Slasher's coffee beans

Jozi, Jozi. A power day masked some heavy intra-day ups and downs, but always on the side of the bulls. There was the ECB announcement which is a little spicier this time around for the simple reason that the bond vigilantes have the periphery economies of the Euro zone in their sights. There was an expectation of sorts that perhaps a bazooka ala a Ben Bernanke program once upon a time would be announced, but to no avail, there was nothing of that size and scale. I had a long conversation with a client yesterday and he pointed out the obvious, a weak Euro is not necessarily bad for German exports, which are rocking. So whilst the other marginal Euro countries fumble around, Germany have to provide cash for the stragglers. Winning on the one score, big time, but a bitter pill to swallow, having to send money to Greece and now Ireland, soon to Portugal.

Meanwhile, the Spanish Prime minister, Jose Luis Rodriguez Zapatero, had the evening before been interviewed by one of the most famous business anchors of all time, CNBC’s Maria Bartiromo, and what he said did a lot to calm nerves.

Bartiromo asked him: “Can you categorically say that the banking system in Spain is healthy and well-capitalized?” and his answer, or part of his answer was: “Definitely. It’s not only healthy and well-capitalized, it’s done its homework, it’s still doing its homework; and, on top of that, it will be one of the most attractive financial systems for investment. It will be one of the most efficient and one of the more profitable systems. We were two or three years back, and we still have that core strength and that ability to reform as we have to reform.”

And then the money question from Bartiromo: “So Nomura, the Japanese investment bank, says Spanish banks need a capital injection of anywhere between 40 and 80 euros (she means billion). That represents 4 to 8 percent of the Spanish GDP. Do you agree with that assessment?” And his answer was spot on, exactly what folks wanted to hear: “No, we don’t agree with that. We don’t agree with that assessment because Spain’s major banks are really considered to be amongst the best in Europe. They’ve–they came out of those stress test with magnificent results. They have a very sound capital structure, major presence, a major footprint in the world today.”

And with that, global markets continued along their merry way, cheering the manufacturing data from the prior session. And the bond yields in Europe crept lower as the ECB later in the day remained active in markets and said that they would extend their bond purchase program. Just for the record, the fellows in Spain are privatising this and that, stepping away from the economy, not getting more involved. So there. Session here in Jozi the all share index had closed up shop at 31145, up 357 points on the session. Banks and financials both closed in the red, an iffy RECEIVED trading statement from Standard Bank did very little for their shareprice, down one and a half percent on the day versus a market up by over a percent.

What did that Standard Bank trading statement say to send the bulls in the opposite direction? This is what they said: “Shareholders are advised that Standard Bank Group’s earnings per share, headline earnings per share (HEPS) and diluted HEPS are expected to be between 3% and 12% lower than the same earnings figures for the year ended 31 December 2009…..”

For the full year 2009, “normalised EPS was 757 cents per share, down 20% on 2008″. So, in the middle of the range down 7 percent, we are looking at a little more than 7 Rands a share worth of earnings. And with two and a half times dividend cover, shareholders would have to expect less than 300 cents worth of dividends. So, next question? Do you pay 101 ZAR for a bank that is on a historic (well nearly) 15 times earnings multiple and less than three percent yield? Of this size and scale?

Perhaps the only bank with a reality check of sorts locally, or being too aggressive on the cost cutting exercise? I would like to think that Standard Bank of the major retail banks is always slightly ahead of the curve. Which begs the question, what are the other banks thinking right now? But I guess the next big question to ask, in light of shaky banking systems around the world are seeing banking assets sought elsewhere in the world. And elsewhere in the world means here. So, a three percent yield from a stable emerging market bank like Standard Bank, with good prospects, if not for the moment, is still compelling. Perhaps a market underperform for the next 12 months, but after that……

MTN are rumoured to be one of the bidders for a stake in Zain Saudi, which the Kuwaiti parent, Zain is looking to sell. It is more than a little cloudy at this time, I must be honest. Reuters reports: “Kuwaiti telecoms carrier Zain has appointed UBS to sell its Zain Saudi unit, sources said on Thursday. Zain selling its Saudi unit is a regulatory condition for Abu Dhabi group Etisalat’s $12 billion bid for a controlling stake in Zain. Etisalat and Zain both have units in Saudi Arabia and compete for market share there. Bahrain Telecommunications, or Batelco, and South African group MTN were in talks to buy Zain’s Saudi unit, the people said. It was unclear whether other parties were also involved.”

