Slasher's coffee beans

Jozi, Jozi. Yowsers, stand back from your screen. There was a whole set of fresh anxiety selling gripping our markets yesterday, mostly the same old news. Fresh anxiety, old news. First the European debt crisis continues to grip every day ordinary market participants. The interbank rate at which the banks borrow money from each other in the wholesale market in Europe, the Euribor, spiked the most in nine months. I guess it was no coincidence then that the US ten year note yields dropped below 3 percent for the first time in 14 months. And the shorter term debt, the two year yield touched fresh all time lows. Stick German Bunds into the safe haven bracket too. As for stocks, they took a turn for the worse. Not helping matters were fresh stories that the Chinese economy was slowing. I thought that is what we wanted, I thought that they were growing too fast, but a revision down of leading indicators certainly spooked market participants.

The cherry on the top for the bears was US consumer confidence that plunged for month of June. That just added to the selling pressures. And did you know that there was a media blackout of extreme riots in Greece? For no other reason than the Greek media are striking. Very little coverage being given to a tourist destination general strike, fear not though, our friends over at the Business Insider have Crazy Photos From The Brand New Greek Riots. At least the weather looks good, if nothing else.

Maude street shakes, moves and grooves. Session end we were super slammed (Bathurst ringing any bells?) 2.17 percent to 26699 on the Jozi all share index, down 591 points. Resources were clubbed over three percent. Banks actually held up pretty well, down only two thirds of a percent.

Bart’s shorts. Eskom edging closer to a conclusion on wage negotiations. The great age of entitlement. Naspers, this sure is a tricky one to value, because of all the different parts. Plus I don’t buy that Koos Bekker says that Naspers is lucky having made these acquisitions. Trading gold makes you old is what one market type once told me. Who in heavens name wants to be Jena-Claude Trichet, he is sucking about as much wind as you can imagine right now, whilst only one of the PIIGS remains at the World Cup. The PIIG has gone home. Plus, email usage in the developed world on the decline. Fancy that. Consumer confidence, who was not paying attention?

Sometimes the best perspective is presented to you by your clients. And this excerpt from an email interaction is no different from what I have been talking about, entitlement. Here is part of an email interaction actually centred around the Sishen Iron Ore mineral rights and the fact that Lazarus Zim recused himself in the ongoing saga.

“… what I believe I am seeing is an attitude paradigm shift – it is quite pervasive – it seems to me today that very many of us are more concerned about the money than the job (quality of the job) – I believe that some are also taking as much as they possibly can, often justified on demand/supply criteria (which makes it seem right because after all is not that the basis of the capitalist free enterprise system) – an example here is the medical profession, where costs have increased very sharply over recent years from physiotherapists to GP’s to specialists and surgeons and of course hospitals and the costs of all kinds of procedures.
When I see the unions and what I believe are unreasonable wage increase demands, there is a part of me that sympathises because aren’t they doing just what everybody else is doing?” Well said. I mean well emailed.

I agree that we live in a world that has moved away from the same values that our grandparents held dear, to a world where everyone felt entitled to more, without actually doing more. From football players to bankers, the pay was and still is mind boggling. So when Eskom employees ask for nine percent more in pay, plus a bigger housing allowance, why are we even outraged? And all this against the backdrop of strikes in the developed cheese eating socialist Europe world, that are seemingly gathering momentum.

How do you value Naspers? No really. Because I suspect what you must do is to separate the two parts that most investors in a South African context try and do. Because if the full price of TenCent is not taken into account in the Naspers share price, then surely for a foreign buyer you would get a discount into TenCent? The reason why I say foreign buyer is that here we can’t just buy TenCent in Hong Kong, a foreigner could. Here we have to be content with old currency control laws from the apartheid era. True, but those laws have relaxed over time, but I wonder what they would be in Dollar terms.

What are the parts first and foremost of Naspers? The first part is TenCent incorporated, as per their website it was “founded in November, 1998, Tencent, Inc. (and) has grown into China’s largest and most used Internet service portal. In its ten-year history, Tencent has been able to maintain steady and fast-paced growth by always putting its users first.”

I was on CNBC Africa yesterday afternoon with what I consider to be one of the best local market commentators, perhaps underused because his area of expertise is telecoms. And we were talking specifically about Naspers, it was great to see his point of view. So here goes, courtesy of ABN Digital Bronwyn Nielsen speaks to Khulekani Dlamini from Afena Capital about Naspers. Makes some of the points that I wanted to make about Naspers. Nearly 90 million people online on QQ at anyone given time. I dislike seeing myself on the box, I don’t know why. TenCent at current levels trades somewhere around 25 times earnings, something that has not happened for four years. Cheap? Perhaps.

The way I see it, this is one of the few businesses that have been able to monetize social media. Think of the problems that both Facebook and Twitter face and the fact that the investing public is hungry for an IPO in either, but neither company makes enough (or any) money to go ahead at this stage. Remember that the recent part acquisition by TenCent of Digital Sky, who in turn own a piece of Facebook, means that Naspers shareholders can get a piece of the action almost immediately. Without having to wait. But TenCent makes money off social media. Real money.

I saw something interesting via Carpe Diem which is very interesting and tied into social networking, I guess relevant for Naspers: Online Canadians Report A Large 35 percent Decline In The Amount Of Email Received. Developed world right? I fired this off to a favourite geek of everyone and his response back at me was as interesting: Entner: Quantifying the mobile data tsunami and its implications. All rather fascinating about the underutilisation of handsets, leading me to believe that they are as much fashion accessories than mobile handsets. One thing is for sure, more people are going to use social media, and not less.

What is all the gold ever mined worth, or more importantly, if we had to stick it all together in one block, what would it be? Luckily for me, someone has done that math already, check it out, National Geographic (what a source) has this article simply titled Gold. I want to highlight part of a paragraph in the article: “In all of history, only 161,000 tons of gold have been mined, barely enough to fill two Olympic-size swimming pools. More than half of that has been extracted in the past 50 years.” OK, work it out for me then. 161 thousand tons at the current gold price is worth in Dollars.

This is going to infuriate a whole host of folks, but here goes anyhow. How can one base any sort of fundamental argument about the value of a physical asset class that collectively does not fill two Olympic sized swimming pools, as being key in the make-up of any investor? Exactly the gold bull will say, it is so scarce, that it should be more valuable. I take the counter argument and side with Buffett on this one, allowing myself to be open to a complete spanking: “It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.” And yes, I will be sorry when the world ends and we all live with the cockroaches. But in that case, we all will be sorry.

What does it mean that the ECB fixed term deposit auction failed yesterday? Yech. Not too much to cheer about for Jean-Claude Trichet. And the Euro zone as a whole, here is the litmus test guys, the ECB is looking to withdraw part of their stimulus and nobody wants any of it. Joe Wiesenthal at the Business Insider is outraged suggesting that A Failed Debt Auction Proves That The ECB Is Being Ridiculously Dumb. Agreed, the wrong time to be stepping away, maintaining your independence right now would give the Euro zone more credibility and not less.

In the background there are these stress tests that are ongoing, European banks undergoing the same sort of tests that their American counterparts underwent last year. Yves Smith has a less than glowing version of what he thinks is happening in the background, making some relevant points that one size can’t really fit all in a European context with his piece from Monday titled More on the Coming European Bank Stress Test Fiasco. All the while investors wring their hands.

The Conference Board Consumer confidence for the month of June in the US plunged as folks started to worry about jobs and business conditions. For the full release from the folks who publish the data: Consumer Confidence Survey. I suspect that I am not in trouble, the folks say that if you publish the details you will be in trouble, I just pointed you there, is that right? So confidence way lower, and I don’t think that it was any coincidence that European woes are starting to weigh on American psyche. As a business owner you would be more reluctant to hire now, as the future (as ever) looks uncertain. I did read however that for the first time in an absolute age, employers are able to be picky. They can pay less, get superior skills and work those skills harder.

New York, New York. Yech. The aforementioned problems, consumer confidence, European bank woes and just poor sentiment generally were all at work here. Briefing.com pretty much sums it up: “Market participants sought safety after growth concerns triggered a global selloff that sent the S&P 500 to its lowest intraday level and closing level since November.”

Wall Street wanders. Session end the Dow closed 268 points lower to 9870, the broader market S&P 500 lower by 33.33 points to 1041 whilst the nerds of NASDAQ were crushed by nearly four percent, down at 2135, off 85 points. Yech.

Commodities, currencies, Drs. Copper and bushveld. Dr. Copper last at 293 US cents per pound. The platinum price recovering a little to 1537 Dollars per fine ounce. The gold price last at 1242 Dollars per fine ounce, for your calculation. And the oil price last at 76.06 Dollars per barrel. The Rand has strengthened to 11.52 to the Pound, 7.65 to the US Dollar and 9.37 to the Euro.

Up periscope. I don’t know what to expect. Up, down, sideways. When is that ADP payroll data? Today it seems. A small subset of private payrolls, but key nevertheless. Around 2:15 our time this afternoon.

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

Jozi, Jozi. A nothing sort of a day here, nothing to get excited about from an economic data point of view, or from a company point of view. Post the G20, everyone was reading the analysis of those in the know and deciding what to think. If anything, because although the nations of the G20 committed to halving their deficits by 2013, they also recognized special cases and left it open ended. We commit to do something, but each case is different in other words.

Maude street shakes, moves and grooves. Session end we closed ever so marginally higher, up 31 whole points to 27289 on the Jozi all share index. Resources stocks were just shy of 0.7 percent to the good, improving commodity prices over the weekend and a late hurrah to the new prime minister Down Under, Julia Gillard. Reason of course is that her government has expressed a desire to engage with the mining companies over the super tax and will no doubt come out with a watered down option. MTN’s share price was pulverised as the rumour that they were looking to buy an Indian business called Loop went viral. More on that later.

