Slasher's coffee beans

Jozi, Jozi. Markets were open, all day. See below who is to blame for Tuesday’s oops, and you ain’t gonna like it! A bit ropey to begin with, but we ended the day round about the top end of the trading day. Initial jobless claims in the US were still stubbornly high, the unemployment rate in Germany is still stuck at 7.6 percent, whilst mortgage approvals in the UK rose to 48 thousand for the month of July, less than anticipated. Local PPI blew out to 9.4 percent for the month of June. Grrr…..

Maude street shakes, moves and grooves. The Jozi (Joe-zee) all share index closed at 28550, up 182 points on the day, up a whopping 3.2 percent on the year now. That dreadful construction that we have been talking about has been on a tear, just a short few weeks ago was down 13 odd percent for the year, but now is only down 7 percent. To be fair, the whole market has moved in that direction. In charge yesterday were the general retailers, up over a percent and three quarters on the day. That PPI read hardly looked favourable to me, I must admit. Higher electricity prices starting to feed through.

Bart’s shorts. Anglo American results this morning, what does the world look like according to them? Strikes and pay, who should get what and are we entering into what I call the great area of entitlement? Pay me more and I won’t do any more, because you are not paying me enough. And then in China, what do higher wages actually mean for all and sundry? Across the globe that is, because studies suggest that the Chinese have not only been paid more, but they are more productive too.

Anglo American results this morning. The div is back, and no I am not talking about P Div. These results are for the half year to June 2010. And they are measured in Dollars, which made Byron mad. But I said to him, everything they sell is priced in Dollars, it makes sense to report in Dollars. Plus they are no longer a local company, or even a company with a primary listing in London, they are both operationally geographically spread and have shareholders from everywhere.

Highlights, revenue increased 35 percent to 15 billion Dollars, profits of 4.071 billion Dollars, that is a whopping increase of 114 percent on a very scratchy half to June 2009. Basic earnings per share is 171 US cents per share at their average for the half of 7.53 that equals 12.87 Rands worth of earnings for this year. It would be a hack to annualize that, but do it anyhow, 25.75 Rands earnings for the year, the stock then looks relatively cheap at 290 odd Rands a share.

Where do their profits come from, or which divisions should I say? The Copper and Iron Ore & Manganese divisions contribute 64 and a half percent of operating profits. Platinum is only 9.6 percent, by the same measure, but methinks is absolutely key. These numbers of course are back looking. The problem with having bought that South American iron ore asset is that it is going to suck cash, so whilst the dividend has been restored, 25 US cents per share, that is 183 ZA cents a share, an exchange rate of around 7.32 Rands to the USD, it is hardly a kings ransom, and in fact thanks must go to Kumba Iron Ore. Shot dudes!

Minas Rio. Check it out. “The 26.5 million tonne per annum phase one iron ore project in Brazil, we have made good progress on those areas of the project where the necessary approvals have been secured, in the context of what has become an increasingly rigorous and more complex environmental permitting process in Brazil in recent years.” Interesting in itself that the process in Brazil is becoming harder. That makes the existing assets in Brazil and the folks that are producing already, perhaps much more valuable.

And how far away is the asset from producing? “Once the remaining initial approvals are granted, we believe it will take 27 to 30 months to construct and commission the mine and plant and to deliver the first ore on ship.” And because the regulatory environment is becoming increasingly difficult, the costs are going to be more than anticipated. Come to think of it, when last did you hear from a mining company that their developing of an asset was completed before target date and cost less? Tell me.

And the outlook is measured in the short term but good in the long term, read the world according to Anglo: “The short term outlook for the world economy has become more uncertain in recent months, with certain less favourable leading economic indicators. However, in the medium to long term, we remain confident about prospects for Anglo American with the process of industrialisation and urbanisation in China, India, Brazil and other emerging countries continuing to drive demand for our key commodities.”

There you go, don’t blame the JSE for the fumble and fall Tuesday, but rather MTN, one of our favourites over here at Vestact. One of the stocks that are top of our list. Interesting that the JSE had little comment Tuesday evening and it took until Thursday for them to confirm that there were multiple issues across the MTN network that led to dealing only commencing at 15:20, after a 15 minute auction process. I read a Reuters article which points to four problems since September 2008, three of them being trading halts. I guess like airlines, you expect them to be on time. Imagine that, a hunk of flying metal, with the luggage of 200 odd people, plus having to check them and shoo them into their seats, must leave on time, otherwise you are irate. But if the Doc is half an hour late, that is OK. Just saying. Anyhow, looks bad for MTN.

The full release is not yet available on the JSE’s website, there is the last link to the July 12 outage in trade titled Upgrade regarding JSE interruption in trading today. Surely they mean update and upgrade? And I guess we might well see the publication on their website a little later.

What do you make of the current strike impacting all public services. What is essential and what is not essential? Is teaching an essential service with end of year exams just around the corner and not much teaching time left? The Public Servants Association or the PSA accounts for over 200 thousand folks in various government departments, so they are a sizeable force to be reckoned with.

I read with interest the “COSATU today” newsletter from yesterday, the one always titled “Our side of the story” and was struck with a few pieces, titled: “COSATU public service unions go on strike”. A few very valid points made:

“During these negotiations our members were reading on a daily basis of the government’s wasteful expenditure on cars, hotels, parties and advertising, World Cup tickets and this was sending a wrong message because we were told that there is no money. This amounted to hundreds of millions of rands.” Yip, dead right, the wasteful expenditure has outraged us all. What has irritated me however is that there is a reluctance of public officials to say, yeah, this is wrong, this is excessive. There is even less accountability.

The letter continues: “During this year’s round of negotiations other public sector employees settled as follows:
Local Government 13%
Transnet 11%
Eskom 9%
South African Revenue Services 8%”

And just a refresher folks, the employer (government funded by the tax payer) is offering a 6.5 % wage increase and a R620 housing subsidy. The collective unions have revised downwards to demanding an 8.6 percent wage increase and a R1000 housing subsidy. Would someone please explain the housing subsidy to me please, dumb question I know. Plus government want to implement from 1 July, unions want pay increases to be back dated to 1 April, no fools I promise. The passing shot is a little worrying: “It is therefore unacceptable that the Public Service Unions are offered a mere 6.5%.”

And by a little worrying I am saying that the norm now (let us call it the new normal wage settlement South Africa or NNWSSA) is comfortably above where CPI is right now. Perhaps there is some serious lag impact here. But Zwelinzima Vavi has a point. He was interviewed on CNBC Africa last night, and he spoke about executive remuneration in South Africa and the big disparities between the workers and the chiefs. He said something along these lines: The average chief of a listed company, of the top twenty listed South African companies earn around 1750 times more than the workers. And earns in three months what the president does for the year.

Is it too much? What are the skills required and pressures of being in the top job. Nobody ever tells me how long and hard and how pressed you are at a personal level. Any chiefs out there, email me your normal week.

And yesterday of course we also chatted about the costs of labour around the world. Well, not really around the world, but here, in the USA and in China, the manufacturing hub of the world. Check out this Economist article from yesterday The rising power of the Chinese worker.

I have extracted a numbers of lines (I know you are busy) that show you that the global economic landscape is changing, and fast, on monthly wages: “That is a mere $197, little more than one-twentieth of the average monthly wage in America. But it is 17% more than the year before.” And how that ironically might help the Americans of tomorrow, because if all that free cash was used to consume, as the article points out: “A 20% rise in Chinese consumption might well lead to an extra $25 billion of American exports. That could create over 200,000 American jobs.”

Perhaps the most telling is that not only have the Chinese been paid more, but they are more productive: “And Chinese wages were anyway only half the story. The other half was Chinese productivity. Chinese labour costs tripled in the decade after 1995, but output per worker quintupled.” What! Basically even as the giant economic miracle has happened, there has been no resting on any laurels, if anything the work force is trying harder. Again, how do you compete against badly paid workers by global standards who are willing to work harder and be more productive.

New York, New York. An insipid session for the bulls and bears alike, stock off a little, not a great deal of action. Is this as a result of the summer time blues, or does that start sometime next month. You know, when all the rich folks participating in markets and making liquidity all head to their respective coasts for the last bit of summer. Check out a map of the world and you can quickly see that most folks live in the northern hemisphere. Sorry to us souls down here.

Kellogg’s were post toastied after a recall of something like 28 million boxes of cereal and flaky results. Colgate-Palmolive results disappointed. I said that this was a direct result of people not washing you see, because they need an iPhone rather than soap. Exxon Mobil beat the street, but traded lower.

Wall Street wanders. Session end the Dow closed 30 points lower to 10497, the nerds of NASDAQ down by nearly 13 to 2251, whilst the broader market S&P 500 was lower by 4.6 to 1101.

Commodities, currencies, Drs. Copper and bushveld. Dr. Copper at 324 US cents per pound, the gold price at 1169 Dollars per fine ounce, whilst the platinum price is last at 1552 Dollars per fine ounce. The oil price per barrel at 77.65 Dollars per barrel. The Rand is weaker as everything else sells off, 7.34 to the US Dollar, 11.48 to the Pound and 9.59 to the Euro.

Up periscope. US GDP is key for sentiment today, we have started lower here already.

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

Jozi, Jozi. We were up and then we were down. A good start was eroded later in the day as durable goods orders came in lighter than anticipated and again the same old hang wringers came to the fore. And the same headlines you started seeing, stocks fall as investors worry about the pace of the US recovery. Let me be clear. Investors don’t make day to day decisions based on the economic flow that appears in front of them. Those are speculators. Because you need to form a much bigger and clearer view of what you think will happen over the next five and ten years. Which in itself is almost impossible to predict.

If I had told you ten years ago that social media would rope in hundreds of millions of people who choose to interact on their high resolution touch phone screens, you might have looked at me sideways. Oh yes, that same device is also going to manage all your music. And you can watch Youtube on the device (what is that?) and use a search engine called Google (what about Altavista, Ask Jeeves and Yahoo?) which will trump them all. Google was launched in 1998, so you might have known about it.

And that IE would eventually knock Netscape into oblivion. Plus a company called Apple would lead the way in handheld devices, the premium product, plus they would be light. And you can read a book on a touch screen tablet device, check your email, browse the web. And your old 386 PC with 3 Gigs of storage space, running Windows 98 is about to look like a Triceratops next to your current OS Windows 7 with 2 GHz processor and a minimum of 250 gigs storage space. Just saying.

Oh, and Paul just made a good point about my phone. I told the dudes that I started reading Benjamin Graham’s “The Intelligent Investor” (that is where that rant came from above) on my mobile phone, which I downloaded last night. And Paul then said: No waiting for the book to arrive on a boat, import duty on books, no VAT, the electronic version is cheap, 11.99 Dollars. And all completed inside of a couple of minutes from choosing to having the “book” and reading. Point made. Tell that to someone in the year 2000.

