Slasher's coffee beans

Jozi, Jozi. The rally was scuppered yesterday by a couple of things, firstly the largest economy in Europe, Germany, had a business confidence read that was less than anticipated. It did not even matter that we had better than expected South African GDP, the fact that we are all linked to the global moves is a part that folks can’t quite grasp sometimes. Session end and at the bottom of the trading range on the day we closed at 27055, down 228 points.

South African fourth quarter GDP yesterday, manufacturing, general government, mining and quarrying all made a big come back. As per the publication by StatsSA: Real gross domestic product at market prices increased by 3,2 per cent quarter-on-quarter, seasonally adjusted and annualised. The unadjusted real GDP at market prices decreased by 1,4 per cent year-on-year

Cool, so better than expected for the quarter, better than expected for the year. When all was said and done, nearly a million jobs were lost, and the economy contracted by 1.4 percent. How come the two are so divergent from each other? Just a question.

Again I can’t stress that we have a well diversified economy, when compared to some other emerging markets. Check it out:
Structure of the economy:
The largest industries, as measured by their nominal value added in the 4th quarter were as follows:

• Finance, real estate and business services – 21,1 per cent;
• General Government – 16,1 per cent; and
• Manufacturing – 15,5 per cent.

There you go, as you can see our equity market and the economy are not very closely correlated, our market has a strong resource bias. But then you must also remember that the manufacturing industry in this country traditionally was always geared to the mining economy. As were all the other services that went with it. Other noteworthy contributors: Wholesale, retail, motor trade and accommodation (how wide is that) contributes around 12 percent to the economy, Transport, storage and communication, another broad sector, contributes 8.5 percent to the economy, whilst Mining and quarrying contributes 8.75 percent overall.

Righto, highlights package from the GDP release:

• Nominal GDP estimated at R2,4 trillion for the year 2009 (that is roughly 309 billion US Dollars)
• Our economy by Rand value (2.4 trillion) is 90 percent bigger that what it was in 2003 (1.27 trillion)
• Manufacturing has only increased in Rand value by 47.5 percent from 2003 to 2009
• Finance has increased by 105 percent from 2003 to 2009
• General government has been inline with the whole economy, up 93 percent from 2003 to 2009
• Construction, which is only 3.5 percent of the overall economy, has grown 250 percent from 2003 to 2009.
• The mining and quarrying sector has grown nearly 150 percent from 2003 to the end of 2009

Then there was a table that fascinated me, Quarterly compensation of employees at current prices (R million). simply because it showed which sector of the economy has the biggest wage bill. And I know that this is a very simplistic take on it, what percentage your sector contributes to the economy versus what your percentage is of wages, but I guess it comes as no surprise that the finance, real estate and business services sector wage bill has increased 136 percent in the seven years from 2002 to 2009. General government over the same time period has increased 115 percent, whilst spare a thought for the manufacturing sector, only an 84 percent increase.

The last quarterly labour force publication, for the fourth quarter 2009 showed that manufacturing had lost ten percent of their jobs in the sector, whilst finance had added 7 percent, community and social services jobs had been cut by 1.2 percent. Absolute numbers in the manufacturing workforce according to StatsSA in 2009, 1.742 million people. Finance, 1.759 million people. Community and social services, that number was 2.628 million people.

Sadly this report from StatsSA is new, luckily for us historical revisions have been done, and a report Labour Force Survey: Historical Revision, September Series, 2000 to 2007 we can get some historical data. Hurrah. OK, so lets rewind to 2002. Manufacturing jobs as per the table 4: Sector and industry, suggests that there were 1.824 million people in the industry. Huh, down 100 thousand over seven years? Yip.

Construction jobs on the other hand, 642 thousand in 2002, 1.085 million at last read, end of 2009. Finance, 1.193 million jobs in 2002, 1.759 million jobs end of 2009. Mining jobs, 615 thousand at the end of 2009, 417 thousand in 2002. Wholesale and retail trade, 2.5 million jobs in 2002 and now there are 2.8 million jobs, 3.5 at the high in 2005.