Bart’s shorts. Who is in the Loop, or not in the Loop more like it? ICASA hearings, it is time for a change in the regulatory body one suspects. What do those who actually in the loop know what went down at the G20 and how did they interpret the final outcome? Apple, the company never ceases to amaze, the sales of the new iPhone is huge.

MTN, are they or are they not in the Loop? A business called Loop, an Indian Business. This is where the rumour came from: MTN in talks to buy stake in Loop. The long and the short of it is that MTN denied that they were looking to get in on the Loop. The stock closed down nearly three percent to 10444, and traded over 9 million shares, about 1.8 million shares more than the “usual”. I guess that makes that easy, we don’t even have to take a closer look at the loop. I must admit, our first reaction back at HQ (the office) was if they were buying this business, please let it not be anything remotely like Multi-Links.

Meanwhile, back at the ranch, I mean ICASA hearings, the fellows over at Vodacom were suggesting that they would go to court to stop what Vodacom thinks are a cut in the interconnect rate too quickly. Let’s face it, ICASA are all over the show, a dog with no tail, no sense of direction, in the words of that crazy band The Pale. There is definite government pressure from minister Siphiwe Nyanda (who is not watching any football games with Zwelinzima Vavi) who I guess gave the old dog ICASA some teeth. Check out the TechCentral article about yesterday’s proceedings Vodacom comes out firing at Icasa hearings.

So we definitely have interconnect fees that consumers and business feel are “too high”, and seemingly money for jam for the networks. That is of course if you are the consumer and business, in this opinion piece we bat for shareholders and their best interests. The network infrastructure is maintained and has been built by Vodacom and MTN, even if ICASA granted a licence to both mobile operators. Without knowing a great deal about ICASA, what value do they actually add to the mobile companies? Not fair, they are supposed to protect the existing licences. But as per their website, why lump all of these sectors with one body? Read: “ICASA’s mandate is spelled out the Electronic Communications Act for the licensing and regulation of electronic communications and broadcasting services, and by the Postal Services Act for the regulation of the postal sector.” That sounds a little like the Post and Telecommunication corporation and in fact was. So 1990.

Time for a change of the act, Telkom’s fixed line business is decreasing, not getting bigger. We are in the age of the satellite and mobile telephony. So seriously, mobile companies have done a lot more good than bad, and the masses use mobile communication as their preferred mode of talk-talk. Telkom have seen the fixed lines decrease. I don’t think that I got my point across, Telkom and the mobile operators are poles apart from a service and management point of view. If communication had been left in the hands of Telkom, how many people would have fixed lines in this country? Just saying.

Mohamed El-Erian, one of my favourite market commentators and CEO and co-CIO of the world’s biggest bond fund, PIMCO, also writes interesting pieces for all to read. And by design or by coincidence he got it right ahead of the G20 meeting in his article Beyond the False Growth vs. Austerity Debate. Politics is about flip flopping to meet your short term needs, to be re-elected. His passing shot is right, “Let us hope this, if nothing else, is enough to bring the two camps together.” Which it inevitably did, because they all were in the same place. I even saw some footage of our president sharing a moment with the US president, Barrack Obama. Anyone else think that Obama looks more than a little jaded?

El-Erian then wrote another piece over the weekend for the FT on a Disappointing G-20 Compromise in his opinion. As he suggests what most have taken away from the G20 meeting: “The differences are most visible in the sections on fiscal adjustment and growth. They are also evident in the discussion of financial sector reform. Indeed, there is something for everyone!” I had a long look yesterday and it seems like a waste of time for everyone there, very little consensus, and perhaps his previous piece written Thursday was a little too hopeful.

The picture that El-Erian paints is not a great one, his last paragraph suggests that this is going to be a grind: “The bottom line is as follows: I worry that, absent some urgent mid-course corrections, this weekend’s G-20 gathering has failed to mark a much-needed turning point for a slowing global economy with persistently high unemployment in industrial countries. Instead, it reinforces the concern that we are in for a future of muted growth, deleveraging, periodic debt dislocations in some countries and higher protectionist pressures. Populations in Europe and the U.S. may have much more to worry about than seeing so many of their teams knocked out early from the World Cup tournament in South Africa.” We get a mention! Except El-Erian is less excited this time around about the outcome of the G20 meeting. Yech.

Paul Krugman is even less excited, in fact his piece titled The Third Depression tells you all you have to know. Poor Krugman is having nervous sweats and has been hiding under his bed every single time he hears the word austerity. A bit like The Knights Who Say Ni! Ni is to the crusaders that austerity is to Krugman. If you like Krugman, and I like to read a whole lot of divergent views, then check out his piece that hits a note in a South African context: Inequality and crises: coincidence or causation?

Hey Apple! Have you seen the annoying Orange? No? Digressing a little, but I was asked once how I knew what was cool or not. I thought for a bit and said, easy, I just goto Youtube and see what is the most viewed over the last day, week, month. Because you have those who are cool and set cool, and then most of us just follow. Talking cool and seemingly recession proof, the fellows over at Apple with their own press release trumpets their new product: iPhone 4 Sales Top 1.7 Million. Amazing. If ever there was a consumer company that was recession proof, Apple it is.

New York, New York. At best market action on Wall Street Monday could be described as boring. All the action was in the bond markets, where the yield on the 10 year note touched a 52 week low. i.e. the price of the ten year note is at a 52 week high. What is this, that potentially the financial regulation bill could be dead in the water? Reason being is that dying sucks and we are all heading there, but one of the democrat senators, the longest serving senator in history, Senator Byrd, passed away on the weekend. And remember that the Democrats need 60 votes to the 40 of the republicans to make it happen. Wow. So now they have 58, because they lost one, remember. And elections are set for later this year, so in the interim that seat remains empty. Or is that not how it works? CBS suggests that the governor might appoint a Democrat: Robert Byrd Succession Hinges on Ambiguous West Virginia Laws. So is financial reform dead in the water?

Wall Street wanders. Session end the Dow closed 5 points lower to 10138, the nerds of NASDAQ lower by nearly three to 2220 with the broader market S&P 500 just over two points worse to 1074. Worst hurt were basic materials, what we would call commodity stocks, that sector down over a percent.

Commodities, currencies, Drs. Copper and bushveld. The oil price not really responding to Tropical Storm Alex, brewing in the gulf of Mexico. The oil price last at 76.58 Dollars per barrel. The gold price last at 1234 Dollars per fine ounce, with the platinum price at 1540 Dollars per fine ounce. The copper price is last 297 US cents per pound. The Rand weaker, (what a twist!) at 7.62 to the US Dollar, 11.47 to the Euro, and 9.31 to the Euro.

Up periscope. Asian stocks got bashed. Some technical levels being breached, worries about the Chinese economy slowing too much. I thought that just a few weeks ago we were worried that the Chinese economy was too hot. Which is it guys? Anyhow, this has spread to all parts of the globe and expect a heavy sell off through the first part of the day.

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

Jozi, Jozi. An up and down session here Friday, eventually we closed out the day down, a sharp move off the best levels of the day inside of the last half an hour. Resources all to blame for that, slipping commodity prices as anxiety continues to grip market participants in the short term, that was hardly helped by a lighter than anticipated third read of Q1 GDP in the US. Interesting, a fellow who works very close to local government stepped into the offices Friday and said that all normal run of the mill operations at government had ground to a halt. Visit us after the World Cup he said was the line. Nice. I guess it might not be easy to understand, but this is only ever going to happen once. Even if it makes you mad.

Maude street shakes, moves and grooves. Session end the Jozi all share index had fallen to 27258, down 155 points on the session and now down a percent and a half for the year. Construction stocks lag the broader market for performance overall this year, whilst the retail stocks have been particularly strong, having registered gains for the year in excess of 20 percent. On the company news front there was very little to speak of, for the majors that is, Kumba Iron Ore chairman Lazarus Zim recused himself from any involvement in the ongoing Sishen Iron Ore mineral rights award to Imperial Crown Trading 289. The part that Arcelor Mittal used to own. Zim of course is linked to Imperial Crown Trading 289. It is complicated, but there is a sizeable link. Zim is however high quality and IMO has done the right thing.

Bart’s shorts. Eskom, the fellows are threatening to strike (again) over a wage dispute, a percent on wages, but seemingly the housing allowance is up for debate. The G20, a talk shop or is there really something to look forward to, or some kind of consensus. US financial regulation, are we getting ahead of ourselves in presuming that this will prevent any sort of future banking meltdown, or is that too simplistic.

What in devils name is going on at Eskom? I am not talking about the freebies and sponsored R5 lunches at head office in the canteen every single day (so I am told), but rather the wage dispute that is brewing. The workers are feeling downtrodden. Nothing different there. Eskom have offered an 8 percent increase, but the real problem lies with a housing allowance, because the unions want (only) a nine percent wage hike. All the while the minister in charge of the parastatal, Barbara Hogan has suggested that Eskom workers are not allowed to strike. She has shown them the red card, referring to electricity supply as an essential service. The constitution refers to Health care, food, water and social security as being part of rights, I can’t see that electricity is a right yet. So this could be disputable.

I keep telling everyone around me that we are in a great age of entitlement. Entitled to more, but want to work the same or less. Nobody wants to talk about our labour laws, and whether or not they crimp growth in this country. Nope. I don’t know anyone who wants to deal with that incredibly hot potato. And you can understand and sympathise in a historical context why no big business tackles this issue. For the record, Spain has the highest unemployment in the Euro zone, above twenty percent, but also has by far and away the most restrictive labour laws. Coincidence? Methinks not.

Angela Merkel and David Cameron watched yesterdays match between their respective football teams together. No guessing who felt better after that encounter. They were, however, in Toronto for the meeting of the G-20 nations, and not there to watch football. So what actually emerged from the pow wow, other than overinflated egos waving at cameras on beautifully manicured lawns, is patchy. Even Sarkozy waved, he is set to meet the French football captain soon to discuss what when wrong. Not enough pap and too much fancy cuisine in Knysna is what the weekend papers alluded to.