Maude street shakes, moves and grooves. Session end the Jozi all share index closed at 28367, down 94 points. The platinum miners got a crack again, to be fair just Impala Platinum that is facing the possibility of strike action of 18 thousand employees. Wow, that is a lot of folks going on strike, presently the workers (NUM, the National Union of Mineworkers) are demanding ten percent, Impala Platinum are willing to pay 7.5 percent more for higher paid folks, eight percent for lower paid workers. It seems that for now the strike has been averted as the parties sit around the table, to discuss. Yesterday’s tame inflation read did little to boost the banks (down 1.4 percent) but the retailers did rise a touch, up around a quarter of a percent.

Bart’s shorts. That inflation read, better than anticipated, where are the pressures if any in the pipeline? Platinum group metals, the ride has been way wild if you check out 15 year’s worth of data. The call for the Rand to be weakened is starting to bore me, it has happened already, quite drastically since 1990 and 1995. And perhaps the most bullish forecast for the US economy yet.

Statistics South Africa released the Consumer Price Index for June 2010 yesterday and the key findings and a summary were as follows, from the report: “The headline CPI (for all urban areas) annual inflation rate in June 2010 was 4,2%. This rate was 0,4 of a percentage point lower than the corresponding annual rate of 4,6% in May 2010. However, on average, prices remained unchanged between May 2010 and June 2010.” Good thing, let’s watch it.

Paul was involved in a fascinating show yesterday involving talking the PGM’s and platinum specifically. When he got back from the studios we chewed the fat here and we discussed factors like why the platinum price suddenly started to take off over a decade ago. Remember that the Russians with all their palladium used to hold the motor industry to ransom and only stick the stuff on the market when they needed the foreign reserves. The palladium price was worth a whole lot more and in fact spiked to over a thousand Dollars an ounce in the year 2000, as the Russians monkeyed with the supply side. By the beginning of 2003 the price had fallen in a heap back to 1995 levels of around 150 bucks a fine ounce.

By comparison there was a big shock in the platinum price too, as a direct result of the power outages of 2007, check out this graphic of a 15 year comparison of the palladium and platinum graph. You can see the Russians cooked their own gooses and we suffered from a lack of production this side that saw the price rocket. All I am saying is that one should be careful, you need a goldilocks price that is right for all parties, otherwise “men in white coats” will find an alternative. For the time being the future for PGM groups looks very favourable as a direct result of increased environmental laws. In short, pay attention at all times.

Let us get back to the issue of inflation. Because the MPC Let us stay on this issue of inflation for a while. Because the Reserve Bank’s MPC could have now been accused of having missed a trick in not lowering rates last week, in the face of what is favourable and benign historical data. But it is their job to predict the future, and what they think is going to happen down the line. Pick ‘n Pay chair Gareth Ackerman (don’t tell anyone, he got the job because of his dad) said that recent calls to send the value of the currency much weaker, in order to be competitive would be a disaster. Agreed, because as he points out, inflation is the scourge of the poor, and those folks would be most affected.

In fact when I read the statements made by COSATU general secretary Zwelinzima Vavi about the Rand I was outraged. And even threatened to enter politics for about five seconds. OK, I was not outraged, rather I was irritated with the same old calls to weaken the currency, because that was the single thing making us less competitive. We should use China as an example he said. OK, so let us look at the Rand exchange rate to the US Dollar over the last twenty years. How has it done on balance? In 1990 the Rand to the US Dollar was 2.58. 1995 it was 3.62, 2000 it was 6.93 and 2005 it was 6.36, present day in 2010 it is 7.34.

So, over twenty years the Rand was weakened substantially. 15 years, a lot, ten years, not so much. So, the global economy has rebased us to where we are now, more or less. Over the same time the Euro has hardly budged to the US Dollar, having come “online” at 1.17 to the US Dollar, nowadays at around 1.30. Over ten years. Sure there have been points where it was 1.60 odd to the Euro and there were periods of extreme Dollar strength too.

And this comparison to China is a great one comrade Vavi, really. Because minimum wage in China is about 145 Dollars a month. Yip. Somewhere around 80 US cents an hour. Depending roughly where you are, but is about the rate, so a ten hour day will see you walk away with 8 bucks for the days work. Phew, chump change. In the US it is around 7.25 US Dollars an hour. An eight hour day equates to 58 Dollars a day. Minimum wage in South Africa, back to US Dollars, minimum wage for a domestic worker working 27 hours a week is around 125 US Dollars a week. Per day, 25 US Dollars, a month 560 odd Dollars a month. And that is around absolute minimum. So, in real terms a factory worker with no skills is around 3 times better paid in South Africa.

So, how do you compete with the Chinese at a manufacturing level? Especially when the biggest economic miracle of our time saw the wheels start turning around the same time that we entered into full blown democracy. Although the wheels were put in motion a long time ago, the late seventies. So let us stay with China then. Anyone have any ideas, because if you like the notion of a weaker currency (as comrade Vavi does) then what about labour flexibility, that also exists in China? Surely you have to like everything, and not just parts of it.

And most importantly if the currency goes to pot your imports become very expensive. And that leads to inflation, heavy inflation. And inflation is the scourge of the poor. And those are the very people that society must protect, as per that Steven Friedman piece in the Business Day titled: Volley of factual blanks in war on social grants.

How much have you heard about the Chinese housing bubble lately? A lot. And it is fashionable to talk about it. This is a superb piece letting folks know how the experts see the markets and how the prices have been explosive over a very short period of time. Read it, and then I have my two cents worth. Just how risky are China’s housing markets?

This came from a blog piece that raging bull James Altucher wrote and posted on Seeking Alpha titled: The Only Gold Stock I’m Buying. By his own admission, he hates gold as an asset class. But check out the part where he talks about the emerging middle class in China, and this ties nicely into our theme around Richemont, as well as big energy through stocks like BHP Billiton and Sasol:

“One of the biggest demographic trends that will be occurring over the next ten years is the rising middle class in China. The Chinese middle class is growing by approximately 50mm people a year and represents 25% of the population now, up from less than 5% of the population a decade ago. That means, for instance, that China has gone from being the 20th country ranked by oil consumption to the 2nd country and is now number one in terms of total energy consumption. It also means the demand for luxuries by this nouveau middle class is now insatiable, growing, and cannot easily be satisfied due to lack of supply.”

And let us finish on China, all the brands that you sort of know, but you almost certainly will know in ten years time, according to the fellows from the Business Insider. What? Them again? Check out the slideshow: Lenovo: What Apple was to Microsoft in the Nineties

For ten bucks you can download what the Business Insider (again) pointed us to: From Recession to Recovery: Analyzing America’s Return to Growth. The most bullish forecast they (the Business Insider) have seen so far.

“Key points in the forecast: Real GDP will grow at 3.5 percent in 2010, 3.7 percent in 2011 and 3.8 percent in 2012. The U.S. will add 1.8 million jobs in 2010, 3.1 million in 2011 and 2.6 million in 2012. Real consumer spending is projected to increase 2.8 percent in 2010, 3.5 percent in 2011 and 3.0 percent in 2012. New home construction won’t aid economic growth in 2010, but residential fixed investment should jump 26.0 percent in 2011 and 25.7 percent in 2012.

Bullish hey?

New York, New York. Earnings reports are flooding in, Sprint Nextel made a loss, not as much of a loss as folks expected, that helped a lot. It was a little about the Fed’s Beige book, which was still pretty ropey. But hey, this recovery is fragile, 3 percent growth for a 14.5 trillion Dollar economy sounds like a pretty good outcome. Boeing was bashed as they missed revenue estimates. Visa afterhours, as per their release: Posts Strong Fiscal Third Quarter 2010 Earnings Results.

Check out the terrible no good great results: “Payments volume growth, on a constant dollar basis, for the three months ended June 30, 2010, was a positive 14% over the prior year at $803 billion. Cross border volume growth, on a constant dollar basis, was a positive 17% for the three months ended June 30, 2010. Total processed transactions, which represent transactions processed by VisaNet, for the three months ended June 30, 2010 totaled 11.7 billion, were a positive 14% increase over the prior year.” Yeah, the world is so in the dumps that there was ONLY a 14 percent increase in Visa transaction. Feels so much like a recession “the Nouriel”.

Wall Street wanders. Session end the Dow closed off 39 points to 10497, the nerds of NASDAQ lower by 23 to 2264, whilst the broader market S&P 500 lost 7.7 points to close out at 1106.

Commodities, currencies, Drs. Copper and bushveld. Quickly. Copper price 324 US cents per pound. Platinum price 1540 Dollars per fine ounce. Gold price is last at 1165 Dollars per fine ounce and oil price at 77.24 Dollars per barrel. The Rand is stronger at 11.40 to the Pound Sterling, 7.29 to the US Dollar and 9.53 to the Euro.

Up periscope. We should start better here today. Look out for weekly jobless claims.

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

Jozi, Jozi. On the markets in Jozi, I only have one thing to say to you, three twenty in the afternoon. The JSE experienced one of the worst technical glitches I have seen in a decade or so, and only managed to open that late in the afternoon. There was a flurry at the beginning of the day, but once the first trades were out of the way, there was the blue screen of death. I miss Windows NT, it was so bad when compared to modern day technology. I thought for a moment that Panjo the tiger might be on the loose in Sandton scaring all the folks at the JSE technical department. The JSE media relations folks seemed about as noisy as a nerdy accountant (the kind that stares at his feet all day) at dinner with surfers, socialites and movie stars. Not much, and that was the frustrating part. Perhaps, by their (the JSE) own admission, they don’t actually know what has happened. Investigating still.

This did not of course stop us in our pursuit of knowledge and getting on top of admin. One never gets on top of admin, you keep going sideways. Don’t ever sink folks. OK? Data out of Europe was interestingly better than folks had anticipated, money supply in Europe was better, as were private loans. You see, folks are borrowing in Euroland again, it is not finished. And then there was favourable housing data out of the US around mid afternoon, in the form of the Case Shiller index, which saw metro housing prices across 20 key areas rise 4.6 percent, more than expected. And a little internal bird informed us that internal talk in Nedbank is that the bank had been sold to HSBC. But I poo-poohed that and suggested that talk is cheap.

Maude street shakes, moves and grooves. Session end we closed at 28461 on the Jozi all share, down 37 and a half points, or 0.13 percent. Not bad all things considered, moving around and capturing some extra time with the US markets which were really choppy. And that is what it looked like amongst the majors. Platinum stocks down by around one and a half percent, whilst the broader resources index was pretty flat. The gold miners were planted two percent lower on a gold price that fell to multi week low. You care? Perhaps.

Bart’s shorts. What can really be done to make our unemployment situation seem so much better? No, really? Who has a plan? I have an equally flimsy suggestion, because I think that the weakening of the Rand has not worked at all. Brazil, another brick in the wall, or the key BRIC sort of ignored? Could we compare ourselves to that country?

