 120,990,746
Jun 1998 – 48,749,000
Jun 1996 – 9,280,050
Dec 1993 – 2,325,000

How can you go from 2 million shares 1993 to 378 million shares in 2009? Working revenue in 1992 was 177 million Rands, the company made a modest 1.39 million Rands worth of profits. Notwithstanding losses in the next two years, of nearly 16 million Rands in 1993 and 34 million Rands in 1994, the share price traded as high as 66 Rands inside of the 1994 year. Losses 1995 of 23 million Rands, 1996 losses of nearly 9 million Rands, 1997 losses of 136 million Rands. Loss in 1998 of 136 million Rands. Loss in 1999 of 46 million Rands.

OK, lets get onto the noughties. A loss of 854 million Rands in 2000, a loss of 236 million Rands in 2001, a loss of 510 million Rands in 2002. But you know, still traded as high as 5650 cents in 2002. 2003 the company made a profit, 374 million Rands, hurrah, the first in a decade. 2004, a loss of 716 million Rands, 2005 a loss of 467 million Rands. And those results were restated. 2006, the company made a modest profit of 37.9 million Rands. 2007, a 1.165 billion Rands loss. 2008 there was a profit of 1.1 billion Rands, 2009 saw a profit of 110 million Rands. So a touch better in the last few years.

Dividends over the time period, 15 cents and those have come in the last two years. The price traded as low as 286 cents this year. Currently 426 cents, with a market cap of 1.62 billion Rands. So exiting this underground mine sees the company now focus on mining gold tailings, all on the surface. And that would yield around 160 thousand ounces mined a year. Goodbye underground, hello tailings.

A good question, I think, how can South Africa’s oldest listed company (1895) finds itself here having raised all this money with share issuances and nothing to show for it? Can you believe that most of the shareholders are international gold bug types. Put on your best US North East accent. “Gold Mine? Africa? I’m in!”

I guess that this is a lesson for me is to pay attention and buy quality stocks. This is the oldest listed company. Older than PPC, listed 1910 and older than SABMiller, 1897. Barloworld listed in 1941, Santam in 1964, Standard Bank listed 1970, possibly the change of name and entity, probably before that. Nedbank 1969.

AngloGold Ashanti, 1944. JCI, wait for it, 1897. In truth nothing has traded at JCI for years, they are still suspended. Sallies has been listed since 1904. Market cap, 90 million. An even worse case there I am sure. The demise of a champion of the past, you should have started seeing the alarm bells ringing as shares were issued over and over again. Alas, that is never the case. The simple fact is that electricity, security and labour costs have risen sharply, the ore bodies are deeper, darker and more dangerous. The sun is setting on the ZA gold industry.

OK, so this is a piece stuck up on the Business Insider yesterday, actually via Investment Postcards, which is our very own Prieur du Plessis, who is perhaps South Africa’s best known blogger of economic matters global. Yes, I guess you could say that. Well, to the piece, Andy Xie, ex Morgan Stanley economist who was let go after some emails that were leaked, makes some telling points about the Chinese economy. For the record he is always bearish about the dragon. Here goes the link, read it, and watch the accompanying video from an FT interview.

Right, one of our stocks in New York, Nokia, which has done poorly, said yesterday at an investors conference that they expected to increase operating margins to between 12 to 14 percent. Guidance given was not that great either. But the chief said not to worry, he put on a cheery face. The new N900 is apparently very cool, Simon Dingle one of ZA’s top IT journo’s like it a lot, runs a Linux platform. Check it out here

New York, New York. Lower energy prices blamed for the lower close on Wall Street, it was interesting to note that notwithstanding energy, financials and conglomerates being in the red, all the other majors were comfortably in the green. But obviously, energy in particular accounts for a large portion of the moves. Exxon Mobil, PetroChina, PetroBras, Royal Dutch Shell, BP, Chevron and Total are all very big companies. In fact, add those up, add the market caps of those are nearly two trillion US Dollars. Yowsers. OK, remember that not all of these companies are in the S&P 500, because they don’t meet the criteria.

