June 30, 2010 in Uncategorized
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.