Oh dear, not another rubbish unemployment report in South Africa. Check it out, from Stats SA: Quarterly Labour Force Survey. Here is a summary of our workforce, 31.399 million folks aged 15 to 64, 17.054 million in the workforce, of which 4.3 million folks are unemployed. But, 14.2 million folks are not even economically active. Of those not economically active, 1.9 million folks are discouraged. So, in truth the labour force participation rate is 54.3 percent. Formal sector participation sees 8.845 million folks, informal employs 2.124 people. But don’t let me drone on, check out the table below, courtesy Stats SA:

And then table B gives us a breakdown of where the folks are actually employed:

And. And. And. The most worrying for me anyhow is that Table G. Check it out:

Six million students looking for a job, soon, very soon. That my friends is the biggest problem in my opinion.

What is the fix? Why don’t we have the same sort of unemployment rate as Mauritania, Mali and Equatorial Guinea? Is it any surprise that the country in Europe with the biggest unemployment rate is Spain, when that country has the toughest labour laws. Let us try much more lenient labour laws. Let the union involvement become weaker and not stronger. Or is that too simple, will that cause massive civil unrest as labour flexes its muscles. For crying in a bucket, India has an unemployment rate of 10.7 percent. Government cannot suck up all the slack, that would be too much of a drain.

I don’t have a blanket solution at all, because I know that if government were to suggest less strict labour laws, the streets would be turned upside down. Perhaps it is time for labour to come down off their high horse and help solve the problem rather than sticking to their guns. Because the rand has weakened chaps, 1 January 1997 the cross to the US Dollar was 4.67, got that? Currently 7.34 to the US Dollar. A weakening by 60 percent. 60 PERCENT over 13 years!! That whole argument of a weaker currency making our manufacturing industry more competitive is flimsy. It is about productivity and attitude.

This is my short solution. We have a similar situation to what the USA had post the depression, lots of unemployed folks. And lots of service delivery left. A lot. So, big labour pool, lots of infrastructural development needed, marry the two. It might take five to ten years to build what we need and improve what we have. That sirs and madams is my solution, use mass labour to build roads. Because in terms of some major employers, like the gold miners, it is getting incredibly tough to mine. Very hard. So, what gives there?

China, China, China, China, and then some India thrown in there and then the other two BRIC’s who receive less attention than their illustrious peers. I am thinking that the Russians attract perhaps the least amount of attention, they used to be a superpower right? With the economic and social collapse came free markets (some would say, what do you mean free!!??) and now the country is developing. Ah yes, the land of my ancestors. I have little desire to see the place, my wife tells me that I must go and have a look, just to look. But I picked up this interesting article from the Economist, they still put out some top stuff, here it is, titled Four reasons to believe in Brazil.

Check out the sub headings of why to get excited about Brazil, Commodities, Petroleum, Demography and Urbanisation. Sounds vaguely familiar. Ah yes, we could if we wanted to increase gas and coal to liquids production, by giving Sasol bigger incentives, more tax breaks. Rather than talking about nationalisation of privately held assets. Those are just scare tactics. Plus we have a fairly sizeable sugarcane industry, we should start much bigger ethanol plans than we currently have.

That should create a few sustainable jobs, or is it just not as easy as that? Who knows more about this industry? Because I know when Rhodesian sanctions were at their highest, the ethanol industry was pretty effective. Or so my pops tells me, you know, he is a when-we. Although to be fair to pops he does not talk like that at all. You should meet him, but that would mean travelling to the Klein Karoo. Or is it Karroo? Karoo is more accepted.

And for the record, I don’t think that doing away with the grant system will solve anything other than the middle class and upper class tax payers feeling that they are in a better position. For government spending less, the 12 or so million less folks on life support as far as the bread line is concerned. The monies granted are spent on essentials and in a roundabout way goes back into the government pot and creates rural jobs. Spaza shops. Informal services in rural areas. Those are real jobs. Still feels like a medium term solution and is exactly that. Don’t let anyone tell you otherwise.

And check where a South African family may fall into this graphic that no doubt you know well. What ordinary families around the world eat. Check out all the packaged food in the developed world and check out all the fresh food that the developing world folks eat. And more importantly, check out how little the poor eat and how much the rich eat. A world of imbalances and maybe it will help you understand the need for the grant system. Check it out: Family food consumption…by country.

And if you are not convinced then read the Stephen Friedman piece in the Business Day titled: Volley of factual blanks in war on social grants. You don’t have to be a lefty to agree with almost everything that he has to say.

New York, New York. Indeed, the housing situation is improving, even if senor Shiller says that there is a fifty percent chance of a double dip. So you mean there is equally a fifty percent chance of it not happening then? Equally if you Google double dip you will see headlines like, treasuries sell off on fear abating over a double dip. Hang on a second here, El-Erian and co are more vocal about this, the Nouriel keeps banging on about this, what are the fears ebbing? DuPont also added to the positive trend recently from companies saying that they saw a better short term than originally anticipated. US steel missed earnings expectations and was crushed. Moral of the story, don’t miss.

Wall Street wanders. Session end the Dow closed at 10537, up 12 and a quarter points. We were informed at the beginning of the session that the Dow Jones had never ever seen four consecutive days of triple digit gains. And now rewind again. I am sure that 100 odd years ago that there had never been four days in a row of more than ten points on the Dow. So fear not, it will happen. The nerds of NASDAQ closed in the red, down 8 to 2288, whilst the broader market S&P 500 closed off a touch, down 1.17 points to 1113.

Commodities, currencies, Drs. Copper and bushveld. 77.38 is where the oil price last traded at. The copper price is better at 322 US cents per pound. The gold price is trading at a (I don’t care) multi week low, 1164 Dollars per fine ounce. The platinum price is better at 1543 Dollars per fine ounce. The Rand is sharply firmer over the days, 7.36 to the US Dollar, 11.48 to the Pound Sterling and 9.57 to the Euro.

Up periscope. Do you subscribe to our YouTube feed? Ours being Vestact. This is top quality stuff chaps, you must, improve the viewership and give us feedback on our videos. Expect a better start here in the morning.

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

Jozi, Jozi. Not too much going on in the afterglow of some decent earnings in the US, and the stress tests from the Euro zone, but markets in Jozi were marginally higher after all was said and done. On a company front there were the same old rumours about Nedbank. Google “Nedbank rumour” and see how many times over the last few years that same story has come back. Like a well tossed boomerang. I shall only believe it finally when it becomes real. Why would you sell such a great asset? And, would the necessary clearance come from the powers that be, I would hardly think that this is a national asset, but then again, neither did I think that MTN was.

Maude street shakes, moves and grooves. Construction stocks had a ripper of a day, up nearly two percent. Retailers up comfortably over a percent, the gold stocks down around 0.9 percent, all that led to a Jozi all share index which closed up shop at 28499, up 74 points. Around a quarter of a percent. Resource stocks ended the day flat, not too much happening.

Bart’s shorts. BP results, plus they quantify the charge for the clean up and future litigation and it seems nothing short of huge. Massive, but at least there is a number to work with. Who is actually to blame for the great mortgage meltdown of 2008? You and me, or Wall Street and their fancy footwork? Or the ratings agencies. Who cares, what is done, is done. FedEx raises their guidance, and punk’d the Nouriel.

I don’t often get involved in local politics, because I think that it is a touchy subject for our client base, but this I think is important. Remember that this is an opinion piece and not raw journalism. Let me know if you think otherwise, often when I deal with the subject I tend to tread carefully. But here goes, did you see the piece by Constitutional Law expert and professor at UCT, Pierre De Vos, titled: Shock and awe at Parliament Street. If this is the case, if MP’s are lazy and are not doing their homework, where is the accountability? If indeed what he says is 100 percent. I believe him, Pierre is tops in my book.

[This part was written before the results hit the screens]. Absolutely everybody is talking about BP and the pending resignation of Tony Hayward. 53 years old and he has been at BP since he was 25, so it is fair to say that he is a lifer at the company. He is perhaps the CEO with the most interest around his whereabouts anywhere in the world. I guess. And today is day 99 of the spill. Remember the Nena song 99 red balloons? The song was supposed to forewarn of an overreaction by military commanders on both sides of the cold war, and the lyrics to the last English verse are telling for Tony:

“Ninety-nine decisions treat
Ninety-nine ministers meet
To worry, worry, super scurry
Call out the troops now in a hurry
This is what we’ve waited for
This is it, boys, this is war
The President is on the line
As ninety-nine red balloons go by”

Don’t you think? Well, today BP announce results, and I guess more importantly the extent of the damage. Anywhere from 20 to 50 billion Dollars, some saying that 30 billion Dollars is a good starting point, that is what the eventual cost will be. The company is expected to report profits of around 10 billion dollars.

As for Tony, well it is rumoured that he might be heading to Russia. Not to the salt mines or the gulag, but rather to go to BP-TNK. Now BP-TNK operates in a climate that is the exact opposite of the Gulf. There will be no yachting or tanning, this is deep in the tundra. Ironically, the fellow who the press has speculated will take over from Tony Hayward is an American, Bob Dudley is his name. Who actually grew up in Mississippi. So there you go Tony, you want your life back, off to Siberia. Or, work for someone else until you are ready to retire, looks like your pension will be short of 600 thousand pounds a year, very liveable I guess for someone at that sort of level. Too much? Hey, he worked for it.

OK, here goes, breaking news has two tweets over the last 20 minutes or so. “BP says CEO Tony Hayward will step down on Oct. 1, to be succeeded by American Robert Dudley – AP” and “BP says it has taken $32.2 billion pretax charge for Gulf spill, will sell $30 billion of assets – AP”

And then the official release from the company came minutes later: BP Sets Out Gulf of Mexico Costs, Further Asset Sales and Strong Operating Performance. And the key line in all of this is: “In reporting second quarter results, BP revealed that it is taking a charge of $32.2 billion to reflect the impact of the Gulf of Mexico oil spill, including costs to date of $2.9 billion for the response and a charge of $29.3 billion for future costs, including the funding of the $20 billion escrow fund.” No dividends until the announcement of Q4 in Feb 2011.

I finally finished reading that book, “The Big Short” by Michael Lewis. The book was released around March this year and gives a firsthand account of folks on both sides of the subprime mortgage market, but focusing in particular on the folks that were short. And wrong for a long time, some saw funds flow the other way, some nearly lost their nerve. Block your eyes if you don’t want to know what the conclusion of the author is. He reckons that it all goes back to when Salomon Brothers decided to go public. But he worked there. So he might, because he had a very jaundiced view of management and their mortgage backed securities business.

In fact his first book, “Liar’s poker” deals with some of these issues. But there you go, going public in his mind did not align the management long term objectives with the clients. Which led to leverage at shareholders expense, something that management would never have done, which led to many a Wall Street firm falling flat. And the most amazing thing about this book, I read it all on my phone, using the Kindle application. Try do that in 1932.

But I don’t agree with the final conclusion. It was not just the banks and the CDO and CDS buyers. [book spoiler alert again] Why could it have been at all possible for a night nurse in New York to own five apartments, a showgirl in Las Vegas to own the same number of houses? How was that possible if they did not lie about their own incomes? No individual blame or greed, all folks played a part. But, the point that he does make is that Wall Street types that were wrong walked away with boatloads of money whilst individuals and small businesses fell on very hard times. That part I agree with him.

