Slasher's coffee beans

Jozi, Jozi. Another holiday, another day off for markets and folks taking a long holiday extended here. Again. I can’t complain, I just visited the family in the Klein Karoo, when we left yesterday morning it was cold. Very cold. There was a light sprinkling of snow on the mountains on the West side of Worcester, to dash any hopes of a longer summer. It was pretty looking and cold. Tuesday was a slow day, markets closed nearly flat, a few points better on the Jozi all share to close up shop at 32668, up 9 points. Dragged lower by the resources sector which was down 0.8 percent, the local currency continued to power ahead, you will see why a little later down the message, as we chat about the Dollar Index.

I remember writing this a while back, on public holidays, last August: “There are seven public holidays in China. Here, like in Greece actually, there are 12 public holidays. We lose a whole working week to China as a result of observing all these public holidays. In the US there are ten. In England there are only 8 public holidays this year. In Portugal there are 14. Are you starting to see some sort of pattern here? In Vietnam there are only 8. Now you have a clear picture”.

We lose a working week to the Chinese? When we cannot even compete at a productivity level (let us not kid ourselves) we take an extra week off. I do not mind all the public holidays, but I just wonder about the firm timing. Middle of the week. In the US the holidays that are set by the state fall on Mondays mostly. So, take the holidays that are so near and dear to us and stick em all on a Friday or Monday. Period. And start voting on a weekend. Saturday and Sunday.

British American Tobacco released a quarterly trading update this morning. Here goes: “Good organic revenue growth of 5 per cent at constant rates of exchange. Volumes from subsidiaries decreased by 2.4 per cent to 164 billion, organic volumes reduced by 1.8 per cent. Global Drive Brands volume grew by 9 per cent.” All rather complicated for me, if not for the watchers of the company. All I know is that volumes are falling, if not revenues, which is good on the part of the company.

“Industry volume declined significantly in markets such as Spain, Mexico, Australia and Vietnam.”. At the same time however, there were market share gains versus their competitors. Smoking bans in public places and higher taxation has seen volumes decline in these places, but some of their other brands have gained strongly in places like Russia, Japan (earthquake and tsunami aside), South Korea, the Ukraine and Romania. Where smoking of the Kent brand has powered ahead. Pall Mall rocked in Pakistan, Romania (again) and Turkey. Lucky Strike found the going opposite as volumes declined in Spain mostly.

Like it or not, the industry creates jobs. 460 thousand tonnes of tobacco was bought by BATS last year. China, India and Brazil all have many numbers of households dependant on Tobacco production. According to Wiki global production has gone from 4.2 million tons in 1971 to 7.1 million tons last year. Check out the Growing Tobacco section of the WHO tobacco atlas.

That tells you more or less the size of BATS I guess. Last year BATS sold 708 billion cigarette sticks across their territories. The number globally is around 5.5 trillion, of which one third are consumed by the Chinese, which is a tough old market to crack from the outside. So they are a leader, if not hugely dominant. It is better to be number two in market cap, than number five.

There are environmental issues with all industries, so whilst I care a lot about the leaching of nutrients by tobacco plants, and the heavy usage of insecticides, as well as deforestation (wood used in the curing process), I am mindful that everyone has their problems. Health issues aside, although being a low yield crop, it is relatively easy to grow. We still maintain our avoid on the stock and company. Product growth will remain stodgy. Taxes will increase. There will be more folks looking to limit their product sales, both because of health and moral issues. I can ignore the juicy dividend yield and the supposed downturn friendly nature. In truth I would much rather own Coca-Cola and do so for clients.

Around the world. Whilst the BoJ leaves rates at next to nothing again, they are not getting too excited about pouring any more stimulus into the markets. And rather taking a wait and see approach as to how their initial moves post the quake and tsunami had on the Japanese economy as a whole. And to be perfectly honest, the markets do not seem to care that Japanese debt was placed on negative watch by Standard & Poor’s yesterday.

Everything slower and lower, from vehicle production to retail sales internally, why should we be surprised. Perhaps it is just a way for the ratings agency to quietly start lowering their debt ratings of Japanese government bonds over time. Perhaps. I do not care, check it out: Japan Rating Outlook Lowered to Negative by S&P on Quake Rebuilding Costs.

New York, New York. There were many distractions in the background, perhaps the most important one politically was the Barrack Obama full birth certificate, which shows clearly that he was born in Hawaii and not Kenya, or East Africa. Or wherever it seems that the nut jobs out there think. Perhaps now the Donald can reveal which glue he uses to keep “that thing” on his head attached. Sis, that is rude and unfair.