Enough about football or soccer depending on which part of the world you come from. If you are really bored today, or your adopted team has been knocked out of the World Cup, then download the THE G-20 TORONTO SUMMIT DECLARATION. Points 47 and 48 are probably the only points that make much sense: “47. We will meet next in Seoul, Korea, on November 11-12, 2010. We will convene in November 2011 under the Chairmanship of France and in 2012 under the Chairmanship of Mexico. And point 48. We thank Canada for hosting the successful Toronto Summit.”

I am kidding, the main points to come out of the summit are points 9 and 10 of the ANNEX I – The Framework for Strong, Sustainable and Balanced Growth, here goes some extracts:
“We agreed to follow through on fiscal stimulus and communicating “growth friendly” fiscal consolidation plans in advanced countries that will be implemented going forward. Sound fiscal finances are essential to sustain recovery, provide flexibility to respond to new shocks, ensure the capacity to meet the challenges of aging populations, and avoid leaving future generations with a legacy of deficits and debt…… advanced economies have committed to fiscal plans that will at least halve deficits by 2013 and stabilize or reduce government debt-to-GDP ratios by 2016. Recognizing the circumstances of Japan, we welcome the Japanese government’s fiscal consolidation plan announced recently with their growth strategy.”

And then points 10 make for interesting reading. “We have agreed on a set of principles to guide these fiscal consolidation plans by advanced economies: Fiscal consolidation plans will be credible. The time to communicate our medium-term fiscal plans is now. Fiscal consolidation will focus on measures that will foster economic growth.” But this is all rather open ended though, because as much as countries in the developed world have agreed to fiscal discipline, point 16 leaves it wide open: “These measures need to be implemented at the national level and tailored to individual country circumstances.” In short, thanks for very little, these talk shops mean very little unless everyone actually sticks to the rules. And we all know very well how the Euro nations subscribed to the much stricter set of rules with regards to deficits.

OK, what about financial regulatory reform? I follow a fellow on Twitter, Josh Brown, the reformed broker he calls himself. He stuck out a short analysis of what the Financial Regulation Bill could hold for some of the majors, as well as the US consumers. And sadly for political scores, the bill has been watered down. Please be advised that this next piece contains some strong language. Not bad, but strong: Financial Reform Bill Is Like Watching An R-Rated Movie On TNT.

New York, New York. It was a mixed bag and you could be forgiven for thinking that where Wall Street ended up represented a pretty much nothing day. At face value of course. Truth was that equity markets started really slowly, the third read for Q1 GDP was disappointing, coming in lower than the estimates, which were 3 percent. The actual number showed that the US economy grew by 2.7 percent. I guess it depends on which part of the world that you are in, if you were anywhere in the Euro zone right now, you would grab that number with both hands. The opposite would be true of the developing world, that seems too light. Core PCE was better than expected, a bright spot in the GDP read. What? Core PCE, what is that?

Well, let Investopedia answer that, their definitions are all already well thought out, and hey, if someone has done it already, why try and reinvent the definition. A measure of price changes in consumer goods and services. Personal consumption expenditures consist of the actual and imputed expenditures of households; the measure includes data pertaining to durables, non-durables and services. It is essentially a measure of goods and services targeted toward individuals and consumed by individuals. Also referred to as “consumption.”

What was quite interesting is when reading the GDP release from the Bureau of Economic Analysis, the second paragraph is particularly interesting:
“The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, and nonresidential fixed investment that were partly offset by negative contributions from state and local government spending and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.” “The deceleration in real GDP in the first quarter primarily reflected decelerations in private inventory investment and in exports, a downturn in residential fixed investment, a deceleration in nonresidential fixed investment, and a larger decrease in state and local government spending that were partly offset by an acceleration in PCE.”

It is clear then that both the residential and commercial real estate markets are sucking wind. Plus it is also clear that both local and federal government is spending less. Imports are on the up, as interestingly are exports. The consumer is feeling a little more comfortable.

Still, there are the nay sayers, The Business Insider has put together a great slide show from that fellow Dave Rosenberg, who used to be at Merrill Lynch, but moved back to Toronto, to a far smaller firm. He has been incredibly bearish and in fact, if the markets do not tank as he suggests that they should, then he might have to eventually admit that he is wrong. But here goes: Rosenberg presents 13 signs the US economy has hit a brick wall. For those longs, Rosenberg has sounded like a stuck record, and has been wrong. Perhaps it is circumstance.

Wall Street wanders. Session end the Dow closed down nearly 9 points to 10143, the nerds of NASDAQ managed to add 6 to 2223, whilst the broader market S&P sided with the nerds, up three to 1076. What gives with Research in Motion? The maker of the Blackberry was down nearly 11 percent in normal trade, a ropey looking outlook for the second quarter.

Commodities, currencies, Drs. Copper and bushveld. Did you see that the worlds biggest gold coin (as I understand it, one of five) was sold for face value? A 100kg, 50 odd centimetre diameter coin, which three dudes (with their white gloves) had to carry. It always amazes me that gold coins are dealt with by smart fellows in white gloves, whereas at the ore body, this is the truth. Makes you think.

Anyhow, the gold price last traded near its all time highs at 1255 Dollars per fine ounce. The copper price is last at 306 US cents per pound. The platinum price is 1584 Dollars per fine ounce. The oil price last at 78.66 Dollars per barrel. The Rand is firmer at 7.58 to the US Dollar. 11.40 to the Pound Sterling and 9.37 to the Euro.

Up periscope. We should start marginally better today, on account of a stronger finish on Wall Street Friday evening. But Asian markets closed unconvinced, I am just saying.

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

Jozi, Jozi. Whilst the Italian football team found themselves on the next plane out after a poor show at Ellis Park, the full extent of the PIIGS woes were back in the spotlight. The G has crashed out already, but there could be a whole lot more to come as the chances of a default from the Greek government rose to 56 percent over the next 5 years. As per the measure of the credit default swaps. So basically, the market (unregulated as such) participants are telling you that they think we will have to pick up the can in the next five years, after having kicked it down the road this year. And what it means for South Africa, well Europe is a big trading partner of ours, and yesterday the first insights into what it might mean was revealed. In the form of the SARB quarterly bulletin, released yesterday.

Maude street shakes, moves and grooves. Session end the Jozi all share index had given up 204 points to 27414, at one stage, just before three in the afternoon the overall market measure was briefly in the black. Banks were down as a whole by a percent. Resources were down around 0.8 percent, early in the session BHP Billiton had improved on the news that the new Aussie Prime minister had extended an olive branch to the mining companies down under, but a longer look suggested that the labour party in Australia were still intent on delivering some sort of resource tax. So good news in the short term, how it was going to pan out in the long term nobody was quite sure. Bearing in mind that one of the architects of the super resource tax, the Treasury Secretary Wayne Swan, is now the deputy Prime Minister.

Bart’s shorts. Sasol with a business update as well as the chief staying on an extra year, into 2012. Looks all rather positive, including some new developments, specifically with the extraction of shale gas, that might well mean entering the American markets sooner than we might have expected. The Reserve Bank released their quarterly bulletin yesterday, what does it all actually mean for the ordinary folk and is the European crisis starting to bite us, remember that they are an important trading partner. And some other data, real on the ground data that always deserves another look, the Mooi River index.

A Sasol update from the Chief executive, including some management changes. Pat Davies, the chief would stay on a year longer than the traditional retirement age, he is 59 now, not so? So that means that he would stay on for roughly another two years from now, no doubt to groom someone for the job all the while in the background. I spoke yesterday with a journalist who covers the sector (at length) and we concluded that perhaps Christine Ramon was relatively new from what Sasol would normally think as the acceptable replacement. Insiders with a wealth of experience has been the recent trend. How old is Ralph Havenstein? A quick search tells me 54 this year. Havenstein had a very distinguished career at Sasol and then was the fall guy at Angloplats, which he headed briefly. At least in my opinion.

So what is new at Sasol? We will see a conclusion of the investment case in China for a Coal-to-liquids project and the feasibility study in Uzbekistan gas-to-liquids project by the end of the year. So those are two exciting projects that could be realised soon. What really interested me however, was the “new technology to extract shale gas at much lower cost than in the past has resulted in large reserves of natural shale gas being available in the US and such finds are also expected in other parts of the world.” That seems pretty interesting to me. More than a little interesting.

And then perhaps the opening lines show that in their view (Sasol) the overall picture is improving, remembering that the I part is : “I am pleased to report that operating profit has further improved in the third quarter of this financial year. We continue to benefit from our dedicated focus on enhancing operational efficiency while maintaining strict cost discipline. Higher realised product prices and improved production volumes have contributed to healthy cash generation supporting the strength of our balance sheet. The board of directors’ (the Board) approval of a progressive dividend policy demonstrates our confidence in the value that Sasol consistently delivers.”

The Mooi River index. What is this? Some background into the measure, which was tabled by the brains trust at the Greenfields farm just off the N3 in Mooi River. Quite simply it is the measure of 5 axle trucks going through the toll gates at the Mooi River toll plaza each month. And roughly each truck carries around 25 tons, these fellows who made the index have real insight into the transport market, in particular the shipping market. So here goes, the first graphic is the absolute numbers of trucks going through, since 2004. Click on each graphic to get a bigger view:

And then this one is a graphical representation of the above data, the vertical lines are each year, starting from the left of each data set, 2004, all the way through to 2010. If you are confused, email me, I cant explain it any better than that:

OK, this data suggests either two things. Firstly, there has been a lot more traffic on the roads between Durban and Joburg, the freight kind. This could and is partly to do with Transnet being second for business, because they are not as efficient. And also the economy has grown over that time frame, so naturally there will be a pick-up in road traffic. But perhaps a combination of both. The levels for the month of May 2010, the number 5 column in the graph, the last line of the six is reaching the all time high levels of May 2008 and 2007. Telling me that volumes are up at their peaks. I am still not 100 percent sure of what this is supposed to tell me, other than that the flow of goods from North to South and back is normalising back to the higher levels.