New York, New York. What is quite clear to me is that when you watch global business TV, the talking heads are always referring to the county’s in which they operate. Their view of the world, as the world they live in. I guess one has to always balance that. It was no surprise that the Nouriel (Roubini), a fellow who you can call by his first name was bearish on CNBC yesterday morning in New York. I was grumpy with the fellow, he is always bearish. Always. And while he was saying stuff like, this 2.5 percent growth in the US is going to feel like a recession, FedEx raised their guidance. Check this out from Market Watch: FedEx Corp. Increases Earnings Outlook.

What a twist! The folks who think that the consumer in America is suffering must start paying attention. Byron and I do a daily YouTube clip and send it to the fellows over at Business Day, but you can subscribe to our YouTube feed. And then check out my Nouriel accent, do you think I did a good job there?

Don’t let all the bullish talk get you down if you are a bear, follow this fellow and you will be fine, David Rosenberg: You Know You Are In A Depression When…. Poor Dave, the move to Toronto has not exactly been well timed with the bearish comments, very smart guy though.

And even if you think that the debt explosion is going to engulf us all, some don’t seem to care, as highlighted in this piece: Do Deficits Matter? Not to US Bond Buyers.

And then last piece of reading for you dudes today: Predict the future? We can’t even say what’s happening now. Exactly. Predicting the future is so very hard when there are folks who don’t know what is going on right now. The future as ever is unpredictable, even if Ben Bernanke has a broken time machine that he is trying to fix.

Wall Street wanders. Another triple digit gain the Dow Jones Industrial average, 100 points up to 10525 and now we are positive for the year. Maybe Nouriel has a point, it feels bad. The nerds of NASDAQ added nearly 27 points to 2296, whilst the broader market S&P 500 added 12.35 points to 1115.

Commodities, currencies, Drs. Copper and bushveld. Dr. Copper at 321 US cents per pound, the gold price last clocked in at 1186 Dollars per fine ounce. The platinum price crossed the wires higher at 1557 Dollars per fine ounce. The oil price is slightly off the highs, but that Jim Rogers made a good point about BP and higher oil prices. Less exploring by one of the majors means less supply in the short term. And we know what less supply and a higher demand side might well do for prices. 78.93 Dollars per barrel is where NYMEX is. The Rand is last at 7.34 to the US Dollar, 11.36 to the Pound Sterling and 9.54 to the Euro.

Up periscope. Case Shiller home prices later this afternoon, 3pm. Expectations are for a second straight month of gains. Good thing. Plus a consumer confidence report too and a manufacturing index read. So far this morning we have good results from UBS, BP results and money supply in Europe that is stronger than folks thought. When we start we should be better. JSE problems. I read a headline that labour in Australia are losing in the polls.

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

Jozi, Jozi. Friday was all about waiting for the results of the European stress tests. Most of the Americans that I follow commentary from, at least in the trading arena were sceptics long before the results were released, but I guess that sort of attitude is par for the course. Having said that, this morning there is the same sort of sentiment over the English channel, were these tests tough enough. I tell you, in our industry you can impress all of the people none of the time.

It was to some extent on Friday about the US earnings calendar, there were some majors with decent enough results, Honeywell was better than anticipated, Kimberly-Clark was much better than consensus and McDonald’s beat by a penny. And Ford is making a comeback of sorts, could you believe that the vehicle maker is creaming it now, and they have a better outlook of sorts.

Maude street shakes, moves and grooves. The Jozi all share index closed out shop at 28424, up 150 points on the day, or around half a percent. Banks up around 0.8 percent. Gold stocks down around a percent, the platinum stocks up around 1.4 percent.

Bart’s shorts. EU bank stress tests, everyone is stressing out that they were not stressful enough. Worst case scenario does not look at Armageddon. And should it? City Lodge with a trading update and results from Anglo Platinum this morning, leads me into my next piece about what it looks like on the ground. Send in your story of how you are finding doing business in the trenches and whether or not it is improving. American politics and the deficit, are too many shouting down the Democrats when the finger should be pointed the other way. Just how many people eat McDonald’s? We find out.

Let us start with those European Bank Stress Tests released on Friday after our markets had closed. So seven banks out of the 91 majors failed the test, the extreme scenarios set out by the criteria, which some are suggesting is a little too weak. One bank in Greece, one in Germany and five regional banks in Spain ended up on the losers score sheet and now have to raise three and a half billion Euros. Many laugh and I wonder if indeed either the cynics and bystanders were way too critical, or the test was way too easy. And you know the old line, “you know in my day, it was much harder”.

As usual the best graphical representation of this stuff is subscription only, check out the FT’s interactive graphic titled: EU stress test results by bank. If this was supposed to wipe the slate clean and suggest to everyone that everything is just fine and going to be OK (would you like some orange sherbet) then it might have failed that test. Ultimately the investor will decide whether or not this is a good outcome or not, and questions being asked immediately is not a good idea.

And perhaps the worst case scenario is not really worth looking at, because remember that in the case of the US stress tests, worst case was: unemployment at 10.3 percent at the end of 2010 and a 3.3 percent contraction in the U.S. economy in 2009 and a 0.5 percent growth in 2010. That was the criteria, handsomely beaten by all account. I guess the part that folks are not believing is the sovereign shocks outcome, rather than an absolute default. That I think is the core of the problem, that seemingly everything is going to be OK from here.

City Lodge out with a trading statement on Friday. The share price hardly budged. But I guess that the stock does not attract that much attention, it is quite tightly held, Hans Enderle owns ten and a half percent of the company through an entity, whilst the next three biggest shareholders own another 15 percent of the company and are not going away any time soon. In fact only around a quarter of the company’s shares trade a year. Sounds like too much to me.

The official release from the SENS feed is as follows: “…diluted/undiluted headline and basic earnings per share for the year ended 30 June 2010, which include the costs and effects of the BEE deal concluded in the prior year, are anticipated to be between 25% and 30% higher than the previous year. The prior year included certain one-off costs in relation to the BEE transaction.
Normalised headline earnings per share, which excludes the costs and effects of the BEE deal, are however anticipated to be between 0% and 5% lower than the previous financial year.” BEE costs around 104 million Rands.

So basically a tough year for the group, right? Perhaps, but remember that there is a shift here, higher debt and as such financing costs to refurbish existing and build new hotels. More rooms equals higher revenue but perhaps lower occupancies as a direct results of an economic slowdown in South Africa. Results soon, in the next few weeks.

Anglo Platinum out with interim results this morning. The one thing that struck me immediately of course is the massive recovery, as the company points out “headline earnings of R2 559 million, up 532% on the first half of last year, in line with significantly higher metal prices.” And on Friday Ford pointed to a strong recovery in the Auto market. Not just in America, but globally, that bodes well for the platinum producers.

Safety has been improved dramatically, as has productivity and costs have been reigned in. So I guess a well done and some check boxes ticked in that part of the score card. I remember Peter Major from Cadiz saying that Anglo Plats had gone from the lowest cost producer a decade ago to highest cost nowadays (the comment was made a while back) and in his mind that was unacceptable and management were to blame.

A bloated management. Still no dividend, but that is to be expected, a massive rights issue is fresh in all shareholders minds. Don’t be fooled by the earnings and think, what!?, that is nuts that the stock trades at 742 ZAR, but yet for the half year earnings per share came in around 13 ZAR a share. The broader analyst community consensus is short of 40 ZAR next year and 53 the year after. So, a massive recovery all around, some hard yards ahead, but the worlds biggest platinum producer has weathered the storm.

On the ground and asking folks how “things” are going is always a good idea of how to gauge the recovery. I normally ask those questions after all the usual other questions, I am not trying to intrude. The restaurant I went to this weekend did not have a table available, out of 63 tables, I did ask. So roughly four to a table, you do the math. One fellow who works for a business that supplies the market with industrial and commercial cleaning, hygiene services as well as pest management services. He said orders were strong and they were writing new business.

Another fellow in the construction arena echoed the opposite, but he is leaving the space to go and work elsewhere. He basically said that government had stopped spending on the big infrastructural projects. No spend and no short term noise equals a sector that is trading at a big discount. Question, has this not always been the case, and did the construction stocks not just hit a purple patch?

Do you care about the political happenings inside of the US? Perhaps not on a day to day basis, where the common thread out there is that Republicans are business friendly and the Democrats are not. Well, I guess it is safe to say that the Democrats have the full house at the moment, the president, the senate (almost enough to shove about anything through) and control of the house, which was first to suggest that George W’s party was about to fall on hard times. Even if you don’t give a you know what, this is definitely worth a read, check out the piece that Paul Kedrosky tweeted, from the FT titled: The political genius of supply-side economics.

If you need to sign up in order to read your ten free FT articles a month, do that, because this one is well worth a read if you don’t have a subscription. It most certainly points fingers at recent Republican administrations saying that they had done absolutely nothing to reign the deficits of the day in. And the evidence is clear. Most of the recent excitement is actually around the Bush era tax cuts. The article points to another useful piece that suggests that all the deficit problems, Afghanistan, Iraq and the tax cuts under Bush are to blame for the next decades deficit. Critics Still Wrong on What’s Driving Deficits in Coming Years is the piece by the Center on Budget and Policy priorities.

And of course crazy low interest rates led to the banks and American consumer at the trough for a number of years. Quite clearly from most of the recent results we have seen from corporate America, this period has led to enourmous efficiencies, if not much bloodletting in the form of downsizing. But this is all historic. Who cares what has happened, you just have to know how to fix it right. It is not like you can disown the deficits of the past when your party wins the elections. Now, THERE is an interesting idea.

Did you ever care to wonder what a US one Dollar bill was made out of? Did you think paper? Well, then you were wrong, because I remember being as shocked when I saw it a while back that in fact, the “ingredients” of a one Dollar bill are made “of 25% linen and 75% cotton; red and blue synthetic fibers are distributed throughout the paper.” So, next time you feel moved to say that the US government just prints paper, rather say “prints” cotton and fibre.

McDonald’s results Friday. From their front end fuzzy website: “We serve more than 60 million people around the world every day.” 60 000 000 people that McDees serve a day. There are 6 697 254 041 on the planet when I checked up on the human clock counter Google. Divide that by 60 million and you get to 111.62. So, around one in every 112 people a day nosh McDonald’s. Phew, sounds like a lot.

From their website (the corporate IR version) the group says that “McDonald’s second quarter reflects strong top-line and bottom-line results with each area of the world generating higher comparable sales, traffic and profits,” said Chief Executive Officer Jim Skinner. “This performance demonstrates the popular appeal of McDonald’s relevant menu choices. We’re delivering great tasting food to our 60 million customers around the world every day with the outstanding value and unmatched convenience they expect from McDonald’s.”

New York, New York. Markets cheered the good outcome of the stress tests, thanks for that you “cheese eating socialists” as Mark Haines calls them. If Europe is a country for him, I would hate to know what Africa is. A place where flies are aplenty and lions wander the streets. Not fair, but he is American as they come. The cheer pushed markets towards the best point in a number of weeks, also on the day closing at the top end of the trading session.