And I am not too sure why Donald Trump is referred to as a billionaire or property Tycoon, more apt would be the description that Heidi Klum or Jeff Probst, reality TV host. As far as I understand it, that is where he makes his money. But hey, many people actually think he is worth more than Tim O’Brien who wrote that book about Donald Trump. Truth is, anyone who votes for the Donald as president would be doing Democrats a favour, they would be far right wingers.

The first ever news conference was held yesterday by Fed chair Ben Bernanke. Of this sort, along the Trichet lines when journalists and the like ask clever questions. Not always. What did Bernanke say to make markets fly. In fact the last time that the NASDAQ 100 was at these levels, Bloomberg points out that Friends was the top TV show. Brad and Jen were together and Tom and Nicole had just split. Feb 2001. George Bush had been in office for just over two weeks. Borge W broke tech. Come on!!

There was the official Press Release if you want to see what the Fed said and then the Table projections for the US economy here —> Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, April 2011. I am staying with my line, the Fed are on top of their game. And know what they are doing. And all the arm chair Fed critics can go and jump in the lake. With their own assessments of QE2.

Gold hits a record high will be the headlines again. When measured in the global currency, US Dollars. At the same time the Dollar index hits a nearly all time low. Yech. What is the Dollar Index? Here goes, this is the basket make up, from the contributors at Wiki:

Euro (EUR), 57.6 percent weight
Pound sterling (GBP), 11.9 percent weight
Canadian dollar (CAD), 9.1 percent weight
Swedish krona (SEK), 4.2 percent weight and
Swiss franc (CHF) 3.6 percent weight.
Japanese Yen (JPY) 13.6 percent weight.

Started in 1973, the all time high was the mid eighties, Feb 1985 where it topped out above 148, or 164, depends where you look. I think in part as you can see from the basket above, that has changed over time. There used to be a Deutsche Mark and a French Franc. The Dutch Guilder and the Spanish Peseta. Those would have been in the Basket, but now the Euro dominates.

The all time low for the Dollar index was back in March 2008, where it got to 70.69. Currently we are at 72.94. The last year has been bad for the Dollar. Check out the Bloomberg public page for the: DOLLAR INDEX SPOT price. Check out a long term graph that I found via TradingEconomics.com:

So whilst the Dollar has been thumped over the last six months, the long term graph hardly is any cause for concern. The Dollar gets strong and then weak, weak and then strong. So as the Gold price (the anti Dollar) hits an all time high this morning, but has been beaten by the S&P 500 over six months. Plus it did not pay you a dividend, gold that is. I know which one I would rather hold. The gold price in US Dollars last traded at 1529 Dollars per fine ounce.

The Rand Gold price is as close to 9855 ZAR per ounce, that is where the GLD ticker traded last. Fact is, the GLD ticker has trounced the market over five years, up 152 percent versus the overall market 53 percent. Ex dividends, that would make up some difference. BHP Billiton is up 117 percent ex dividends over five years. Since early 2006 there is little to split the two, I would say that the BHP Billiton dividend would put them ahead over that time. Over the last six months BHP Billiton has trounced GLD. Again, I know which one I would rather own.

The copper price is 427 US cents per pound, the platinum price is 1825 Dollars per fine ounce. The oil price is slightly off the best levels at 112.54 Dollars a barrel. On NYMEX WTI, which is closing the gap on Brent, which is last at 125 Dollars per barrel.

The Rand is strong, but off the best levels, 6.62 to the US Dollar, 11.03 to the Pound Sterling and 9.80 to the Euro. We started better here, but have gone lower over the course of the day. Have fun in two of three consecutive short weeks.

Sasha Naryshkine
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Jozi, Jozi. Phew. Saved in the dying moment of the markets, resource stocks u-turned and we managed to sneak back into the green. After wallowing in the red for much of the afternoon, weekly jobless claims failed to impress, even if the four week rolling number was the lowest since September 2008. US PPI at the headline level came in lower than expected and at a core level higher than expected. Turns out for the moment that inflation at the factory gate in the US is not a problem. So much for that. Session end the Jozi all share index closed one fifth of a percent higher, or 64 points to 32418. Yippee, we are just shy of a percent higher for the whole year. The whole year. Snooze.

There was an announcement from the fellows over at FirstRand that they would be taking a stake in a Nigerian bank, Sterling Bank. Sterling has 99 branches. Their loan book grew from 2009 to 2010 by around 30 percent in local currency terms, to around 100.6 billion Naira. Which is about 4.5 billion ZAR. So, about 30 percent of Capitec’s book, that is what they are adding. The stock at current levels trades historically on less than 6 times earnings. Cheap? Yes. Not without a number of speedbumps, perhaps. Material? No. Potential? Yes! Check out their last set of financials, for the full year to end December, Dollar to Naira is around 155 for ease of exchange controls —> Sterling Bank Plc. FY 2010 results.