The South African reserve Bank released their quarterly bulletin yesterday, an enormous amount of data to sift through. You can try and read the whole thing, Quarterly Bulletin – June 2010, if you want. It really makes for a fascinating read if you are a super nerd. I took two tables from the report (so I guess courtesy of the Reserve Bank of South Africa) because I thought that they are always fun and insightful. The first one is South African GDP per quarter from 2009 into this year and you can see the marked improvement

I guess what this table does point to is how difficult it will be to report the type of jump off a low base that we will have to achieve in the second half of the year. And aint it all about jobs, because we had the employment report at the beginning of this week and the picture was not so rosy. In fact the only good thing that emerged from that report was that the people that had jobs were getting paid a lot more. In developed world the opposite is happening, governments are forced to cut their wage bills, to the disgust of the unions. Check out this snapshot of the jobs in South Africa:

See that big jump in government jobs whilst the private sector saw a massive drawdown. Is this good or bad? Does it represent our stimulus, government picking up jobs lost in the private sector? Or is the public sector already too bloated? Lastly, a graph that you well know, but when presented graphically is a telling story:

We knew that already, but the gold mines are a big employer in this country and if production is falling at this rate, you could well say for the majors that we are in sunset mode. This is growth in money supply, M3, Investopedia says M3 is “The category of the money supply that includes M2 as well as all large time deposits, institutional money-market funds, short-term repurchase agreements, along with other larger liquid assets.” Check out how South African money supply has fallen off a cliff:

Yowsers. No wonder all the credit retailers and banks have been sucking wind. Nobody is borrowing and the banks are not lending. And then the government accounts are the last part of the bulletin. It seems to me that the national government rolling 12 month revenue is starting to bottom and actually increase in some cases. VAT revenue is better than a few months ago. Customs duties have increased over the second half of 2009. Check what I am talking about:

So I guess that whilst in the short term government borrowing might and will rise, government must expect to collect more tax over the coming years.

New York, New York. Firstly initial claims showed a surprise fall, which is against the trend in recent weeks, so from an employment point of view, that is good news. But durable goods orders were a mixed bag. And the same anxieties around Europe surfaced again as the PIIGS CDS’s were soaring. So the buyers of insurance of the sovereign bonds of the embattled Mediterranean (and one in the Irish sea) economies are having to pay a lot more. Indicating that the unregulated markets of Credit Default Swaps are suggesting that the bond holders are in a worse place than almost ever before. So the anxieties about a sovereign default is higher than before. All the while the unions gather strength, Rome today, Paris yesterday.

Wall Street wanders. Session end the Dow lost 145 points to 10152, the nerds of NASDAQ were lower by 36 points to 2217, whilst the broader market S&P 500 closed down 18.35 points to 1073.7.

Commodities, currencies, Drs. Copper and bushveld. Dr Copper last at 298 US cents per pound, the gold price slightly higher at 1245 Dollars per fine ounce. The platinum price is last at 1561 Dollars per fine ounce. The rand is weaker at 7.64 to the Us Dollar, 11.38 to the Pound Sterling and 9.40 to the Euro.

Up periscope. US DGP, the last look for the first quarter. Three percent is the expectation, expect that to be a big turn on the day of where we end up. Of course if the number is in line with expectations then perhaps the same old anxieties.

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

Jozi, Jozi. We almost managed to creep back to level pegging in the middle of the afternoon session, but pulled back quickly after many participants conceded that they were either waiting for the Fed or watching the soccer. Soccer of course is what Americans call football. And that part there was only for my mum, everyone else ignore. The real reason for the head back to the thin red line was actually a Reuters flash that got everyone excited in London, buying BHP Billiton and Rio Tinto was the order of the day. Of course we benefitted and because the stock is a big constituent of the all share, we rallied back. And the news flash that has turned quickly into his demise, Kevin Rudd, leader of the labour party in Australia was facing a leadership crisis. This morning he is a goner, Australia gets first woman PM, reviews mine tax. Julia Gillard. The resemblance to Jodie Foster is uncanny.

Maude street shakes, moves and grooves. We closed over a percent lower, at the bottom end of the range yesterday. Perhaps it had to do with the Americans looking like they would not qualify. You know, as much as I want the underdogs to do well, it really matters that the traditional teams do very well, especially those with spectators that stick around and spend lots of money. So, we should be glad that the poms and yanks got through. OK, back to markets, the Jozi all share index slipped back into the red for the year, down at 27617, that was off 299 points on the day. One might have expected the banks and retailers to rally a little on the good inflation read, but sadly that was not the case. Perhaps already baked into the pie.

Bart’s shorts. South African CPI falls to the lowest read in a number of years, smack bang in the middle of the range that is acceptable to the Reserve Bank now. Murray & Roberts still carrying part of the can for the Gautrain (we don’t call it the Shilowa express anymore), still waiting for payment. Yech. Mirror, mirror on the wall tell me whether labour in Ozz will stay or fall? Because I know the answer to the UK outcome of labour, the emergency budget deserves a second look.

South African CPI slows…but what does it really mean? This is the lowest read since 2006. This is for the month of May, check out the whole release from StatsSA: Consumer Price Index – May 2010. There were very modest moves in food prices and some big downward movements in the fruit basket component. Not kidding around. From the release:

“The food and non-alcoholic beverages index increased by 0,5% between April 2010 and May 2010. The annual rate decreased to 0,8% in May 2010 from 0,9% in April 2010. The monthly increase in the food and non-alcoholic beverages index was largely driven by monthly increases in vegetables (2,6%), oils and fats (1,6%), sugar, sweets and desserts (1,1%), cold beverages (0,9%), milk, eggs and cheese (0,7%), meat (0,2%), fish (0,2%) and hot beverages (0,2%). These increases were counteracted by monthly decreases in fruit (-5,6%), bread and cereals (-0,1%) and other food (-0,1%).”

OK, so what makes up the biggest parts of the basket? What are the basket components that we must be most wary of down the line? Food and non-alcoholic beverages make up 15,68 percent of the overall basket, add in Alcoholic beverages and tobacco at a more modest 5,58 percent you get over one fifth of the basket made up of these items. Another 22.5 percent is made up of Housing and utilities. Which includes rentals, municipal services, electricity and other fuels and owners equivalent rent. Investopedia says: “When evaluating housing and shelter, owners’ equivalent rent of a primary residence is one of the two main components of the Consumer Price Index (CPI), which measures the average change over time in the prices paid by consumers for a market basket of goods and services. The other component is rent of a primary residence.”

Transport makes up 18.8 percent of the basket, but it is the buying of vehicles that is the biggest component of that segment of the basket. The last big sector is Miscellaneous goods and services, which includes personal care (haircuts that sort of thing), Insurance, financial services and what is categorized as “other services”. This sector makes up 13.56 percent of the whole basket. So some quick mental arithmetic 21 + 22.5 + 18.8 + 13.56 = “just over 75 percent”.

There are some big increases in tobacco prices, up 17.1 percent over the year, petrol up 18.8 percent, electricity and other fuels the biggest rise, 24.4 percent. But the good news is that Electricity and other fuels only makes up 1.87 percent of the basket so far. So even if this segment were to double over the next three years, it would still be less than four percent of the overall basket. Happy? I guess with food prices, we are prone to moves internationally in the soft commodity prices, plus held sway by weather patterns. And currency fluctuations, so I guess out of our control. Housing I guess could be directly linked to the interest rate levels right now. So I guess if the fellows at the MPC are tempted to lower rates one more time, it would hinge on their expectations of energy prices and the health of the global economy. And luckily Finance Minister Pravin Gordhan can give some insight to that, speaking to the folks on the ground in Toronto this weekend.

Yech. Murray & Roberts released a trading update yesterday afternoon once again underscored why the stock is looking cheap, because forward it is about at the right level. As a result of a once off the company will see earnings for the full year to June lower by 50 to 55 percent. A few extracts from the release will explain in a little more detail: “The latest available information on the estimated cost to completion of the Gautrain Project infrastructure works indicates an increase of about R390 million over the position on which the Group halfyear accounts to 31 December 2009 were prepared.”

And then follows on to say: “The Board recognises the scale of the claims relative to the scope of the Gautrain Project and it is of the opinion that the level of claims recognised in the Group accounts at 31 December 2009 was prudent. The Board has resolved to take the Group’s share of any increased costs as a charge to the income statement in the current financial year.”

So the government is just taking their time to pay for the Gautrain project. Why? That is the answer that I want. Which I think will pan out to be our version of high speed travel and compliment Metrorail over time. So the first phase wont be the end of the Gautrain. Most of the busses that I have seen servicing the byways of the Gautrain have been almost completely empty. As far as the Gautrain service goes, my wife and children took it the other day and had a fabulous time. The stock was dissed by market participants, down just over four percent. No more than the average day traded on the stock, so not in greater volume than normal, lets check it out today.

I honestly could never have believed that the massive backlash that has led to the demise of Kevin Rudd could have unfolded so quickly. It is often amazing what fresh blood can do, I see that labour now has fresh new winds at their backs. As you saw from the above article though, labour will not let go of the super resource tax issue, but at least they are bringing all the parties back to the table. Good luck to Julia Gillard. Does this mean that she goes to the G20 meeting in Toronto over the weekend? The one that our president and finance minister are going to attend? The last meeting of the finance ministers of the G20 in South Korea had very little consensus, other than the Aussies and Canadians not wanting a global bank tax. The poms have gone ahead and implemented a fairly mild bank tax off the bat.