I am trying to pick up a trend here, the trend that finance and construction jobs have become much more important, mining and retail jobs are growing and much bigger contributors, manufacturing is falling as a percentage of the overall work force. Going backwards. To unlock the answer to the jobs in this country would unlock our own Pandora’s box. Create a job and suddenly there is respect for each other.

South African CPI today. Which will be completely dwarfed (I mean vertically disadvantaged) by the NERSA announcement on what they plan to give Eskom, by way of a rate push through. Remember that Eskom led with 45. Then 35. So at 26, 27 percent people might well say, ah, that is not so bad. Regardless of this increase, all parties will say that they are outraged, Eskom will say way too little, business, consumers, they will all say way too much. We wait, 11:30 for the inflation number, 12 midday for the NERSA announcement.

Shoprite results for the half year yesterday morning after the markets had opened. I don’t know, annualised they look like they can make around 440 cents this year to June 2010. At 75 bucks that means that they are pretty stretched there. 17 times forward earnings. I remember that Pick n Pay used to trade at that level comfortably, the market always used to pay a healthy premium to their peers. If the analyst community expects around 5 bucks to June 2011, then they still look like they are on 15 times forward.

Pick n Pay trades on around 17 times earnings, Spar seems cheaper at 14 times forward to September. Clicks group, 14 times forward to August 2010. Wow, what is with the sector and people willing to pay that much higher multiples than the rest of the market? Perhaps the simple answer is that defensive companies such as these attracted a higher rating because the analyst community could trust the numbers. Perhaps now though will be a time where they struggle to get further traction.

Happy 100 years to PPC listed on the bourse. What did Jozi look like 100 years ago? According to this Wiki article about the JSE the floor was on Hollard Street at the time. Here is a crusty old picture of Pritchard Street, undated, but you get the picture. 1910, when the old Wanderers ground was exactly where Park Station is now. Got any old pictures?

New Visa advert. Visa is one of our recommended stocks over in the US. If you are in a position to, you should really try and get funds there, I know you have to do all the leg work, but really, it is good to be able to own stocks like Visa. Visa as you will well know, they are one of the big sponsors of the 2010 FIFA world cup. Check out the new advert, it is quite funny and very well done.

New York, New York. Down. Down. Down. All three indices. Some pain still on the housing front with a Case Shiller pricing index showing that there is still a steady decline in housing prices across all the zones. The Greeks, well they are still there. In your best 300 voice: GREEK…DEBT…IS…A…BIG…CONCERN. But ultimately it was a lower read on confidence, economists had missed the mark on that read. It is called a present situation index. Check out this view though, I thought that it was hilarious. It’s darkest before the dawn, Commentary: Bull markets often begin before consumer confidence hits bottom

Session end the Dow had lost 101 points to be trading at 10282, the nerds of NASDAQ were worse for wear by 29 to 2213 whilst the broader market S&P 500 were under the cosh, down 1.2 percent or 13.4 points to 1095.

Some positive news post market, Janet Yellen, president of the San Francisco Fed, said that this is not the time to be tightening monetary policy. Not at all. Thanks Janet. She also said that she thought that the economy would underperform for the time being. Come on. But those anxious about higher rates in the short term, Yellen dispelled that.

The oil price last traded at 79.02 dollars per barrel, the gold price last at 1102 Dollars per fine ounce. The copper price last crossed the wires at 322 US cents per pound. Platinum, the price thereof, 1514 Dollars per fine ounce, and the palladium price was last at 430 US Dollars per fine ounce. The Rand is weaker as money flows to the US Dollar, last at 7.77, 12 exactly to the Pound Sterling and 10.52 to the Euro.

Nope, red for starters on the screen lads and lasses. And if you thought that lass was disrespectful, this is where I got it from.

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