With your hands, gesture Zain, Etisalat, MTN and twist them around, opposite each other. Zain Saudi. Well, let us check out Zain Saudi as a whole, last results 20 October, third quarter numbers. Making a loss, seemingly getting a bit better. How does this sound to you?

Not good, but improving. Very slowly. The company is undertaking a right issue in order to keep the wolves from the door, large shareholders have also advanced the company some serious money. Including the Kingdom of Saudi Arabia’s Mobile Telecommunications company. So read into that, the royal family. I can imagine that the Saudi Royal Family are not that thrilled with the Kuwaiti’s. In the form of Zain. But there are also conditions, as you can see in the form of Etisalat wanting to buy the parent company. Complicated, time will tell us something.

BHP Billiton and Rio Tinto are set to stuff the Western Australian treasury coffers with 350 million Aussie Dollars each, in return for mine restrictions being lifted. It seems to me for the sharing of infrastructure by both the iron ore mining giants in the Pilbara. Rail and electricity infrastructure will be built and shared, so obviously competitions funnies wavered by WA, Perth central. Arrr, good on you mate. ‘Bout that Tassie Ponting thou’……

African Bank with quite a wow trading statement this morning. Even then though, they are pretty cautious. Check it out chaps (and chappesses): “ABIL indicated in its annual results announcement for the twelve months to September 2010 that it had achieved a significant increase in credit sales in the second half of the 2010 financial year, which represented growth of 33% over the prior year`s comparable period.”

From the write up that I did a couple of weeks ago:

There is a lot of anecdotal evidence that “things” are improving. There is even visual evidence, I have circled the September numbers on the strong lift in sales slide to make the point:

Check that sales mix, September was a good month. It seems that things are getting a whole lot better, judging from this “While some seasonal growth is to be expected over the traditional peak trading period, group credit sales for October 2010 and November 2010 increased by some 60% over the prior year’s comparable period. The growth in credit sales has been driven largely by a significant increase in application volumes, including strong growth in new clients.” The stock is up more than three and a half percent and is trading at and near all time highs. Granted that 37 was first crested in November 2007.

New York, New York. Retailers were rocking after same store sales looked way better. And the whole “euro” thing seems to have settled a little. Pending home sales were way better than anticipated, but weekly jobless claims disappointed a little, even if last week’s read was way better than in the last 36 months or so. Session end the Dow closed 106 points better to 11362, the nerds of NASDAQ better by nearly 30 points to 2579 and the broader market S&P 500 up 15 and a half to 1221.

The Rand is on a tear as the risk is definitely back on. A whole lot will depend on non-farm payrolls today to keep up the momentum. And that number, non-farm payrolls, is expected to be around 145 thousand which is more or less at the same level as last month. The Rand last traded at 9.16 to the Euro, 10.83 to the Pound Sterling and 6.91 to the US Dollar. Dr. Copper at 3.99 Dollars per pound. The oil price is nearing a year high, 88.13 Dollars per barrel. The gold price is better at 1392 Dollars per fine ounce. The platinum price is also better at 1723 Dollars per fine ounce.

Wait for non-farm payrolls. If it is a “beat” watch another couple of rungs up the ladder. I get the sense drilling through the numbers there could be some pleasant surprises. If not, then can you believe that folks will start to ask questions about the recovery. For the record I think that the number could surprise……I hope so. Because we are long markets. And continue to stay that way.

Sasha Naryshkine
Email me
Follow me on Twitter
011 022 5440

Jozi, Jozi. Whoa…. what a cracker of a day. And, all driven by would you believe (yes I do, but many don’t) firmer manufacturing data from Shanghai to Seattle and everywhere in-between. Plus also better than anticipated private payroll data in the form of the monthly ADP employment report, which is the aperitif to the BIG number, which is Friday, non-farm payrolls data. Which is released by the labour department, this data is so important that former Fed Governor, Alan Greenspan will be there with CNBC’s Steve Liesman, fielding difficult questions. Or probably tame ones, who knows, the heavies call the networks pushovers when it comes to these sort of things. Methinks not, keep everyone close. And calm. Oh, yes and carry on.