Wall Street wanders. The Dow closed at 10424, up 102 points on the session, the nerds of NASDAQ added over a percent, 23 and a half points stronger to close at 2269. The broader market S&P 500 added 8.99 points to 1102.66.

Commodities, currencies, Drs. Copper and bushveld. Dr. Copper last checked in at 318 US cents per pound, the gold price at 1191 Dollars per fine ounce, with the platinum price at 1545 Dollars per fine ounce. The oil price at 78.50 Dollars per barrel. The Rand last at 11.45 to the Pound Sterling, 7.39 to the US Dollar and 9.54 to the Euro.

Up periscope. We should start better. And that is all that I have to say about that. Those people and their hand wringing about the stress tests might see some fizzle later. Or not, darn this sounds like the weather report.

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

Jozi, Jozi. We started a touch worse, but then boom, a whole host of PMI data released from Europe beat expectations, all for one out of seven. German, French and the rest of the Euro zone PMI seems better than most people think. Or thought. And we thought the stress test results would be revealed yesterday. The French say that their major banks are all fine. I can hear the Americans sigh and say yeah right, and when the results are revealed I think today, just after our markets close, there will be nothing that we can do about it.

The gains we hung on too, in the cold chill of a weekly jobless number from the US, once a week it rolls around and this time it looked rubbish again. And, apparently what Ben “the bearded and measured” Bernanke said in his prepared testimony in the previous session was not that bad. That is what I said. And lastly, keeping us comfortably in positive territory were results from some majors that beat the streets expectations. 3M, Caterpillar, AT&T all comfortably beat earnings expectations, Nokia came in-line, and a bit mixed, but the markets liked what they saw. And if that excitement was not enough for you, we had the small matter of an MPC meeting mid afternoon.

Maude street shakes, moves and grooves. Boom, it was on steroids through the day, a bit like the fellows on the tour. Doh! Sorry, I did not mean that. The Jozi all share index closed at 28274, up 441 points on the day, or just shy of one and two thirds of a percent. The stocks that really rocked were the platinum fellows, up nearly four percent on the day and firing on all cylinders. What a lame thing to say, firing on all cylinders. In fact, all the majors were higher.

Bart’s shorts. No change from the fellows who try and predict the future. Hey, that sounds like almost every single business out there. I mean the Reserve Bank and the MPC decided to keep rates on hold because the future is uncertain. As ever. And then today is the day that the EU banks come under the spotlight, we will see the results of the bank stress tests. And then America, a country of great opportunities but more importantly, the differences between the haves and the have nots is still huge and seemingly widening. Is all the talk of a double dip completely overdone? Morgan Stanley seems to think so.

No change, sorry. For those who need to pay back the bank that is. Not for those with cash on deposit. I am talking about the Statement of the Monetary Policy Committee yesterday afternoon. The local inflation outlook is supposed to look great, in the band all the way through to the last quarter 2012. How are you supposed to see that far out? 27 months.

OK, from the release this is in the plus column: “Positive factors include lower interest rates, lower inflation, positive wealth effects arising from favourable house price and equity market developments, and high levels of real wage increases for those in employment.” Unfortunately real wage increases are also a problem too: “Wage expectations also remain elevated” True.

And the consumer is still not spending, still looking rather reserved in his slash her spending patterns: “Factors constraining consumption expenditure include continued job losses and high levels of household debt and low levels of credit extension to the private sector.” The deleveraging process of course and uncertainty about job security in the short term is most certainly keeping the consumer out of action. Although credit extension seems to have bottomed and retail sales might be buoyed by the soccer ball effect. So perhaps we are at the bottom of the cycle starting to see some improvement.

So, no change and this is what the central banks outlook in the short term, I guess until the next meeting: “The Monetary Policy Committee assesses the risks to the inflation outlook as being evenly balanced and views the current monetary policy stance as appropriate. Therefore, the MPC decided to keep the repurchase rate unchanged at 6,5 per cent per annum. The committee is aware of the fragilities and vulnerabilities to the domestic economy, driven in part by global uncertainties.”

So, until the Greeks, Spaniards, Portuguese, Irish and Italians amongst many others in Eastern Europe get their finances in better shape, we still look a little fragile. I must admit that there was a sense that the problems that these countries have is starting to fade. And all of course will be revealed today, the EU banks stress test results are due to be released at 1600 GMT, so that means that our markets will be closed already.

Bank stress tests. What does that mean exactly? Well testing the banks for all sorts of scenarios, if unemployment were to tick up to such and such a level, if GDP were to slow down to this level, or beat and go to that level. If consumers were to default to this level or if the outlook was a little better, where would the banks have to be from a capital reserves ratio. It is ultimately about getting all the major European institutions on the same page with regards to what capital levels some of the banks are short. And who passes the test. Tim “the toolman” Geithner actually travelled to Europe to let the folks there know how it is. So those results today later.

This is possibly the most amazing info graphic that you are going to look at today. I think. If you have something more wow, please send it to me and I will post it onwards. It will be cool and stuff for everybody else, my littlest daughter tells me that sharing is caring, of course she picked that up from that weird purple dinosaur. This was tweeted by Paul Kedrosky yesterday, and is titled: Where’s The Money In America?

It is a simple outcome having looked at that graphic, the rich are rich and not in a great deal of debt, the middle class in America have way too much of their personal wealth in their homes and not enough in equities. That is my personal view, but then I am biased. If the geyser bursts out at 14th Avenue MTN headquarters, you don’t have to replace it, they will get someone in to replace it. Of course you can never leverage up and borrow money from the banks to own some shares, although I always wonder why that does not work and should not work.

I want to explain that a little further. Let us say that the bank took a ten year view on a portfolio. We lend you the money now at prime plus four and a half percent, a very expensive rate. For ten years. You can use the dividend flow plus your own income to pay down the capital amount over the next ten years. Until such a time the bank or broker owns the equity portion and transfer takes place over time. Sounds like leverage and not something that a bank would want to do, would require at least a 25 percent deposit.

Wait no, this can be done it requires derivatives, single stocks and contracts for difference, you can do it already. Problem is that folks use these as trading instruments and not investing instruments. Just saying that there is a case for this. In much the same way that the bank would not approve a loan where a house is on the edge of a river bank that floods periodically, the lender should only allow an elite set of stocks. Only a small portion of stocks and the lender has the ability to have full say until those stocks are paid for in full. And then you are on your own.

OK, but back to that graphic I have lost you by now already with my off the wall divergence. Back to that graphic that shows exactly how skewed America’s wealth is. The index that measures inequalities the best, is the Gini Coefficient. Here is a definition from Wikipedia: “The Gini coefficient is a measure of the inequality of a distribution, a value of 0 expressing total equality and a value of 1 maximal inequality. It has found application in the study of inequalities in disciplines as diverse as economics, health science, ecology, chemistry and engineering.”

And America has a Gini coefficient the same as countries like Jamaica and Ivory Coast. And for the record South Africa, Namibia, Botswana and Lesotho are the worst countries by this measure. It is by no fluke that at the other end of the yardstick you find all the developed economies in Scandinavia and small countries in Europe. Think Denmark. Needless to say that most of these countries have a serious socialist steer. But hey, it works there, all the people are wealthy, it is better than having all your people poor and the same.

Double Dip is not when you are ordering an ice cream with sprinkles but rather when you are talking about another set of negative GDP reads. In the big economies of the world. Morgan Stanley: Here’s Why The Double Dip Scare Is Way Overblown. Have a look at the piece by Morgan Stanley. And then seriously, let me know what you think.

New York, New York. Better earnings numbers trumped housing data and jobs data, with the likes of Caterpillar, 3M and AT&T beating expectations. Although the housing data itself was hardly poor, it is just at historically low levels. Total months supply in the pot, nearly nine months. Got that, existing home sales inventory at nine months. Again I am going to stress that it is all about earnings and that is what the markets focussed on. Plus of course better economic data out of the Eurozone and the UK, seemingly settling nerves.

Wall Street wanders. Session end the Dow Jones closed at 10322, up 201 points, the nerds of NASDAQ up 58 and a half points to 2245, whilst the broader market S&P 500 tacked on 24 points to 1093, up two and a quarter percent.

Commodities, currencies, Drs. Copper and bushveld. Dr. Copper has been on a tear lately, up 6 percent in a few days, last at 318 US cents per pound. The gold price at 1198 Dollars per fine ounce, the platinum price better 1546 Dollars per fine ounce. The oil price is lower on the session at 78.97 Dollars per barrel. The Rand on a tear as the flows come in looking for the interest rate differential. 7.43 to the US Dollar, 11.39 to the Pound Sterling and 9.61 to the Euro.

Up periscope. UK GDP has beat the streets estimates. The high street that is. So we have been lifted by that and we have started much better this morning.

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

Jozi, Jozi. A cracker of a day on the local markets, so good in fact that we managed to squeak into the green for the year. Talk about oh so very black Friday, but that of course is US retailers post Thanksgiving. We have left it late and I am just trying to point out that this has been a choppy sort of a year. Helping stocks was a beat from Apple in the session before and pre market in the US, there was a whole host of beats, including Morgan Stanley, Coca-Cola, Wells Fargo amongst the majors, while Altria was in-line with earnings expectations. Hurting from the night before was Yahoo. Clearly too much yippee. Also on a dose of yippee was the currency, roaring ahead I guess with all the foreign inflows. Thanks guys, you help inflation expectations as an import nation.

Maude street shakes, moves and grooves. Financials led the charge, along with banks, both clocking in returns for the day which was comfortably above two and a half percent to the good. If you are a bull, if not and you were short, yowsers you got caught. The Jozi all share index closed at 27833, up 483 points, which was 1.77 percent for the day. And for the year, the market is up a whopping 0.61 percent. Best sector year to date is by far and away retail, including the food sellers too, both up around the 28 percent mark for the year.

Bart’s shorts. Rates decision today, most of the experts agree that there won’t be a rate cut, but there is a possibility of a surprise. Iron ore spats finally see an interim outcome, an interim agreement has been signed between Arcelor Mittal and Kumba Iron Ore, credit must go to the Department of trade and industry for having seen the two come to a conclusion. Kumba Iron Ore results out this morning, and they are good. Vodacom trading update too, more on that before I get told I ignore this mighty giant. The (almost) famous Mooi River Index. And lastly, what the bearded Ben “the measured” Bernanke said to spook markets.

Will she or wont she? Not really her decision, but rather the decision of the MPC, as governor Gill Marcus is often at pains to point out. I am talking about an interest rate cut. Consensus is still for no cut, but and this is a big but, the very same circles suggest that the economy is sluggish enough for one last cut. Almost like Ben Bernanke when he started his tenure as head of the Fed, he cut once. Gill Marcus can do one here is my sense. Although, the very same economists will tell you that inflation pressures in the form of way ahead of inflation wage hikes and way ahead of inflation electricity hikes are damming up. In other words don’t expect anything at all. Plus we had better retail sales for the month on May, and better retail sales are largely anticipated for the month of June, which was the World Cup month. I miss the World Cup.