Talking about the poms, we will stay away from the most titanic tennis battle of all time unfolding at Wimbledon. You know, the match that will never end, the two fellows in question, Isner and Mahut locked at two sets a piece and 59 all in the final set when bad light stopped play. Over ten hours. But we don’t concern ourselves with such matters, I am more interested in the reaction to the emergency budget of George Osborne. This is a great look into the future and sums up what the coalition government has strung together in a relatively short space of time.

And the columnist is right, labour should go take a long hard look at themselves in the mirror. Read it: Budget 2010: If Osborne’s gamble pays off, it is Thatcherism’s finest hour. If you read the commentary from the rubbishes below in the comments segment they are accusing the paper interwebs platform of being like the Telegraph. I don’t care what you think politically, Labour went hog wild on the spend, the coalition has to fix it somehow. The growth outlook is the big unknown, the opposition are accusing the ruling coalition of breaking away from stimulus too soon. Some economic models fit some cultures perfectly, the poms thrive on being down and out and coming back.

New York, New York. Barack Obama is losing steam on the polls front, the honeymoon is definitely over. Does that really matter? I guess in light of the major departure of their chief in Afghanistan and the BP oil spill people can be very fickle. Very fickle. And the democrats are losing steam, plus also the watering down of some financial reform, although some quarters suggest that there are some scores that might have to be settled. Check out the WSJ take Negotiators Ease Finance Rules. Back to the matters of markets, new home sales at the worst level since 1970. Or ever, because the data set only goes back 40 years. Yech, that is what the expiry of the tax credit, so there goes government support.

The other wait and see was definitely Fed statement last night. Short and sweet. Federal Open Market Committee – June 23, 2010 Press Release. Still voting against keeping rates on hold is that fellow Thomas M. Hoenig, who is sticking his neck out. But I guess that is what he is entitled to do. In short he wants to build in some fat, in case that there is a problem down the line.

Wall Street wanders. The Dow closed marginally high, five points higher to 10298. The broader market S&P 500 lower by three and a quarter points to 1092, whilst the nerds of NASDAQ lower by seven and a half points to 2254.

Commodities, currencies, Drs. Copper and bushveld. Dr Copper last at 298 US cents per pound. The gold price 1231 Dollars per fine ounce, the platinum price at 1562 Dollars per fine ounce. The oil price lower at 76.14 Dollars per barrel. The Rand is weaker at 7.55 to the US Dollar, 11.27 to the Pound Sterling and lastly 9.29 to the Euro.

Up periscope. We seem to be stuck in some sort of hold mode. Waiting for some clarity. To be honest, I think that is an opportunity, markets are not expensive by historical standards.

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

Jozi, Jozi. I suspect that much of the day in your office was spent wondering about the outcome in Bloemfontein later in the day. Or not. We opened the day in Jozi on the markets lower, even if the mood was buoyant in the office. All decked out in our Bafana kit. Someone asked an interesting question, do we continue to support football Friday? I guess so. The UK budget of course was something that we had to deal with and digest, what is the saying, if you are good enough, you are old enough. And that is all I need to say about George Osborne. More on him later. There was a miss in existing home sales late in our session, but we still managed to close near the highs of the day. Perhaps all the participants were foreigners not interested in football. Or half time presented folks with some late buying opportunities in the closing auction.

Maude street shakes, moves and grooves. Session end the Jozi all share closed 111 points lower to 27917. The banks rocked yesterday, perhaps the more dovish stance from the UK treasury was a good outcome for the banks. Perhaps something harsher was expected. And it was more business friendly than people would have thought. However it is often where the resource sector ends up, and that was lower, around three quarters of a percent lower.

Bart’s shorts. The unemployment situation in South Africa is no better after a poor showing in the first quarter. The poms deliver a budget that perhaps pleases the ratings agencies and markets in the short term, but the long term consequences are as ever unknown. Out of sight and out of mind, it seems to matter where the oil spills really are.

StatsSA released Quarterly Employment Statistics yesterday and the reaction from the media I guess was expected. Words such as haemorrhage and savaged were used by the mainstream media, and that is about right. The first line from the official release was telling: “The March 2010 Quarterly Employment Statistics (QES) survey showed that the number of people employed in the formal non-agricultural business sector of the South African economy decreased by about 79 000 persons (-1,0%) from December 2009 (an estimated 8 163 000 employees) to March 2010 (an estimated 8 084 000 employees).”

It sounds like and is most definitely a bad outcome. What was however most interesting is that wages in the non-farm sector from this time last year have increased 16.4 percent from Feb 2009 to Feb 2010. To an average monthly salary payment of 11 195 Rands, only slightly better than where the November number was at. Is this a function of union activity that the wage increases are ahead of inflation? Or is this just the norm? I am confused, did anyone actually expect this? What does it mean for the inflation outlook, or more importantly does it mean that because of higher wages being paid to those left with jobs, the impact to the broader economy is less severe? For sure, but that is little solace for those out of work.

The sectors that have shed the most jobs in the first quarter might come as a little bit of a surprise, from the release: “The wholesale and retail trade; repair of motor vehicles, motor cycles and personal and household goods; hotels and restaurants industry reported an annual decrease of 56 000 employees (-3,3%) at March 2010 compared with March 2009. There was a quarterly decrease of 40 000 employees (-2,4%) at March 2010 compared with December 2009.”

It is however the sector that I work in that has seen the biggest drawdown in jobs over the last quarter and an astonishing 110 thousand people have lost their jobs over the last year. I know that there is a massive focus on manufacturing jobs, but that sector shed a paltry 3000 jobs. Don’t get me wrong, each lost job is one too many. But this hardly makes for any better reading and how much of governments focus is on this sector: “The financial intermediation, insurance, real estate and business services industry reported an annual decrease of 110 000 employees (-5,9%) at March 2010 compared with March 2009. There was a quarterly decrease of 43 000 employees (-2,4%) at March 2010 compared with December 2009.”

The answer probably lies with the longer term picture, since the beginning of 2007 the manufacturing industry has lost an alarming 143 thousand jobs. Now out of a work force in the manufacturing industry of 1.188 million folks you can see why that figure is so alarming. Should we shrug our shoulders and say, oh well manufacturing jobs have been decimated globally as a direct function of the Chinese cheap labour pool. Even though this quarter sees the biggest ever annual increase in gross wages over the same period for the manufacturing sector. Does that make our manufacturing industry more competitive or less? Go back to those comments from the Jim O’Neill interview two days ago where he saw other countries becoming more competitive than China in the long run.

Watch it again, Goldman’s O’Neill Says Yuan Move Shows ‘Confident’ China. Listen from 5:40 minutes onwards to hear what I am talking about. About manufacturing places of the future. And he was right about the French. About the poms and their chance, well we will have to wait for this evening.

In this great age of technology not only could you watch the Chancellor of the Exchequer (1300 English speak for Finance Minister) deliver his emergency budget for the UK on both major business TV news networks, at the same time the Telegraph (those Breeteesh) was blogging the budget live. So even if you missed the live stuff and the flashes on the screens, at least you could have a look back at the blog, Budget 2010: live. There is just about everything that you need to know, including the all important reaction from those most in the know.

So the stuff that came out of that silly little red suitcase (it looks like the one you had in Sub B) has either been met with praise, from the ratings agencies and those deficit hawks, or dismay. I immediately thought of Nobel economics prize winner, Paul Krugman and this picture of him shivering under his desk, completely green and about to vomit when he saw what was delivered by the coalition government. And that leads in nicely from a very interesting article that he wrote for his column in the New York Times titled Now and Later. His solution is simple, spend now and you will be rewarded later. He subscribes to the Keynesian economics school.

The problem I have with applying one particular school of economics is that each crisis is different and therefore the application of a specific theory that worked in the past does not work for me. I do however not buy the notion that Greenspan or Bernanke are useless. They did what was right at the time. And we will live with the consequences. And do you think that they did a better job than was done in the Euro zone or not? The debate around the tugging and shoving of growth versus austerity is happening in front of our eyes, with suggestions that more stimulus is expected in the US, sometime soon. Stay tuned for that.

Joe Weisenthal tweeted something interesting yesterday, it was short, the linked to page was short, but the message was clear, in some parts of the world, oil leaks are kept under wraps. Here goes with the link attached: “Undercovered story of the day? Egyption oil leak in the Red Sea http://bit.ly/cKfcKN“.

Something that I have been banging my drum on and on about is the situation in Nigeria, with regards to the spills in the Niger Delta, there was a recent (Breeteesh) article from the Guardian titled Nigeria’s agony dwarfs the Gulf oil spill. The US and Europe ignore it.

It is hard for the photographers and reporters to get there, the gulf is close to all media points. There is one comment which perhaps makes the reason apparent for the under reporting: “You AGAIN failed to mention that the Nigerian government is the principal owner of ALL of the major upstream companies operating in Nigeria. They own 55% of Shell Nigeria, 60% of Agip, 60% of Mobil and 60% of Chevron. Why do you keep missing this key detail? Isn’t it part of your job to inform your readers of such a key fact? You are a newsman, not a politician. Give your readers the information they deserve.” Whether or not this is the 100 percent truth, I am not sure, but the fellow making the comment seems to have some facts. Whenever there is an emotive comment one must remember it comes with an agenda.

New York, New York. Yech. I guess it all boiled down to the big miss of existing home sales for the month of May. The annualized rate fell to 5.66 million units, whereas those in the know those surveyed were suggesting that the number should have been closer to 6.12 million. That is the thing about estimates, market participants prey off the short term data feed and what economists predicted and where the number actually ends up. It is a strange set of affairs but you probably find that the economists who predict the data points have very little experience in matters of short term trading. And at the same time the fellows who trade the short term moves probably have very few views on the longer term economic picture. There is a certain irony in that. I guess that they are all cogs in the bigger market picture. What the market then reflects should be a snapshot of how participants feel about the economy at this point in time.