The ECB meets today and announces their meeting outcome a little later this afternoon. Oh, and the other question that I keep asking, why has the ECB not cut rates to absolutely zero. Why not? What for is the one percent, and appropriate. Forget inflation now. Geez, I am starting to sound like one of those many armchair Federal Reserve governors that are out there. And let us be honest, everyone keeps telling Ben Bernanke what to do, and then disagrees with everything he does.

Damned if you do, damned if you don’t, but I am sure that is not the reason he (Ben Bernanke) took the job. Just for the record, when Ben Bernanke took the job at the Fed, he took a PAY CUT versus what he was earning as head of his department at Princeton. And no, that department was no philosophy.

I don’t know how factual this next piece is, but hey, take a look anyhow —> 11 Things You Didn’t Know About Ben Bernanke. See the text book royalties part, there is a good reason for taking a pay cut as the governor from an economics professor at Princeton. And think of all the people you will meet. I honestly said yesterday when the headline flashed that Bernanke was concerned about jobs, that now everything was going to be OK. More armchair Fed.

All this anxiety over the US debt “situation”. Excess. Spending too much. Importing too much and not exporting enough. Reliance on “foreign oil”. All those good things. If you have been paying attention, then you know that in the background that a deficit commission had been appointed by Barrack Obama to come up with a solution to reduce spend, and raise revenue. So, see under, cut governments wasteful or unnecessary spend and raise taxes, hopefully not on one target group. In other words, let everyone share the burden.

Like Paul said, no matter the outcome, public voices and concerns have led to politicians talking about it, and you know what, DOING SOMETHING about the problem. But this piece by Daniel Gross (there will be more on him later) suggests that the Debt Commission Report will reveal that it is Dead Before Departure. But hey, first step is that 18 people in a room, republicans and democrats talking about the problem.

And if you follow the link —> The national commission on fiscal responsibility and reform you can see what the commission is suggesting. The document is sub titled, The moment of truth”, I could swear that I heard Non Piu Andrai in that background. My music knowledge is rubbish, I just hacked that from iTunes.

I love the preamble:
“Throughout our nation’s history, Americans have found the courage to do right by our children’s future. Deep down, every American knows we face a moment of truth once again. We cannot play games or put off hard choices any longer. Without regard to party, we have a patriotic duty to keep the promise of America to give our children and grandchildren a better life.

And then this is almost poetic:

“….we share a common belief that America’s long-term fiscal gap is unsustainable and, if left unchecked, will see our children and grandchildren living in a poorer, weaker nation. In the words of Senator Tom Coburn, “We keep kicking the can down the road, and splashing the soup all over our grandchildren.” Every modest sacrifice we refuse to make today only forces far greater sacrifices of hope and opportunity upon the next generation.”

And then the mission statement includes lines that everyone wants to hear, left, right, centre, all political walks of life:

“We must end redundant, wasteful, and ineffective federal spending, wherever we find it. We should cut all excess spending – including defense, domestic programs, entitlement spending, and spending in the tax code.”

Quite true old chap, this is what we know and this is what we want to hear. Discretionary spending (ex-war, which seemingly is a taboo topic in Washington DC) has grown 34 percent over the last decade. “Over the past decade, base discretionary spending (excluding war costs) has grown by 34 percent in inflation-adjusted dollars (64 percent in nominal dollars), and the President’s Fiscal Year 2011budget projects it to grow by an additional 6 percent to $1.26 trillion in 2015. In order to bring down the deficit, Washington will have to rein in discretionary spending.” Yowsers…..

I guess the outcome of the commission and whether they will get the required 14 out of 18 votes to get the report to congress before any laws are passed is not the big picture view. But rather that something can be done. Hell, the US can stop waging war tomorrow and hand that responsibility to the Chinese. Not a good idea says Paul, but they should not involve themselves so actively. Take away from this that something is being done. And everyone likes big numbers, so here goes, the plan aims at reducing government outlays by 4.125 trillion Dollars. Is that a big number for you?