I could have thought that this would happen. I see that the Metalworkers union Numsa have demanded that Arcelor Mittal be nationalised in order to end this dispute with Kumba Iron Ore. Over iron ore. Over iron ore that Arcelor Mittal were getting on the cheap (very cheap) and then charging customers international prices. Nice lumpy margins. Steel is key to the industrialisation of any country, but the business of steel making is hugely cyclical and this is why the companies all trade on earnings multiples that look cheap.

Back to the nationalisation issue. Arcelor Mittal has a market capitalisation of 35.258 billion Rands. So the cheque would have to be that size, right? That will not please shareholders in the least. In fact, that might mean that no Indian company ever wants to do business here again. Because the rules could change. Mittal Steel holdings and Vivca investments and trading nine own around 57 percent of the company. And to think that all this would not have happened, had the senior management been paying attention.

But instead they had relied on Kumba Iron Ore kindness to renew their mining rights. My analysis of Arcelor Mittal remains the same, if they are holding the jobs card out, they could have created more jobs by supplying cheap steel into this market. Industrialisation would have taken place at a quicker rate. That is all I am saying.

Hah. As luck would have it, a SENS release has been released with the finalisation of the Sishen Supply Agreement. An interim price agreement. I should write this piece later and not earlier. Stress, this is an interim agreement. And AMSA is Arcelor Mittal South Africa. Got that, bombs away, here is what you need to know, this agreement is “Retrospective to 1 March 2010, and will endure until 31 July 2011″ The prices that AMSA will be receiving is “a fixed price of $50 per ton of iron ore Saldanha Steel plant …. and $70 per ton of iron ore, deliverable to AMSA’s inland plants”

But more importantly for Mittal there will be “no escalation in the prices agreed to for the duration of the interim period.” And in terms of overall volumes, “AMSA will be entitled to purchase a maximum of 520 000t of iron ore from the Sishen mine per month” And then the volumes over and above that 520 000 tons per month, “Any iron ore in addition to the maximum monthly amount will be purchased by AMSA at the then prevailing spot calculated EPP based price.”

Who is this a good outcome for? Well clearly “the lead higher” two proposals by Kumba Iron Ore would have resulted in a better outcome for them. The simple truth is that Arcelor Mittal will not pay cost plus three percent. So 50 and 70 bucks (plus transport costs) a ton might seem very light of the spot price of around 115 Dollars, but it is much better than cost plus three, which is somewhere around 29.5 bucks a ton, which probably also included transportation costs . This is worked backwards from the recent Mittal SENS announcement rejecting the original proposal from Kumba: “The SIOC offer of US$50 per ton and US$80 per ton of iron ore amounts to increases of 69% and 171%” So, as ever in these agreement’s all parties feel a little better.

And then Kumba Iron Ore results, as if you could not get enough of them. At face value, they are stunning results, these are the headlines from the release, I mean highlights: “Headline earnings up 90% to R6.5 billion. Interim cash dividend R13.50 per share. Sishen Mine production up 17% to 21.1Mt. Export sales volumes up 10% to 18.8Mt. Sishen Mine unit cash cost increase contained below 4%.” And “Attributable and headline earnings for the period were R20.27 and R20.28″ Wow, for a stock that trades at 360 odd bucks that is awesome. On track for 50 million tons per annum, that is the short term target. What is quite clear is that Arcelor Mittal is not as important a customer. It was five years ago, more so 9 years ago at the time of the split, now that represents one seventh of their production.

And these results don’t reflect the agreement. Stay with me here, back of matchbox stuff, 125 thousand tons per month to Saldhana at 50 bucks a ton versus 29.5 or so. So that roughly is 20 bucks extra a ton for 125 thousand tons times 4 months. That works out to 12.5 million US Dollar, around 75 million Rands. Inland it is more, four months of roughly 400 thousand tons per month at 70 bucks, roughly 40 bucks more a ton than was being paid. That works out to 63.2 million US Dollars, 474 million Rands. Add the two together and you have 549 million Rands more revenue. Is that right?

As ever these are never about the profits of the past, but rather predicting what you would pay for a business like this right now. And that is the most tricky part of course. Because now we would know that this news above is baked in the cake. Prospects are fairly muted: “Due to the large gap between current index prices which are lower than the implied July-September 2010 quarterly benchmark prices, uncertainty exists around future export iron ore pricing mechanisms and price levels for iron ore.” Sounds a bit uncertain.

And so the prospects column continues with a slight uncertain undertone: “Chinese steel production and iron ore imports in the second half of 2010 are expected to be marginally below levels achieved during the first half as Chinese steel mills prioritise cost over productivity and therefore focus on the use of domestic iron ore.” There is a great South African saying, yes, no, loosely translated from Afrikaans. Single commodity stock. One big shareholder. Successful expansion plan at the right time, plus the “stuff” you sell went through the roof. Clever or lucky or both, shareholders have had a great time, including the 63 odd percent Anglo American hold. 73 billion Bucks.

The mighty Vodacom have come out with a trading update this morning. Seriously, their ads with MTN are amongst the best in the country, undoubtedly. And perhaps Nando’s. This is why I think those that say that mobile growth in South Africa is mature, have got it all wrong. First check it out from the release “15.7% increase in the contract customer base.” Pre paid turning into post paid. And also on the data front (something that excites us) “43.2% growth in Group data revenue”with a “54.5% increase in South African data traffic”.

That hardly looks ex growth to me. Excluding the one off RICA type losses of subscribers, they added 1.1 million subscribers to 37.7 million in total. Quarterly revenue slightly lower than the March quarter, but about 450 million Rands more than the period last year, in South Africa, overall flat. The big ramp up in their contract users, around 640 thousand is most pleasing. I just want to know one thing, why have the Mozambique and Tanzania ARPU’s fallen at that magnitude, currency translations? What are they in real currency terms? Shillings and Metical are not my strong points.

OK, real life data in the form of the Mooi River Index. Quickly, what is it? Well, it is a measure of all the trucks with five axles that pass through the Mooi River toll. Trucks that carry loads in excess of 25 tons, so it is easy to see that this is an economic measure, not just wheels and vehicles through the toll. Because trucks that size are the blood line of trade between the Highveld and the coast, through the port of Durban. This index was dreamed up by the Greenfields think tank, who can see and hear the highway from their office. The first graphic is the raw data from 2007 through to June 2010, kindly stuck in the best form for consumption for human beings. A picture. And as you can no doubt see, June was the third best month on record. The world cup effect? Because there was a large jump from May, 7500 thousand extra trucks for the month.

Click on the graphic to get a larger view.

And then the second graph is of a table of data all the way through back to the beginning of 2004. And you can clearly see that June is normally always lower than May, no exception, so from this table we can deduce that there almost certainly was a world cup effect in these numbers. But still, going in the right direction.

New York, New York. What did that spook Bernanke say? I mean, Ben “the bearded and measured” Bernanke in his prepared testimony uttered one phrase that saw the markets in New York sell off heavily. After having spent much of the day in the green, all the broader indices were sent lower. Read the whole release folks: Semiannual Monetary Policy Report to the Congress. Genius Ben. This line: “…..we also recognize that the economic outlook remains unusually uncertain.” As Paul points out, was this not clear over the past two years? The future is not something you should take for granted.

Wall Street wanders. So, this is where stocks fell flat, the Dow fell 109 points to 10120, the nerds of NASDAQ lower by 35 points to 2187. The broader market S&P 500 fell 13.89 to 1069.59.

Commodities, currencies, Drs. Copper and bushveld. Copper trades at 310 US cents per pound, the platinum price 1516 Dollars per fine ounce. The gold price was last at 1186 Dollars per fine ounce. The oil price last at 76.76 Dollars per barrel. The Rand is slightly weaker at 7.55 to the US Dollar, 11.49 to the Pound Sterling and 9.72 to the Euro.

Up periscope. I cheated. PMI data on balance in Europe is much better than anticipated and as such we are getting a lift. 3M, AT&T, Caterpillar and Nokia are all big results today. And little Murali got 800.

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

Jozi, Jozi. Bring it back, bring it back. We started better in the morning, but slipped and spent the middle part of the day wallowing in the red. Blaming IBM and Texas instruments from the night before, not awful results, but the headlines started suggesting that earnings were disappointing. Most of what I saw was pretty good, the inner readings were not bad either. Plus the debt issuances from the troubled EU countries had been lapped out by the broader markets, perhaps the yields too juicy to ignore, with the implied back stop from big brother in the form of Germany and France. And the ECB and the ever aging Jean-Claude Trichet.

Maude street shakes, moves and grooves. The Jozi all share index closed a whopping 19 points higher to 27349. Banks lost half a percent, gold miners down two thirds of a percent, whilst platinum stocks were up half a percent. The broader resources index ended the day around 0.4 percent better. There was a SABMiller downgrade from the fellows over at Barclays Capital, who suggested that the stock should be downgraded to “equal weight” from “overweight”. The product user is almost always overweight, hence the phrase beer belly.

Bart’s shorts. Bart checks out BHP Billiton’s production report, and then also some commentary on Aquarius platinum and their methods of mining. Plus Kumba Iron Ore has sent a letter to the mines minister Susan Shabangu asking her to cancel the mining rights for Imperial Crown Trading 289. Don’t confuse Venezuela and Vuvuzela. Goldman Sachs results and Apple results. Plus all the apps you could ever wish for.

The BHP Billiton production report for their fourth quarter and for the for the full year was released this morning. If you want to download it, check it out here: BHP BILLITON PRODUCTION REPORT FOR THE YEAR ENDED 30 JUNE 2010. Wow, some of the headlines are pretty mind blowing: “Western Australia Iron Ore achieved its tenth consecutive annual production record.” and “Petroleum delivered its third consecutive annual production record following the successful delivery of a series of growth projects in the Gulf of Mexico (USA) and Australia.” And that division is much higher margin than their others.

Some of the commentary, if you did not download the report: “BHP Billiton continues to be cautious on the short term outlook for the global economy. Uncertainty surrounds the near term prospects for growth in the developed world as governments adjust fiscal policies following a period of significant stimulus and subsequent increase in sovereign debt levels. Within China, measures introduced to reduce growth to more sustainable levels means volatility in commodity end-demand is likely to persist. BHP Billiton sees these measures as a normal continuation of China’s economic management policies.”

Iron Ore, petroleum and Copper. That is where it is at for the company. OK, so let’s look at the year on year production number, the petroleum division was astonishingly better, barrels of oil equivalent rose on a yearly basis from 137.97 million barrels to 158.56 million barrels, all driven by crude oil production. As BHP Billiton pointed out, those projects that came online during the course of the year really helped. I guess that they will struggle to get to these levels next year, with all the bans on drilling in the gulf, it could be tough. Copper production was much less than last year, production problems at Olympic Dam and Escondida impacting the overall number, 13 thousand tonnes less in concentrate and around 120 tonnes less cathode production. Olympic dam around 90 thousand tonnes less on the year.