Wall Street wanders. The last hour and a half saw a sell-off, perhaps some disgruntled Greek fans after some more Messi magic. When is he going to score a goal? The Dow Jones Industrial average lost 148 points to 10293, the nerds of NASDAQ closed lower by 27 to 2261, whilst the broader market S&P lost nearly 18 points to 1095.

Commodities, currencies, Drs. Copper and bushveld. The oil price is last at 77.52 Dollars per barrel, there is a storm brewing re deep water drilling, check this out Obama administration readies new drilling ban. The copper price last at 297 US cents per pound. The platinum price at 1579 Dollars per fine ounce, the gold price steady at 1244 Dollars per fine ounce. The Rand weaker as Bafana crash out of the world cup, last at 9.30 to the Euro, 11.24 to the Pound Sterling and 7.57 to the US Dollar.

Up periscope. Lower and slower to start.

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

Jozi, Jozi. We enjoyed a Yuan yodel session along with the rest of the globe, those Swiss are good for more than cheese and chocolate. They are also here. Have not met a Swiss fan yet though, anyone? Yuan yodel, like most juxtapositions it might take some getting used to. I was listening to my English teacher, thanks Dave Butler (Mr. Butler to you pal). So most of the focus was on Greece, I mean Spain the Chinese central bank authorities. Or as Jim O’Neill put it, isn’t it nice to wake up in the morning and speak about something else. Just another reminder that there is another economic story beyond the developed world. Check out that video of the interview yesterday, it is great: Goldman’s O’Neill Says Yuan Move Shows ‘Confident’ China.

Maude street shakes, moves and grooves. Session end the Jozi all share index closed at 28029, stock markets globally at and around five week highs and apart from the blip on Friday our market has been enjoying days of gains. Resources ruled the roost again, the wires suggested that the currency control relaxation Chinese was good news for those who are mineral producers who sell into China. Telkom ended the day one point nine percent higher after results were placed under the microscope.

Bart’s shorts. How will BHP benefit from BP’s failure, if at all. The UK lines up for the deepest spending cuts in decades as the Chancellor of the Exchequer, George (Gideon) Osborne is now being called Vatman. Sundance Resources suffers an enormous tragedy, a plane crash in the jungles of Africa claims almost the entire board. And a moan session from me about the payment facilities at Soccer City on Sunday night, sorry folks, just need some help.

We were trying to figure out whether or not BHP Billiton would be the benefactors of a BP asset sale and to what sort of extent. And more importantly what would they (BHP Billiton) have to pay for these assets that BP might potentially sell. So there are lots of maybes, could’s and perhaps, but that is our job to have a look at the possibilities. I had an interaction with a client and one of my emails to him included two graphics which I thought might be useful. And the reasons for them being useful are simple, there are two projects specifically which both BP and BHP Billiton are involved in, in the Gulf of Mexico. These are graphics taken from BHP Billiton’s last annual report, click on the images for the full view:

And this was part of the email to him: “I know that BP own the other 56 percent of Atlantis. And as per their (BP) website: BP (NYSE:BP) maintains a 60.5 percent working interest in Mad Dog. BHP Billiton (NYSE:BHP/BBL) has a 23.9 percent interest, Chevron (NYSE:CVX) has a 15.6 percent interest. And as you might know, BP are looking to offload assets to get the kitty ready for all sorts of problems that lie ahead of the next three years one would guess.”

What these two graphics do illustrate however is that the BHP Billiton long term strategy and asset base from their petroleum division is still Australia focused. In the short term they could benefit from the BP asset sales, specifically the ones where they have a share. There are several suggestions that BP should cosy up with Gazprom, get the ex statesman Tony Blair as the chairman of the company, sweeping asset sales, who knows. But you see where I am going with this one.

The headlines read, “Taxing times for the UK”. Osborne is being called the Vatman, the cloaked superhero by deficit hawks, or if you are a benefactor of government social spend then he would be a villain. Indeed. Either way the UK Treasury is presenting an emergency budget to raise taxes and reduce spend. So I guess this is another D-Day of sorts, or perhaps more aptly a Dunkirk. Who would know the most about the Brits, of course the Brits themselves, check out the FT page: UK Emergency budget 2010. Just after midday local time, just before you sign off for the football. I wonder what the credit rating agencies will think post this emergency budget. All I can say if you have an emergency budget you probably should not have a triple A rating.

OK, I moan a lot. I thought I didn’t but turns out that I do. I went to the football at Soccer City two nights ago, the heated game between Brazil and Cote d’Ivoire and it was great. Transport good, I took the train, stadium coordination brilliant, security good, signage excellent (third visit to Soccer City) and generally a great feel. All except for one minor matter, a matter that would concern fans. None of the Visa points worked. The ATM did not work either.

So if you had cash (I quickly depleted the hundred bucks or so that I had) and loads of it, you were fine. But I walked and walked to each food and drink outlet, and was met with the same answer each time “Sorry, offline”. I just want to know who is responsible for stadium technology infrastructure. And is it a Visa problem, or an FNB problem or a Telkom problem? Or none of the above! Anyone? Without knowing anything, in the world of social media this is referred to as #brandfail. Ha-ha.

Oh dear. Sundance Resources, a small Australian mining company has basically lost their entire board in an airplane accident. Yesterday afternoon the wreckage sight was found, this after the plane went missing over the weekend. The company had some hot backers, and on the flight were some very well known individuals. A fellow by the name of Ken Talbot. A fellow with an estimated wealth of nearly a billion Aussie Dollars. Talbot founded Macarthur coal, you know, the company that has recently been in the news on two takeover offers that failed ultimately. The official company release is as follows: MISSING AIRCRAFT UPDATE 4 – 0300hrs AWST.

As far as I can understand it from a Bloomberg mobile read the plane company that owned the charter has seen this as their third plane crash in a few years. Also, the board did not follow protocol, they are not supposed to travel all together on one plane. For this very reason. Another reminder that Africa has dangerous airspace when compared to the rest of the world and as such caution should be the order of the day. I feel desperately sorry for the families of the deceased.

New York, New York. The Chinese news that they would relax their grip on a currency peg had seen the futures wildly higher at the beginning of the session, but the spot market faded and fell into the red later in the session closing down. Amazon under pressure, the company have cut the Kindle prices (you prefer iPad? What a twist!). Apple going against the trend, on the charge, as early stage announcements that the new iPhone version four has lined up a stunning debut, more than 2 million pre ordered. Another one, their track record is stunning. Good news for holders of Visa and MasterCard rallied as it turned out that the current bill being tabled to limit fees for the companies has been squashed.

Wall Street wanders. Session end the Dow Jones industrial average closed at 10442, down 8 points to 10442, the nerds of NASDAQ lost 20 to 2289 whilst the broader market S&P 500 lost 4.3 points to 1113.

Commodities, currencies, Drs. Copper and bushveld. Dr. Copper last at 296 US cents per pound, the oil price last at 77.97 Dollars per barrel. The gold price is off the all time highs, at 1239 Dollars per fine ounce. The bush doctor, the platinum price last at 1600 Dollars per fine ounce. The Rand strengthened throughout the day yesterday, 7.51 to the US Dollar, 11.06 to the Pound Sterling and 9.25 to the Euro.

Up periscope. Hey, let me leave you with this piece which my aunt who lives in Paris, emailed me yesterday, to say that her heart is with Bafana Bafana. And when I asked her about how the French feel about their team, this was her response: “Shame, anger, and so on…Most of us wish the victory of South African team ; it would be awful if the French win…But I hope you will stop the vuvuzela unless you are shareholder of Audika.” I am yet to reply but when I do I shall inform her that I am a committed vuvuzela blower. Not great, average. As for markets, we should start the day on a lower note.

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

Jozi, Jozi. The winning streak was interrupted Friday, even as the gold price touched another record high. What am I saying, this is not 1980 when the gold sector was a more important of the overall market. Even though the gold companies IMO are vastly overvalued, the sector sadly does not command the respect that it once enjoyed. Why sadly, because it employs a lot of South Africans. And we have now fallen back to the worlds fourth biggest producer, we have been slipping gears seriously over the last decade. We were enjoying a good day all through the morning, a much firmer currency saw us slip in that second part of the day, we ended fractionally lower on the day.

Maude street shakes, moves and grooves. The Jozi all share index slipped 37 points to close out at 27761 points. Resources led the drag, down nearly 0.6 percent, still down around four and a half percent for the year.

Bart’s shorts. First the president says yes to a review of what I would think would have seen some inspired feedback, for some folks who might just be yes folk. BHP Billiton have agreed to higher royalties with the state of Western Australia. Telkom, are they next generation or not? Have they, or haven’t they, and I am talking about the Chinese government here and the devaluation of the Yuan. Or is it Renminbi? Is Tony Hayward toast? European banks stressed out? And linking in to that a piece from that fellow Ferguson, an academic with an agenda, or does he fall into a bearish camp?

What gives with the president saying that first a task team of ministers Barbara Hogan and Pravin Gordhan were going to evaluate the parastatals only to appoint a committee of 12 to have a look? This is not new news, in fact I had a look at the twelve in question a while back in detail and the conclusion that I came to is that it was dominated with government friendly faces. Ministers Gordhan and Hogan would have been friendly, you would imagine, but it is in the countries interests to sort out the parastatals and those closer to the problem would have been a better outcome.

Truth is, the parastatals are inefficient. Government just don’t want to admit it. Crunch time with Eskom suggests that they have to enter into partnerships with business on a project by project basis, so in a way part privatisation of what would be perceived as state assets. Some private businesses have entered into agreements that see them feed power into the Eskom grid, should this been seen a part white flag from Eskom, and very good for the country. Perhaps the Gordhan slash Hogan report would have been too painful to bear. I suspect that the truth hurts just too much, so water it down with more of the same. Leaves me feeling empty.