New York, New York. It was all about the deluge of GOOD economic data that saw markets take off around the world. Productivity and ISM manufacturing slightly lower than expected, but still at elevated through the crisis levels. Check out the table from the ADP report yesterday, it was not large corporations hiring like in the past, but rather small and medium sized businesses. You are looking in the change column where the numbers are in thousands of folks, 91 out of the 93 thousand number was for small and medium business. And lastly, this was the best number in three years. Three years people.

I quite liked this, but I would. Of course we have been accused of being too bullish and “putting a positive spin on things”. This comes from a piece titled —> More Non-End-of-the-World Economic Data written by economics and finance professor Mark Perry. He borrowed the headline from Daniel Gross at Yahoo finance with more or less the same spin —> Today in Non-End-of-the-World Economic Data.

Both Perry and Gross talk about the ADP numbers and PMI numbers, and car sales. Perry connects the dots, check it out:

“Pickup trucks are typically purchased by small business owners and entrepreneurs, and the huge increase in November truck sales is an indication of increased business activity for America’s small businesses. The increased business activity for small businesses also translates into increased hiring by small businesses, which we saw in ADP’s November job report.”

Let us look at a little of this data, first the motor vehicle sales data by manufacturer for the month of November when measured against November 2009:
Hyundai, up 45 percent, Nissan, up 27 percent, Ford, up 24 percent, Chrysler, up 17 percent, GM up 11 percent and then the only disappointing major was Toyota, DOWN 3 percent.

It seems to me that local is lekker (Ford and Chrysler), but so is value (Hyundai and Nissan). And I wonder, re. Toyota, the recalls (and by the way they were first to do it) what they have done to sales. AND, in the coming months what the emergence and relisting of GM, what that would do to confidence of the consumer.

Commodities corner There is an answer to the question, “Why Gold?” and the answer is actually pretty straight forward and simple. Check out, unrelated, the headline, but relevant to this question of ours: —> Why Glenn Beck Wants You to Buy Gold: Molecular Destiny

And then the “money point”:

Are there any other chemical elements that could replace gold? Not really. Most of the 180 elements are unusable: they’re gasses, they explode, they’re radioactive, or they’re too common or too rare. Eliminating elements that fall into those categories “leaves us with just five elements: rhodium, palladium, silver, platinum and gold”–precious metals, Goldstein and Kestenbaum write.

Interesting. As for the price of this irreplaceable metal, Gold, currently 1389 Dollars per fine ounce, the platinum price last at 1705 Dollars per fine ounce. The higher melting point, and imagine if technology had evolved earlier and wood fires burnt at 3500 degrees Celsius. Would the fixation with platinum be the same? Or, the other thing about gold that is not explained above is that gold production versus platinum (too little) and silver (too much) would be just right. Ironically called Goldilocks, not too much or too little. Let me put it this way, much easier to understand, I once did an exercise where I looked at annual global production of precious metals.

Gold, around 80 million ounces per annum, platinum at about 7 million ounces per annum. And silver annual production at 700 million ounces per annum. In short, platinum is too rare, silver is too abundant and gold is just right. Hah…. sounds like Goldilocks.

The oil price is trading higher at 86.85 Dollars per barrel. Dr. Copper prices on the up, 397 US cents per pound. The Rand is firmer as the risk on trade takes place, 9.20 to the Euro, 10.89 to the Pound Sterling and 6.97 to the US Dollar. The risk on trade is back……

Sasha Naryshkine
Email me
Follow me on Twitter
011 022 5440

Jozi, Jozi. Another day of selling towards the end of a mix and match month, the first half was good, the second half has been wobbly. In part due to the Irish debt worries, and those same worries have spilt over into the Portuguese bond market, the Spanish bond markets and not quite into Italy as of yet. As discussed in much detail yesterday. And remember that Keep Calm and Carry on graphic from yesterday, which reminded us of everything from the Russian wheat crisis, to Dubai World, to the end of the Dollar through QE2 and the end of the Euro from the afore mentioned problems.