Simple rules for inclusion, Must be a “U.S. company”, Must have minimum $5 billion market capitalization, Must have a minimum public float of 50%, Must be financially viable, Must be operating companies, Should have adequate liquidity and moderate price per share, The index must remain reflective of the various sectors in the U.S. economy.

So, PetroChina, PetroBras, Royal Dutch Shell, BP and Total do not qualify. Exxon Mobil accounts for over five percent of the S&P 500. Chevron around two percent. Not even 50 stocks 100 billion Dollars plus market cap. 49 in fact. All the stocks above are bigger than 100 billion Dollars. 7 out of 49. 5 above 150 billion Dollars, now I have it, that is 5 in the top 25.

Session end the Dow Jones Industrial (30 constituents) closed at 10452, down nearly 19 points. The broader market S&P 500 was 0.38 points higher to 1109, whilst the nerds of NASDAQ managed 9 points better to 2185.

The oil price is higher on the session at 77.05 Dollars per barrel, the gold price last at 1219 Dollars per fine ounce. Copper, that price last traded at 324 US cents, a high for the year. The platinum price has crested 1500 overnight, last at 1494 Dollars per fine ounce. The Rand is firmer as the Dollar continues to take tap, 7.27 to the US Dollar, 12.15 to the Pound Sterling and 11 flat for the Euro.

We should start better, better commodity prices. And as you know, commodities rule the roost here.

Sasha Naryshkine
sasha@vestact.com
www.twitter.com/sashanaryshkine
011 022 5440

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by sashan

Dubai debt worries fizzle.

December 2, 2009 in Uncategorized

Jozi, Jozi. Could you believe how quick a world we live in from an information dissemination point of view. Imagine if we lived in 1938, where according to the chartists, the yields on T-bills were yielding zero, just like now, the information to get from Dubai to New York and London and then onwards to Jozi would take, I don’t know four weeks. Give or take. Nowadays it takes four minutes. Four second round trip on satellite. Yes, the T-bills with zero yield should make us look at the events post that and worry that could happen. Not.

OK, off track here, what I was trying to say is that the measures taken by the authorities in that part of the world, Dubai, will see a restructuring, a refinancing. Dubai World, the entity that is stuffed with 59 billion Dollars worth of debt is currently looking to their lenders to restructure up to 26 billion Dollars worth of that debt. As the Bloomberg article where I picked up the story points out, banks globally have written down 1.7 trillion Dollars worth of assets already.

So, these guys are going to refi, but one that I guess comes with much tougher terms. Never a strong hand to have I guess for Dubai World. So, the world has turned back to normal, credit default swaps on Dubai debt have become cheaper and I bet some guys who were long only the CDS’s will have to close those out in a hurry. A misunderstanding, blown out of proportion, but nevertheless a reminder that folks out there are still skittish.

But the story is far from over, I saw on the box on Bloomberg that a Credit Suisse analyst had crunched some numbers and came up with a ratio of assets to liabilities of 55 percent for Dubai World. That sucks. But that is assuming that the assets fall 60 percent from here.

So that is the assumption to be making, which might be false, the assets have already depreciated significantly, Dubai is one of the hardest hit areas globally. And the same analyst assumed that 10 percent of Dubai worlds assets are intangible. That much? Ah well, at 7100 points on the Dow in March, Nouriel Roubini said that this bear market rally was unsustainable. He is only wrong by 3400 points or so. Better luck next time Nouriel, perhaps we can harp on about this wrong call for the next six months. Aint going to happen.

On the local front here yesterday we had a great session, stocks closed near their highs, the Jozi all share index tacked on 382 points to 27277. Markets up nearly 27 percent this year, I am pretty sure that if you have asked anyone at the beginning of the year “will you take 20 percent for the year” you know that 95 out of 100 times the answer would have been yes. If you had asked the same question at the end of Feb, the answer would have been closer to 99 times out of 100.

Gold mining stocks roared, up nearly five percent as the gold price soared again. Phew, there is renewed energy every time the price goes up. The price of bullion and the price of the stocks. The broader resource complex again lent most of the weight to the winners.