BHP Billiton have announced this morning that they have signed an agreement with “The Government of Western Australia To Amend Royalties And State Agreements”. To read the full release from the company check it out here. All the while the government super resource tax continues to gain negative momentum and undesired consequences for the labour government. At least that is the sense that I get, remembering that I read pro business stuff most of the time.

OK, the sort of government entity Telkom (reason for that statement, the gov own nearly 40 percent) reported this morning results for the full year to March. The companies website in the about us section suggests that “Telkom’s passion is to become world-class”. How long does this passion last for and is it going to happen? Ouch. OK, so the company leaking back some cash to their shareholders with another special dividend payment alongside an ordinary dividend that increased slightly. But earnings per share lower. The stock holding up well, in fact surging over three percent this morning, looking relatively cheap around 38 bucks.

What are the risks though? How does this stack up guys, from the company release and try not to laugh: “Multi-Links remains a major concern. We have impaired goodwill of R2,148 million and assets of R3,012 million in the current year bringing the total impairment to date to R5,622 million and thereby fully impairing the goodwill and net asset value”. What? Holy smokes. So forget the blip that was Telkom Media, this is much bigger in comparison. Although just below the Telkom release does make reference to having seen early signs of the business improving. The Multi-Links business that is, after all there are around 2.3 million subscribers in Nigeria. I don’t know, I can’t trust the decisions that management take, their present and past record is pretty poor. So much for worrying about what the MTN management do and don’t.

Do you have a clue what is going on with the have they, or have they not devalued the Chinese currency? And by they, I mean the Chinese central bank authorities, the People’s Bank of China. The official line from the PBOC website is as follows: Further Reform the RMB Exchange Rate Regime and Enhance the RMB Exchange Rate Flexibility. As clear as mud, the intent is there and perhaps the Americans have scored a tiny victory. Check out what the experts suggest, a Bloomberg piece earlier this morning: Peterson’s Lardy Says Yuan Move a ‘Win-Win’ for China: Video. Markets globally are perceiving this as a major positive and are rallying from East to West as the sun rises. You know, Noddy Eats…

I saw another Bloomberg interview with Jim O’Neill of Goldman Sachs (OK, my hero) suggest that it is a masterful stroke ahead of the looming G20 meeting. Because it says, look we are doing something. It helps a lot of internal matters in China, this is also brewing in the background. Foreign migrant workers will get access to local healthcare, early steps towards government pension funds in China, plus real wages higher. And that is key, internal consumption in China.

Is Tony Hayward on the next boat out? As live pictures of the spill from deepwater horizon continue to be broadcast across all networks, the BP chief was spotted at a yacht race over the weekend. Soaking up the sun, you know, the normal things that CEO’s who are in charge of listed entities in the midst of the crisis would be doing. Let’s face it, the crisis won’t be over until the well is sealed. So until such a time, don’t been seen in public attending yacht races. Even if you want your life back Tony, your life as a CEO of a multinational is to fix problems. I suppose that it must be frustrating for Hayward to not be a mile under the sea actually fixing the problem. Or not. All I know is that this has gone down real bad. Rather see pictures of you on the beach scrubbing birds.

According to this New York Times piece from yesterday, Day 61: The Latest on the Oil Spill, BP could have low balled the size of the leak initially. Not that it will help, but I suspect that by the time the month is out, Hayward will be toast, mounting public pressure will see to it. And the analysts out there still reckon that the stock is a sell. I suspect because there are still too many uncertainties for both analysts and market participants alike. This new news (in the public domain) is not good for BP.

You must have seen this before, I think that in my ramblings I have referred to it a couple of times. It is a slideshow put together titled Fiscal Crises and Imperial Collapses: Historical Perspectives on Current Predicaments. It plays right to the heart of the current European plan, to see that the banks in Europe undergoing a stress test. Remember that the US banks underwent a similar sort of stress test last year, I think April 2009. It has had the desired outcome, boosting sentiment, the FT nails it: Pledge over bank stress tests boosts sentiment. Sentiment is key and that is improving, even if the debt versus growth struggle is not.

New York, New York. A bit of a mixed picture really Friday, markets did close higher but well off the best levels of the day. Materials and energy stocks were buoyed by underlying commodity price levels. Improving sentiment to the Euro saw the Dollar weaken and the gold price touch another all time high of around 1261 Dollars per fine ounce. I don’t even know what to think about that, but I guess if the anxiety in the Eurozone abates then I suspect that the gold price might well continue to march higher. Even if inflation is not a concern for the time being.

Wall Street wanders. Session end the Dow Jones industrial average closed at 10450, up 16 and a half points, the broader market read S&P 500 closed at 1117, one and a half points better. The nerds of NASDAQ added 2.6 points to 2309.

Commodities, currencies, Drs. Copper and bushveld. Dr. Copper last crossed the wires at 301 US cents per pound, back over a mark that you might or might not find key. For me, no level is key and worth looking at. The oil price is last at 79.50 Dollars per barrel, rushing higher. The gold price has gained some more, higher at 1262 Dollars per fine ounce, the platinum price enjoying the same dynamics, 1605 Dollars per fine ounce. The Rand is firmer, foreign inflows, that is what it is all about folks, last at 11.05 to the Pound Sterling, 7.43 to the US Dollar and 9.23 to the Euro.

Up periscope. There aint much going on from a data release point of view, the ECB governor Jean-Claude Trichet delivers a prepared speech around midday, but expect no clues from whatever it is that he has said already. If you know what I mean. Plus, its downhill to summer here, today is Winter Solstice and by that I mean the shortest day of the year.

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

Jozi, Jozi. We were flat for the year at the beginning of the day yesterday, now we are about half a percent higher on the Jozi all share, after the close yesterday. C’mon folks, I am looking for some positives here, everyone feeling so down in the dumps after “the boys-the boys” look all but down and out of the tournament. But look at it this way, if there are other teams making it all the way, their supporters will be in a place to see our beautiful country. And how we have so far exceeded most peoples expectations.

Always look on the bright side. I heard that French unions are scrambling for the noise machine, the vuvuzela, when they line up for big strikes 24 June. Their football team is “horrible”. Imagine how they and the Nigerians feel? In the late afternoon we lost some steam as the Koreans (the real democratic ones) were being pounded by some Argentine magic (now those guys really know about a financial crisis). The real reason was slightly higher than expected jobless claims numbers out of the US even if US CPI is benign for now.

Maude street shakes, moves and grooves. Session end the Jozi all share closed at 27799, up 0.42 percent for the day, at one stage in the early afternoon 28 thousand points were in sight. Industrials led the charge. Resources underperformed the broader market. Hey, vuvuzela’s are our best export, even if they irritate some prudes. Like the WSJ sports guy said, if you watch football without the noise that is the kind of fan you are. So get one, blow it, even if it aint for you, try it.

Bart’s shorts. Forget a bank CEO, imagine being that Tony Hayward guy. Who could benefit from this BP disaster? Are those Naspers guys just clever or lucky and smart? How cool or stupid are these extreme austerity measures? Banks face a stress test the Euro way, croissants, cheese and wine. And beer I guess.

What is the best thing to do when you don’t know what to do? Well, it is to shout at people who you think should know what to do. And that is exactly what happened to Tony Hayward yesterday when he testified to congress about the oil spill. The US senators were clearly peeved with Hayward and needed to look good for the voters, no better way than to grill the BP chief on the telly.

Because to be perfectly honest, Hayward can’t turn around and say something like, well what about Fannie and Freddie and you falling asleep at the wheel? What are you doing about the budget deficit? Because it was Hayward’s turn to be grilled, never theirs. I would love it if that was the case, law makers grilled about what they are doing. Or not doing. Or is that called an election? Senators holding up pictures of dead pelicans did little to help Hayward, who was always going to feel like he was in the headmasters office.

OK, even if BP did a whole host of things wrong, and they are now being exposed for their wrongdoings, one thing is clear, the source of the spill is deep, dark, dangerous and at the bottom of the ocean. I bet that if Hayward could get in a sub and try and do it himself ala Independence Day, he would. The deepest a person has ever walked on the sea bed is 381 metres. Her name was Sylvia Earle, a legend in her field. This Deepwater Horizon leak is four times deeper than that. Got that? A robotic sub has been to depths of 6.8 miles before.

BP, what are the chances of the company defaulting, as measured by their credit default swaps? These have jumped from around four percent to 32 percent today. So roughly a one in twenty five chance has ballooned to one in three in around 60 days. Of defaulting folks, because remember that as per their website, BP have established a $20 Billion Claims Fund for Deepwater Horizon Spill and Outlines Dividend Decisions. But some are starting to say that this is clearly not enough, the company might need more than 20 billion Dollars. Which could in the short term justify the extent of which the stock has been crushed, even if there is a “number” now put on the BP liability.

Some have upgraded the stock, some have not. Some are less worried, some more so, I guess that is what makes a market. SocGen say the stock is a buy. S&P have cut their (BP) credit rating (what a twist). The current management is still in place. I wonder for how long, the shareholders might actually take heart from the fight that the company have put up, even if the PR people and environmentalists still lambast the company. Like Paul said, it is a telling example of how quickly a quality company’s image can be destroyed. The road back is what counts from here. The fellows over at the Business Insider have a cool slideshow: 20 Things You Should Know If You’re Even Tempted To Invest In BP.

Who will benefit out of all of this? The fellows over at Bloomberg have suggested that one of our (at least on our exchange) will benefit from all of this, BHP Billiton. At least that is what this article suggests: BHP Can Spend $20 Billion on Gulf Oil Assets, Citigroup Says. Errr.. yes, but BHP is one consonant away from being the stricken BP. Check that out, firepower to do enormous things.