And then Iron Ore. Total Iron ore production for the full year, 124.9 million tonnes, increases from all of their production areas. But ten and a half million tonnes more produced. So that is a great outcome. The clock is still ticking on the Rio Tinto JV, with BHP Billiton. All in all quite a good report, even if they are cautious in the short term.

The Aquarius Platinum price soared 13 and a half percent yesterday, after getting a softer stance from the inspector, after an urgent meeting revealed a favourable result for Aquarius. After my piece yesterday, there was a fellow who fired back exactly what Bord and Pillar mining was, his email to me:

“Just for interest! Bord & Pillar mining is a mining method where you normally cut “bords” of 10 metres in width and the pillars are generally 6.0m x 6.0m.
The instruction from the DMR is to cut bords of maximum width of 6.0m.
Assuming you do not alter the pillar size you have to effectively cut your production by 40% from the same face width (10.0m to 6.0m)
The theory is you will reduce the span of the bord and prevent rock failure due to joints and weakness in the rock not easily detected in a singular plane. This rock failure is similar to the Impala incident last year.”

He gave it away at the end there, you can read into it that he does not work for Impala Platinum. Very interesting, thanks so much for that, I really dig the feedback, it helps to educate us all, even if it is about mining methods.

Staying with mining and government intervention. Some of the top stories making the rounds are that Kumba Iron Ore are basically fighting for the Sishen Iron Ore Company (SIOC) award of the mineral rights, by asking the Minister of Mineral Resources Susan (shootin’ Susan) Shabangu to cancel the award to Imperial Crown Trading 289. Stating that all sorts of irregularities had cropped up, and in fact as far as I can understand it, some of the documents submitted suggest that they were delivered and back dated. If that is the case sounds like fraud to me. Is this really our Venezuela moment? Or Vuvuzela moment if it is proved that there was intervention. Still, the fact remains, these are prospecting rights on an existing mine, how does that work? Venezuela if it stands, vuvuzela if it does not.

What does Twitter actually do for you? I always say that Twitter is a customizable news feed, you can follow who you want. I follow Doug Kass, he is a trader type, check out his website Seabreeze Partners Management. You can actually get more information following him on his twitter feed DougKass.

And there you will see some of his recent 140 character updates, all from yesterday, when Goldman Sachs numbers hit the street he tweeted: “i paid $142 FOR gs IN PREMARKET TRADING $$” And then later on, five hours later he suggests that he is out: “i have sold out the balance of the GS trading long rental – +$6 is enough for me in a few hours $$”. And then perhaps the most telling, when the markets were in the toilet around four o’clock in the afternoon, the tweet of the day in my feed: “ludicrus forecast – at some point today the market will be higher on the day $$” And in fact one better than that, stocks much better on the day.

The guys from Zero Hedge had a great write up, even by their own bearish standards, they had this piece: Goldman’s Discount Window Backed “Hedge Fund” Trading Revenue Drops 40%+ Sequentially And QoQ. Check the last graph where Goldman’s tax rate had ramped significantly, in fact the dudes at Zero Hedge suggest that this is because of the UK bank tax. And the author of the piece, Tyler Durden, he or she is not a real person, this is an alias. Tyler Durden remember is from the movie Fight Club.

Hey Apple. Apple results yesterday. A beat by a country mile. Read from the companies website: Apple Reports Third Quarter Results. Record revenue. So notwithstanding all these tough times in the developed world, the consumer will still follow quality and in fact buy more quality products, not less. Amazing, think about that for a minute, this is a pure discretion spend bunch of products, that ooze the cool factor, but the company never seems to struggle to sell, because of that very factor. As Paris would say, that is hot.

Arrogance or truth, who knows, but here is from the last piece of that release: “Apple designs Macs, the best personal computers in the world, along with OS X, iLife, iWork, and professional software. Apple leads the digital music revolution with its iPods and iTunes online store. Apple reinvented the mobile phone with its revolutionary iPhone and App Store, and has recently introduced its magical iPad which is defining the future of mobile media and computing devices.” The best and leader. And I guess that is all about you need to know about that.

This is awesome. Fast company with this one: Infographic: Our App-Happy World. So many awesome applications, so many useless ones, ultimately it depends how you monetize it, right? Don’t spend half a day digesting all this information, but it is truly awesome, the world of applications for smartphones, that need we remind you, is only around two years old.

“Dow Nears 10000 on Disappointing Earnings”. I checked this headline and thought huh? Bank of NY beat, Goldman Sachs beat on earnings, lower on revenue. Harley-Davidson beat. Illinois Tool fell short by a cent. Johnson & Johnson in line with expectations. Peabody Energy beat and PepsiCo beat. UnitedHealth had a big beat and Whirlpool had a great beat with better guidance. The night before is what the headline refers too, IBM and Texas Instruments. And not the results through the day, so ironically, the better results through the day did not matter. Ah well, today we see the opposite of that as Apple woke everyone up.

New York, New York. Bottom left to top right, a graphic that all bull love to see of a days market action. And lets be honest, the fellows in this office sit firmly in that camp. As Briefing.com put it, a one percent loss turned into a one percent gain. Perhaps it was the majors that had disappointed, J&J, IBM and Texas instruments. Moody’s said that they thought the steel industry in Japan needed an upgrade. Everyone said “ratings agency” and went on with their work. I was reading a piece in “The Big Short” that suggested that the ratings agencies knew what they were doing in the subprime market, but the business was too good to ignore.

Wall Street wanders. Session end the Dow closed at 10229, up 75 points, the nerds of NASDAQ better by 24 points to 2222, whilst the broader market S&P 500 added 12 and a quarter to 1083.

Commodities, currencies, Drs. Copper and bushveld. Dr. Copper last at 301 US cents per pound, the gold price lower at 1188 Dollars per fine ounce. The bushveld Doctor at 1505 Dollars per fine ounce. The oil price last at 77.9 Dollars a barrel. The Rand last at 11.56 to the Pound Sterling and 9.72 to the Euro and 7.54 to the US Dollar.

Up periscope. We should start a whole lot better on account of better Apple numbers lifting the globes sentiment and plus better markets out in Asia.

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

Jozi, Jozi. We started understandably worse for wear, but managed to make it back to even keeling at lunchtime, but then stocks slid on weaker housing data towards the end of the day, US data in the form of the NAHB Housing Market Index. There was some comments on the local front with suggestions and commentary from the OECD, who are raising a few red flags, but on balance we are doing a good job out here. Deep south. And the Dollar moved south too, with the gold price too, not really making too much sense, they normally move in the opposite direction to one another. A weaker Dollar around 1.30 to the Euro at one stage, the gold price at 1182 Dollars per fine ounce. But possibly the biggest news of the day amongst the majors was the department of minerals saying that some mechanised mining methods are a no go from here.

Maude street shakes, moves and grooves. Session end the Jozi all share index had closed 200 points lower to 27329. That is around three quarters of a percent lower on the day. Gold miners were given the heave ho, the gold price weakened over the course of the day, accelerating in the afternoon. Yip, none of the majors winning on the day, all in the red with the sentiment reader still looking a little light for the bulls.

Bart’s shorts. Aquarius Platinum falling in a heap as the rules change. The Chinese jump to first place on the podium as the top energy consumers of 2009, a position that the Americans have held since around the First World War, if you needed another sign you got it. The OECD fine with some policies and not so cool with some other policies of the ruling party. Nokia Siemens buying Motorola’s network division.

Bord and pillar mining. This is something that is normally associated with coal mining, but it is a mining method that Aquarius Platinum employs. The directive comes from the Principal Inspector of the North West Region on mining companies employing this method. The old Department of Minerals and Energy website is still empty of all sorts of useful information. In fact as far as that department is concerned the world cup is here and we can feel it. Maybe I am just looking in the wrong place.

But what kind of an overreaction are we talking about here? Aquarius are appealing the decision, but hey, throwing stones at armour plating is what it seems like to me. Aquarius spell out in their SENS message that they have “retained the services of an international mining consultant who concurs with Aquarius’ South African management that the implementation of the Directive as currently stated, will not give rise to a safer mining environment in respect of ‘fall of ground’ accidents.”

The stock sold off 23 and a half percent on roughly one months worth of normal trading volumes, slicing a few billion Rands worth of market cap by the wayside. Some folks suggesting that we are only talking about twenty thousand ounces worth of platinum production for the current financial year. What about safety? Clearly one life lost is one too many. Aquarius say that this won’t make a difference to their safety practices. And this is the whole point of telling the company to mine safer, at least in the opinion of the report. Does it scare off investors that the rules keep changing? Or is this part of the process?

The stock is up 13 percent this morning, as an announcement post market saw those who had sold the stock bashing their head against the wall, nothing that they could do now, check it out: “The meeting with the DMR was positive and constructive, and the Company is, together with its international mining consultant, reviewing mine design and support parameters to present best practice guidelines to the DMR in respect of each of its mines individually. In the interim, AQPSA will continue to apply its existing mining techniques and will shortly present to the DMR interim safety measures which AQPSA intends to implement to ameliorate the threat of fall of ground incidents, pending the outcome of the aforementioned exhaustive review.” Short term respite and a big bounce back.

I think that this is a big deal. China has replaced the US as the country on the globe that consumes the most energy. So what? Well, the US has held top spot for around a century. This is from a report that the IEA released. I can’t seem to find that report specifically, but I stumbled across a renewable energies report, brand new. Get this, from the report titled Global Renewable Capacity Continues to Grow in 2009, Fueled by Policy and Ongoing Investment: “China added 37 GW of renewable power capacity, more than any other country in the world, to reach 226 GW of total renewables capacity.” Correct me if I am wrong, that is South Africa’s ENTIRE grid in renewable in just one year.

Back to that report that I have only been able to find references to, I suspect that it must be on this page under Publications for Sale. Everyone seems to be quoting the WSJ article China Passes U.S. as World’s Biggest Energy Consumer. Did you get that part that ten years ago China’s energy consumption was half of the US. Half. So you can build empty condos, have a housing bubble, a market bubble, whatever bubble that Jim Chanos and his buddies think are going to derail the stability of the world, but how do you grow your energy usage at that pace if some sort of economic miracle is not happening in the background. Just saying.

Is it just me or can you also feel some sort of anxiety when you read this next piece China #1 Energy Consumer: Where Does New Era in Energy History Lead? And that leads me to my next point, several parties have covered the story that the OECD talk about the grant system in South Africa becoming unsustainable. Because these two are in some way interconnected, the Americans living beyond their means and the gross imbalances that exist in our society.

So what do you make of the OECD making various comments about South African policies and what is needed to grow employment locally? The ugly truth is that there are too many imbalances in South Africa. We can’t stand idly by whilst millions starve and you would have to admit that although 12 million folks who receive grants is disproportionately large for a population of around 50 million, it is necessary as a stop gap method for now. And bear in mind that there are around half as many tax payers as there are folks receiving grants.

The Daily Maverick has a good piece titled OECD: SA rocks, just hamstring those darned unions in which they point out that the unions won’t want to hear that the above inflation wage increases are a problem. Plus that the restrictive labour laws are a problem. Sorry, not listening. Read it, useful stuff.