And remember, all the folks with vested interests in the Euro are not going to let a domino type situation take place. They (the Euro stakeholders) would rather see an inflationary problem by introducing another “shock and awe” program. Hey, I don’t think that we are going to see the opening scenes from “The Gladiator” when the Romans and the Goths are having a go at each other in the mud and snow with fireballs and cavalry charges. No. I don’t think that is the case.

Hey, perhaps the socialist governments of Europe can start selling assets off to the private sector and shore up some funds. I saw something crazy via Bloomberg (European Companies With $700 Billion Cash Ease Deal Dearth) that suggested that European companies were sitting with 700 billion Dollars worth of cash on their balance sheets.

Mohamed “the moustache” El-Erian, who will not shave this morning, because he has a perma-tache, said that he saw a much smaller Euro zone in five years time. He had no problem with the “core” countries that were fiscally compliant. Or so it seemed. France, Germany, the Netherlands, Austria, these were countries that he saw sticking it out. Phew, I guess that means he thinks the PIIGS would be oinking at the fringes, waiting for the next scrap. He had a great point, until you had a central budget, then nobody could trust each other. But I must be honest, I believe that the Euro zone will bumble through this and end up with more members in five years time. 16 will be more. That is just what instinct tells me, but then again, who am I to go up against El-Erian and PIMCO’s new normal?

Anyhow, the anxieties continued to rumble through global equities markets, plus the embarrassing Wikileaks story is amusing in some parts, why not lay all the cards on the table? Who cares what mannerisms of Angela Merkel, Hillary Clinton, Morgan Tsvangirai and we all knew what the South African diplomat said about the honourable Robert Gabriel Mugabe anyhow. I guess the military compromises are another thing. But hey, this world is supposed to be demystified from each other via the interwebs, not so?

Session end we had taken a pounding, the Jozi all share down 449 points to 30266. We are up less than 10 percent for the year now, feeling like you missed out? The chairman of Goldman Sachs asset management global (I think that is his title), Jim O’Neill said that he thought it was a GREAT TIME to be buying equities. Look at his title and tell me whether or not you think he is a quality enough person to be saying that. Hah-hah, I can’t even verify his title and I am telling you to look at it. OK, found it —> Jim O’Neill Named Chairman of Goldman Sachs Asset Management. There you go.

Ye olde world. Portugal. What did I say to someone yesterday, chorizo sausage, Ronaldo, the Algarve and pickled codfish (Bacalhau, I think), all those things, that is what I really know about Portugal. Although I know many Portuguese people, I lived in Mozambique for years. Nearly a decade. But my skills with the language are poor, I was going to school in South Africa. But banks in Portugal is what is in focus, not Inhaca or Xai-Xai, but rather Portuguese banks. Which are in a pretty poor shape, the Portuguese Central bank (why have that) were told by the ECB that their banks need to raise cash. The original Lisbon stock exchange was founded in 1769, when the centre of the economic world was actually closer to Lisbon than it is now. Or likely to be for a while.

Question? Based on the above long story about not letting it (in this case it is the Euro) fail, because of the unintended consequences associated with bank failures and country defaults, is it not true that the Europeans won’t let “it” happen? Roubini economics are predictably bearish and their morning note is as follows:

” Contagion has taken hold of Spain, with respect to both the sovereign and the banking system, in the wake of Ireland’s financial troubles and bailout application. In contrast with Greece, where the key vulnerabilities are in the public sector, both Spain and Ireland have run up large private sector imbalances following real estate booms and busts.

Yeah Nouriel, you keep telling us how awful it is, I just want to know, how are you going to monetize all this awful outcome? Are you going to short, or have you already shorted Portuguese bonds? Or do you just look for more subscribers?

And PMI this morning in Europe and the UK seems to be blowing expectations away. What? The French PMI number is the best in a decade. The UK PMI data the best in 16 years. Exports flying to places like……China and the US. What a hoot. Still, a more serious look at the numbers is warranted before the bulls start crowing, easy tiger.