There was a trading statement from the coal and iron ore major Exxaro, they have decided to write down a mineral sands asset to the tune of 1.5 billion Rands, they will not be developing the KZN asset called Fairbreeze. Yowsers. Fairbreeze sounds like a soap. Plus Exxaro have indicated that they will sell their Zinc assets. The Zinc assets as Exxaro indicates, account for ten percent of sales, but only 2 percent of overall assets. So hardly significant.

What is it about Zinc, Anglo just exited their Skorpion Zinc mine in Namibia a couple of weeks ago, to an unknown buyer, some are suggesting the Chinese. Well, the locals in Namibia anyhow. So I would say that one should not expect great at face value numbers from Exxaro, they are a December year end. They are using this opportunity no doubt as an opportunity to sweep the cupboard clear. The stock up three and a half percent on the day.

Righto, staying with coal, an FT story this morning points out that BHP Billiton might well be pushing for the market to move to a more spot price based outcome for coking coal, rather than contracts. In exactly the same way that BHP wanted for their iron ore shipments. Currently the spot price trades at about 30 percent above where the negotiated price for the contracts were settled.

At around 175 bucks (that is US bucks) a tonne this is the very best price of the year. But well off the 300 Dollars a tonne in 2008. I guess a free floated price makes the market easier to read rather than negotiated prices, or have I got this completely wrong?

Righto, staying with resources, Anglo American, who have a 45 percent stake in De Beers, are going to be in the hock for 450 million US Dollars as De Beers undergoes a rights issue. The other 55 is owned 40 by the Oppenheimer family and the balance belongs to the Botswana government. 1 billion Dollars in total that is needed. I guess the family part can’t say to the rest of the board, “who do you think we are, the Oppenheimer’s?”

OK, so who read that Sasol were looking to stump up nearly eight and a half billion Rands to expand their hard wax business? No? It is not the most exciting of their business (no backlash please) but a necessary one. As a Fin24 article points out, the finished product is used by folks who seal cereal boxes. That wax on the top there. The project is expected to finish in 2014.

OK, so what do you make of the 30 thousand folks being sent to Afghanistan? I don’t really care. Well I do, but I have very little vested interest. But 30 thousand troops? One fellow on the ground costs roughly 1 million US Dollars a year. 7.2 million Rands. So every day to keep the extra troops there I get to 591 million Rands. A day. 4.142 billion Rands a week. 216 billion Rands a year. Some nice contracts in there for business no doubt, it is not a black hole. Our entire economy in the last quarter was 617 billion Rands. So around one month of the entire economy of South Africa just to keep 30 thousand troops in Afghanistan. Makes no sense to me.

New York, New York. As GM announced that their Dr. Phil lookalike, Fritz Henderson would be stepping down, equity markets were less concerned with Dubai World debt problems and more concerned with treasuries yielding nothing and stocks at least yielding something. Session end the Dow had added 126 points to 10471, the nerds of NASDAQ 31 better to 2175, whilst the broader measure S&P 500 had added 13 to 1108.

Car sales in the US revealed that the Koreans were making headway. Hey, I drove a plastic Korean car for years and never had a problem with it. Hyundai and Nissan were the winners, Toyota marginally higher. And I learnt something new. Subaru are owned by Fuji Heavy Industries. That make up sharply, in sales terms. So cheaper more fuel efficient vehicles are again all the rage.

The oil price is last trading at 78.47 Dollars per barrel, the gold price is firmer at 1214 Dollars per fine ounce. The copper price is slightly off the highs, 319 US cents per pound. Lastly in the commodities complex, the platinum price is at 1492 Dollars per fine ounce. Goldman Sachs raised Impala Platinum to neutral from sell. Good, thanks guys. I mean squids. The Rand is firmer at 7.30 to the US Dollar, 12.12 to the Pound Sterling and lastly 11.02 to the Euro.

Expect a better start. Those ADP numbers from November are always an early indication of where to for the employment numbers Friday.

Sasha Naryshkine
sasha@vestact.com
www.twitter.com/sashanaryshkine
011 022 5440

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