Nokia Siemens Networks are looking to buy the Motorola networks division for 1.2 billion Dollars. Nokia up nearly six percent. Doesn’t sound like a whole lot of money when you are talking about those sort of names I guess, but this is pretty key for Nokia. It was just last week that the company was being blasted, remember this story: Nokia Board Faces Call for Change on $77 Billion Lost Value. They need to crack the US market, their name in that geography is poor.

The calls have been for Olli-Pekka Kallasvuo to hit the road. Olli-Pekka, what a great name. Look, the truth is that Nokia have not had a hit phone for a while. They make great reliable handsets, have nearly 4 in 10 sales of handsets globally, but are always a step behind when it comes to the exploding, more lucrative smart phone markets, where if you look a little closer, Apple have been eating everyone’s fruit salad.

Check out this Business Insider slide from one of their pieces on smart phones about to explode. This is about the consumer. Who coincidently never lies. Apple iPhone owners are the most satisfied by far. “HTC is next, but its owners are less than half as satisfied as Apple’s. Note that this was taken before the iPhone 4 antennagate.”

And then check out the next set of slides about the wireless market in America and then you start to see why the Nokia Siemens purchase of the Motorola network division makes sense. 25 Awesome Charts On The State Of The Wireless Industry.

New York, New York. A patchy day on the street, finally ending the session comfortably in the green, the biggest worry actually is volumes. Bloomberg had a cutesy graph with the caption, volume on vacation. Halliburton reported pre the bell and blew estimates away. Yip, and this was during the great BP spill of 2010. And remember as the Huff post pointed out, the company was working on the now sunk rig less than 24 hours before the fire.

Wall Street wanders. Session end the Dow closed 56 points better to 10154, the nerds of NASDAQ up 19 to 2198 whilst the broader market S&P 500 up 6.37 points to close out at 1071.

Commodities, currencies, Drs. Copper and bushveld. Dr. Copper last at 298 US cents per pound, the oil price better at 76.74 Dollars per barrel. The platinum price was last at 1514 Dollars per fine ounce, her better loved sister, gold, last at 1182 Dollars per fine ounce. The Rand is firmer as the flows come back this way, the Rand at 7.60 to the US Dollar, 11.58 to the Pound Sterling and 9.87 to the Euro.

Up periscope. So a better close on Wall Street should see us through to a better start, even if IBM results post markets left folks pondering their next moves for the old big blue.

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

Jozi, Jozi. Oh dear for the bulls, I suppose the gory running of the bulls ended in Pamplona earlier in the week, so should the bull run in markets. Dumb. We still closed marginally better, after having threatened 28 thousand points at one stage on the Jozi all share. GE results in the middle of the day were better than anticipated, but the real kick in the chops was a much lower Michigan consumer sentiment read that sent markets in New York much lower. And in that we participated, the selling pressure accelerated into the close, a few buyers stepped up at the close. A US inflation read suggested that we have nothing to worry about on that front.

Maude street shakes, moves and grooves. Session end we closed 55 points higher on the Jozi all share at 27529. At one stage we were up for the year around two thirds of a percent. Whoop dee doo. Banks had a good day, up over a percent. Telecommunication stocks, mostly in the form of MTN continued to power ahead, that stock up three and a half percent on the session. Because as you might have heard, 3 in 100 people having internet access across the continent means that MTN is ex growth. I have never heard such garbage in all my life, do you think folks are going to access the internet waiting for a fixed line? Because it is never going to arrive, mobile is there already.

Bart’s shorts. Today I guess one might be excused for thinking that it was all about Kumba Iron Ore and Arcelor Mittal. Because this is bigger than just the payment dispute about the product, this impacts all heavy industry that uses steel.

Whose side of the story do you take? Or none. Because it is what it is. I am talking about the saga that is Sishen Iron ore and more importantly Kumba Iron Ore and Arcelor Mittal. Last week I referred to the awkward silences that must exist between the two when it came time for paying and ordering for iron ore, with Arcelor Mittal insisting on cost plus three percent, but Kumba invoicing another. Now the story has taken on epic proportions, the kind usually reserved for pre prime time soapies.

First the background to the favourable pricing, the companies used to be one big state mining and steel production facility, who would invariably provide big industry in South Africa with cheap steel. And as such advance the economy further and create jobs, or that of course would have been the plan when Iscor was first mooted post World War two. Now the two companies were separated (Kumba Resources included what is now Exxaro and Kumba Iron Ore) from Iscor. Iscor had a new majority shareholder in the form of the Mittal Steel global operations. Eventually ending up as Arcelor Mittal, and Kumba Resources split with Exxaro and Kumba Iron Ore being the two entities to come out of it. So out of one company a decade ago, there are three very different shareholders bases with very different agendas.

Kumba Iron Ore gives some background to the favourable pricing that Arcelor Mittal has been receiving for the better part of 9 years, whilst the spot price of iron ore has been shooting higher. In their Friday statement, Kumba say: “Sishen Iron Ore Company (Pty) Ltd (“SIOC”) notified ArcelorMittal South Africa Limited (“Mittal”) on 5 February 2010 that it was no longer entitled to receive 6,25 mtpa iron ore contract mined by SIOC at cost plus 3% from the Sishen mine, as a result of the fact that Mittal had failed to convert its old order mining rights.”

Because “This arrangement (in relation to the supply of iron ore from Sishen mine which was concluded in 2001 and which was premised on Mittal owning an undivided 21.4% interest in the mineral rights to iron ore) lapsed as a result of Mittal’s failure to convert its old order mining right and, accordingly, became inoperative in its entirety as of 1 May 2009.”

So there, that is the background as far as Kumba Iron Ore are concerned, the agreement was in place as a direct result of Arcelor Mittal having a stake in the mineral rights, and as such the very cushy agreement is no longer valid. What has happened to the mining rights and how they were awarded is another story entirely, turns out that some of the dates on the documents may have been backdated. We are of course talking about Imperial Crown Trading 289, another part of the broader story, but not this chapter. Farewell old agreement on favourable pricing, in the minds of Kumba Iron Ore acting on behalf of the SIOC.

Because, as Kumba Iron Ore points out, “SIOC has delivered 337 402 tonnes to Mittal’s Saldanha plant in the period 1 March 2010 to 30 June 2010 and 1,115,180 tonnes to Mittal`s inland plants in this period.” And the price that SOIC have been receiving as per the SENS announcement: “Up to now Mittal has only paid the cost plus 3%.”

So SIOC has made a number of proposals, that Mittal would have to accept by close of business 15 July, that being Thursday last week. Which of course was the day before this SENS release. One thing has been clear all along, the fellows at Kumba are on top of their game as far as the paperwork is concerned, which indicates they are more efficient. To me anyhow. First proposal, Mittal pay the difference between the cost plus three percent into an interest bearing escrow account and at the end of the arbitration, the balance goes to the victorious party. Or Mittal are to provide a guarantee of sorts, to be settled again when the courts decide on the matter.

The second proposal is a phasing in of the iron ore price, to cushion the blow for Mittal. OK, the proposals are to offer a set price, but one that is greatly away from the spot price. Ending 1 September 2011, where Mittal will pay the spot market price. As Kumba point out, a damning swat in the direction of Mittal, “SIOC does not anticipate the proposed interim pricing would have any impact on the domestic steel price as Mittal has consistently stated that it does not determine the price of its steel products on the basis of its input prices. In addition, Mittal has continued to set its domestic prices in line with global steel prices.” For the record, Mittal have rejected both proposals. So Kumba have said that Mittal must move to a “pay and take basis”. And pay them for the accumulated amounts.

More damning for me is that Mittal have been paying the cost plus three percent, but charging their customers with a special levy, that they have been paying into an escrow account on behalf of their customers. Government does not like this at all and the Competitions authorities are still “investigating”. What? Why can’t we see a more prompt outcome.

So the response from Arcelor Mittal is bleak. Check out: Kumba halts iron ore supply to ArcelorMittal and further cautionary announcement. I laughed when I read this line: “SIOC had demanded that ArcelorMittal pay to SIOC a price of US$50 per ton of iron ore for the Saldanha plant, and US$80 per ton of iron ore for ArcelorMittal’s inland facilities.” There are hundreds of steel mills around the world that would love to pay that price. For the record, various websites have iron ore spot prices, and let us just say that it is somewhere around 115 US Dollars per ton.

And the release goes on: “ArcelorMittal now has no alternative, but to immediately initiate plans:
for the immediate closure of the Saldanha plant;
for the curtailment of all exports; and
for a material reduction in domestic market production, resulting in market allocations.”

Pointing finger back. Here is a passing shot on this very important matter from me. If government think that the steel industry is so key to South Africa to intervene (they might), then I have this to say to Minister Dr. Rob Davies, who as I understand it went to the same school as myself. How come the trade and industry ministry did not express the same concerns when Mittal was getting such a good deal? Imagine if we had cheap steel locally, because all the inputs were cheap? Would that have not stimulated local industry more, and then created more jobs? Paul makes a good point here, perhaps in the Mbeki era it was seen as favourable for businessmen like Lakshmi Mittal to be participating in our economy. All the while that the parent company grew their stake, that was fine. Now, it is not. Government wants to meet all parties today.

New York, New York. GE results beat the street and in fact CEO Jeff Immelt was making some favourable remarks about the future. He basically was suggesting that the industrial business was going to be key for the future and less focus on the money part. You know, the financial services part of the business.

The FT have a great piece on Reforming the global financial system. That of course top of the pile, remember that the financial regulation bill is about to become law. Dick Shelby was outraged by the size of the document, around two and a half thousand pages. Imagine the pork in there. Market participants focus was on that consumer sentiment number, what did they really expect, an unchanged number?

It has emerged on the weekend that the BP cap might not exactly be the best solution for the time being. It turns out that there are leaks of sorts nearby. The stock trading down this morning in London, around four percent lower. Lizzie O’Leary from Bloomberg tweeted that the pressure at 6700 pounds per square inch, which we worked out in the office was comfortably north of 450 atmospheres. In fact the pressure inside of the well should be rising more, and not less. The current measure is around 6700 pounds per square inch, BP will cheer if it reaches 8000 pounds per square inch. Any amateurs out there with opinions, let me know.

Wall Street wanders. Session end the Dow Jones industrial was crushed, down 261 points to 10097, the nerds of NASDAQ off by a whopping three percent plus at 2179, that was 70 points lower on the session. And the broader market S&P 500 off by 31.6 points to 1064.

Commodities, currencies, Drs. Copper and bushveld. Dr. Copper at 295 US cents per pound. The oil price last at 75.82 Dollars per barrel, the gold price lower at 1192 Dollars per fine ounce, the platinum price last clocked 1510 Dollars per fine ounce. The Rand is weaker understandably, think about the flows, at 7.61 to the US Dollar, 11.68 to the Pound Sterling and 9.88 to the Euro.

Up periscope. We have to readjust our level backwards here in line with world markets. This is a massive earnings week in the US. Hungary and Ireland on the radar screens for the wrong reasons. Not good.

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