New York, New York. Google were slammed last night, part the below story about Groupon and part a pending fine of sorts, Apple also had a bad time, perhaps the competition gathering momentum. BUT, the iPad version 2 is going to be released with wow features before some guys have even got version 1 to market. And Walt Mossberg, a well respected journalist at the WSJ who thinks these things through well, suggested that the only tablet he thought could compete with the iPad would be the Samsung Galaxy. So, sorry RIM. Phew, I guess for those types, RIM and HP and even Microsoft and all the androids, they would hope he is wrong.

Same old worries about European sovereign debt issues, and their banking system. Portugal. And the elephant in the room as the Nouriel calls it, Spain. Puyol, Xavi, Iniesta and the like on the winning side for Barca, but Spain finances are no Barca!!! More like Luton Town. Oh dear, I have no doubt that this will knock around for a while. Session end Wall Street closed off the lows, but still down, the Dow down 46 points to 11006, the nerds of NASDAQ down 27 to 2498 and the broader market S&P 500 down 7.2 to 1180.

What the hell is Groupon? And why do Google want to pay 6 billion Dollars for this thing? And what were those tweets about mine yesterday about? Well, I was trying to work out what the realised value would be to Naspers, because Mail.ru owns 5.13 percent of Groupon. And Naspers own 28.7 percent of Mail.ru. So, in a roundabout way, that gives Naspers shareholders a 1.47 percent shareholding in Groupon. So, if this is right —> Google in talks to buy Groupon deals site then a price tag of five billion Dollars is being bandied around. I even heard as much as 6 billion Dollars.

But let us go with 5 billion Dollars, which would turn the shareholders of Groupon into billionaires (Groupon Cofounders About To Become Billionaires?), and that would be an effective realisation for Naspers of 73.6 million US Dollars. 519 million Rands. For a business that you might, or might never have heard of. How does “it” (Groupon) work? Let me not tell you, the website tells you —> How Groupon Works. And that, my friends, is the smart interconnected way that Naspers is at work here. First things first, Google needs to buy this Groupon business. And if they did it at that ticket price, it would be their most aggressive and expensive acquisition ever.

Silk road, riced and diced. Chinese PMI was released much earlier this morning, I actually saw the release, my dog woke us all up in the early hours of the morning, she had caught a mouse. Clever dog. Poor mouse. Ah well, such is life. Before I get into these numbers there was my hero Jim O’Neill on the telly yesterday as the guest host of the CNBC Europe morning show in London. And he actually said that for the first time in ages he thought that the Chinese had made a mistake of sorts with regards to monetary policy. And he indicated that the next inflation read in China could be an ugly number. Perhaps as one of the biggest Manchester United supporters he had seen their ugly kit losing for them the Carling cup match later that evening, and had been disappointed.

OK, but Jim’s worries and Chinese inflation aside, this PMI number from the Chinese this morning would confirm his thinking. But anyhow, check it out from Bloomberg —> China’s Manufacturing Growth Accelerates, PMI Shows.

The Aussies were out with Q3 GDP this morning. Whoa. And it was not the best of numbers I can assure you, 0.2 percent growth versus last year. The only good news for the Aussies is however is that rates would continue to stay where they are.

Commodities corner The Rand has firmed a little through the morning, 7.04 to the US Dollar, 11.01 to the Pound Sterling and 9.21 to the Euro. And commodities across the board looking better for the commodity bulls, Dr. Copper at 386 US cents per pound. The gold price is higher at 1391 Dollars per fine ounce, with the sister metal, platinum, ticking through at 1671 Dollars per fine ounce. The oil price is a little higher at 85.06 Dollars per barrel.

Up periscope and something weird. ADP non-farm payrolls today, that is awesome, that will determine where we end up, qall things being equal (no Korean crazies). The expectations is for 58 thousand new jobs to be added to the payrolls. Amazing, every year since 1984 the fellows over at PNC have been quantifying the cost of the 12 gifts of Christmas. You know, on the first day of Christmas, my true love sent to me, A Partridge in a Pear Tree …… and on the last day of Christmas, one would get 12 Drummers Drumming. And since then (1984) the cost of Christmas has not even doubled. Check it out —> The Price of Christmas from 1984 to 2010.

Sasha Naryshkine
Email me
Follow me on Twitter
011 022 5440