The fellows at Naspers are either lucky or clever or both. They really have travelled a great road since our market bottomed out for a first time last decade in May 2003, the stock was trading in the low twenties and now trades at and around 275 bucks. The company sold their Greek operations, it was not clear at the time, it was not core, but now it is completely clear. The company invested in a start up internet company in China, it was not clear at the time, but now we know why. The real tricky question becomes, how do we value Naspers? Is it an NAV valuation, if you don’t balk at the Tencent QQ earnings multiple, Yahoo finance has it at 40 times. Google finance says 36 times. It used to be 100 times. Tencent trades on nearly 17 times book. Revenue of Tencent is one twentieth that of China Mobile. Tencent market cap is one sixth that of China Mobile. What do you think of the company? And how one should value it? Full year results 11 days time on the 29th of June.

That Nobel economics prize winner and op-ed columnist for the New York Times is seething at the austerity measures in the Euro zone. Sure side burns were cool in the seventies (1870′s or 1970′s, take your pick) but they quickly became uncool and downright messy. Baggy jerseys in the 80′s were cool, so was ultra-permed hair, now, that is uncool. We of course are talking about austerity and Paul Krugman, who’s latest piece titled “That ’30s Feeling” Read it, even if he has many detractors, he has some great points. The way that I see it, there is an economic shift East that has been given a leg up by the debt worries of Euroland.

New York, New York. A late push in New York saw markets end at the same levels at which they started, the best levels of the day. And this after markets on Wall Street traded in the red for most of the day, worries around the high number of claims and continuing jobless problem in the US. And a manufacturing number that was average. Offsetting those anxieties was a low inflation read and perhaps more importantly, the fact that the Spanish managed to get a debt issuance away without much of a problem. Put that down to a Euro backstop plus the search for yield. Would you rather take your chances and get five percent plus, or cash that is nothing? I would be more comfortable in a Brazil bond right now.

Wall Street wanders. Session end the Dow Jones Industrial average closed at 10434, up 24.7 points. The broader market S&P 500 closed at 1116, up 1.43 points whilst the nerds of NASDAQ managed to just squeeze into the green, up a point and a quarter to 2307.

Commodities, currencies, Drs. Copper and bushveld. The oil price last crossed the wires at 76.20 Dollars per barrel, lower than yesterday, in fact a whole buck and a half lower. Dr. Copper last at 287 US cents per pound. The gold price is last at 1246 Dollars per fine ounce, the platinum price at 1572 Dollars per fine ounce. And the Rand is stronger to the US Dollar as you might imagine, (as folks are more cheerful), last at 7.54 to the US dollar, 11.22 to the Pound Sterling and 9.34 to the Euro.

Up periscope. Feeling better today. UK data could surprise. Even if you feel bad about your team, you can feel proud of your country. They are doing a great job, just chat to any foreigner.

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

Jozi, Jozi. What a ripper! The Jozi markets saw stocks rock hard, lifted by global sentiment. Better industrial production numbers in the Euro zone offset consumer confidence numbers here for Q2 that was slightly lower than Q1. But that did not seem to matter, it was a case of lets ride it for the day. US futures continued to climb and markets opened strongly on Wall Street, allowing us a final boost at the end of our days trade.

Maude street shakes, moves and grooves. Session end the Jozi all share index had ramped to the best levels of the day, a gain of 596 points to 27446. Resources to the good by over three percent, banks in-line with the broader market whilst general retailers were lower by half a percent. There was a SENS announcement from the Avusa to indicate that they are buying a business for 925 million Rands. Holy smokes. The Universal Print Group and Hirt & Carter are the businesses being bought, a large cash component and some shares there too for the sellers, UHC Communications. Without even thinking about (and more importantly seeing any numbers from UHC) sounds like a lot of money to me, too much.

Bart’s shorts. Is the recent BHP Billiton announcement an Aussie snub, or just plain diversification? Greece lightning all over again, as Moody’s finally joins their peers and downgrades the countries debt issuances to junk. BP, the pain is evident and very visible. A home Down Under too expensive?

So BHP Billiton are going to be investing in an iron ore project in Liberia. Sounds like a good neighbourhood, but not really. Plain diversification but the timing of the release will make it look like the opposite. Quite simply because negotiations between the Liberian government and BHP Billiton have been ongoing for the better part of 18 months according to the wires. The source and let me quote Reuters: “an official in the West African country said on Monday.” Check out the original Reuters article Liberia, BHP sign $3 bln iron ore deal.

Remember the announcement from January this year, BHP Billiton and ArcelorMittal enter preliminary discussion to potentially combine assets in Liberia and Guinea. But there has been no official release on the BHP Billiton website, and the company is normally very good at communicating to their shareholders. It sounds more like a PR exercise, but I guess time will tell.

Greece. Or grease. Seems like a good idea to have a fry up until you feel sick. Should we care that Moody’s suddenly woke up and decided to rate Greece’s debt the same as the other ratings agencies? I mean really, the other agencies have cut Greece’s debt to junk, Moody’s decided to do the same last night. Standard and Poor’s for what it is worth downgraded Greece’s government debt to junk back at the end of April. Whilst this is happening in the background, something we knew already, from the FT last evening China prepares to invest in Greek projects.

So in short the Greeks won’t be able to raise money in the open market anytime soon, because the world quite rightly perceives the country to have a credit rating from all the majors of Ba1. Or what is termed: “Non-investment grade and therefore speculative”. If the Greeks have had a history of defaulting in the past and technically been insolvent every other year since the 1830′s why should we care what the ratings agencies say at all? Or should we wait for a CCC rating before we make up our minds? Blegh! Warren Buffett has defended the ratings agencies in the past. I still like this Buffett quote because it seems to sum up that period of oh dear quite well: “You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.”

Anyhow, say what you want about the ratings agencies, in the market they still have the ability to move proceedings, the Moody’s downgrade of Greek debt saw Wall Street sell off late after the announcement. And if you needed reminding of what the ratings agencies did in the whole oh dear period of 2008 then check out this article dated July 18 2007: Fitch says confident in “AAA” subprime ratings. All the while that some folks, considered crazies at the time, were about to hit a home run betting against subprime bonds, guys like Michael Burry, a medical doctor turned investment manager. A fascinating and strange guy.

OK, a passing shot on the ratings agencies. I found a comment on a blog (tell someone that ten years ago) with a brief summary of that same silly book that I cant seem to finish, “the Big Short” which sums up what sentiment is on the ratings agencies. This is heavy stuff folks:

“Ratings firms simply illustrate the tradgedy of the commons. Their game is to maximize there graft in balancing their value to investors versus their value to sellers. These two are inherently in opposition. The ratings firm can only provide value to the investor by enforcing rigorous transparency on the part of the seller, and these firms find no pot of gold in pursuing this in a bubble economy from the investors. The seller can find other ratings firms with mere marquee sparkle and no discernible ethics, and the waters of investment rating become increasingly chummed with no accountability for the ivory tower ratings agencies.”

“The only thing that can correct the situation is accountability, the sulphury stench of which threatens the majority of the mediocre WSJ-worshipping grifter investment culture. True accountability absolutely threatens significant sectors of what has become the mainstream American financial edifice.”

BP, BP and more BP. It is everywhere. We are now forced to think about the prospects of British pensioners who might be relying on the dividend flow. If fund managers have been hanging onto the stock through the whole spill, i.e. for the last fifty days plus, then their weighting overall would have halved. So ironically their exposure has been reduced by an efficient market. To say that BP has been carried out over that time is an understatement. Another Buffett quote which might help out those long short suffering shareholders, goes along the lines of, be prepared to stomach a 50 percent drawdown in value, if you are participating in equity markets. Phew, don’t BP shareholders know it well. For the record, the last BP communication to stakeholders, reads a little too technical, I think: Subsea Source Control and Containment.

What is the US government proposing? They are proposing that BP set up an Escrow fund, the editorial in the Washington Post has a pretty good take on what the outcome could be: Escrow fund for oil spill victims would help — if it is planned carefully. To be honest, after this meeting between President Obama and Haywood tomorrow, I would be surprised to not see some fireworks. But then again, Barack Obama is a measured guy.

Why is everyone getting so anxious about the Aussies? I mean, it is a desirable place to want to live right, a bit like California or Florida? Some are anxious that the country has not seen the same amount of pain in their housing markets as those two aforementioned sunny places in the USA. Check out this graphic from Wikipedia, house prices in Melbourne relative to the average salary in Melbourne, the ratio is the thing that you should lookout for. Meanwhile according to the fellows over at the Business Insider Morgan Stanley Disses Australia: Forget The Latest Cheer, The Consumer Is Breaking And The Dollar Will Tank.

New York, New York. All fall down at the end of what was a very good session for most part. Fingers pointing at the Greek credit rating downgrade, but I don’t buy that, everyone knew that the Greeks have lied about their finances and duped the ratings agencies, why should we care what they say? Perhaps just the reason that the skittish participants need, you know. Markets that had been one and a half percent better at one stage closed lower. And the looming financial regulatory issues still wash gently in the back of participants minds, although those regulations largely expected to impact on the fixed income markets. The grease that makes the engines go.

Wall Street wanders. Session end the Dow Jones closed at 10190, down 20 points, the nerds of NASDAQ up by a complete fraction to 2243 with the broader market S&P 500 down by nearly two points to 1089.

Commodities, currencies, Drs. Copper and bushveld. Dr. Copper last crossed the wires at 295 US cents per pound, whilst the gold price on the rise a little to 1224 Dollars per fine ounce. The platinum price also steady at 1554 Dollars per fine ounce. A barrel of oil on NYMEX last crossed wires at 74.75 Dollars per barrel. The Rand is steady at 7.67 to the US Dollar, 11.33 to the Pound Sterling and 9.36 to the Euro.

Up periscope. OK, so by far and away the most important read this morning is the German ZEW Economic Sentiment indicator mid morning our time. I don’t want to be the prophet of doom, but would the forecast for this last month be higher than the month before? Why would Germans feel better about last month than the month before that?

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