Clicks had results for the six months to end February. Strange year for a major, but hey, it does not really matter. And it means results in April. Which is all good. Retail turnover up 13.5 percent, thanks to the Clicks stores. I was in one yesterday, my poor outdoor domestic executive got wiped out by a car on Corlett drive last Friday and I was seeing if I could get him anything else. Other than the stuff that the pharmacist at the hospital had given him. Nope said the pharmacist, so poor Senzo will have to rest until his rib heals.

The story is interesting though, the high street pharmacy next door had to shut up shop, whilst the Clicks built theirs. Not able to compete anymore I guess. And that pattern is apparent around the country. So who would compete in this space then? Dischem of course, not listed, although those rumours come up often enough. I have noticed that the big Pick ‘n Pay on William Nichol has a *nice* pharmacy, I even know the pharmacist!

Here are the numbers from the SENS release: “Headline earnings increased by 17.4% to R323 million. Diluted headline earnings per share continues to benefit from the share buy-back programme and increased by 22.2% to 122.2 cents.” And “the interim distribution was increased by 21.3% to 37 cents per share.” Excellent. Sounds all rather good. Plus of course, guidance was given for the full year, with earnings expected to “.. increase by between 17% and 22% over the previous financial year.”

So you should expect for the full year to August that earnings per share will be in the region of 250 cents. So the second half should be marginally better than the first half, which is what I guess you want to see. And if the group maintains the same dividend cover of two times, then expect 125 cents worth of dividends per share or so for the full year. At 43 ZAR a share that hardly makes the company cheap. The broader market participants were disappointed I guess and sent the stock down around two and three quarters of a percent yesterday.

I guess the conclusion is that the stock is neither cheap, nor expensive. There needs to be some sort of catalyst to take the company to the next sort of level. There was of course a rumour that Boots, the current CEO David Kneale’s former employer was sniffing around, but as I often say, I do not pay much attention to these snippets. All in all, a good company with decent growth prospects, and one can expect around 20 percent earnings growth over the next three years.

But, and this is a big but, relative to their peer group, Shoprite, Pick ‘n Pay and Spar, the company has the best earnings growth prospects, according to the analyst community. And is the cheapest at a pure simple valuations level. Question then, wouldn’t you rather be buying the one with the best margins then? There are lots of things to like about the group, including the fact that profit margins have increased sharply over the last five years. Thanks management. Yes, no, maybe, I am not going to set a price at which one could or should like it, I am just going to say it could be a company that we here at Vestact could add to the list in the future.

Do we have to revisit Metorex after all the stuff we have written over the last little while, starting the beginning of this week. But I was sent a couple of questions, which I am going to answer through this forum. Here goes, a question from Mohamed in Durban:

“I would appreciate it if you would do an article on how disillusioned shareholders are with the Vale bid. We as shareholders put our trust in the astuteness, competence and business acumen of the Directors of Metorex through its difficult time. We stuck with the company despite everything.

OK, so the first point, have management acted in the best interests of shareholders? It depends where you draw the line in the sand, because as Mohamed points out, seemingly all these good things are starting to happen. Hedge unwound, copper price screaming higher. What I did not ask Mohamed however was whether he followed his right along the way. Hypothetically, let us say that Mohamed bought 10000 shares at 1500 cents on the way up, and then really was liking it and bought another 10000 at 2500 cents, near their peak. His average price for 20000 shares would be 2000 cents, or twenty ZAR.

And then sadly for the company the copper price came all fall tumbling down. Collapsing in a heap. So a toxic mixture of over leveraged to a specific commodity in a tough operating environment where volumes were lower on lower prices. Profits went from 550 odd million ZAR in 2007 for the full year to end June (almost identical the year after) to a loss of 1.5 billion ZAR in June 2009. Shares in issue have gone from 289 million in 2006 to over a billion currently.

Two claw back offers later and the board being replaced for their sins, the share price bottomed at 115 cents in March of 2009, along with the rest of the market in the toilet. 2990 was the high in July 2007. Wow. Makes you feel like you have just experienced some turbulence. OK, let us say that Mohamed had followed his right, 34.94 shares for every 100 at 200 cents first time around in November 2008. Not everybody took them up, there was only a 74 percent subscription. That tells you that not everybody, all the share holders were on the same page. Mohamed would now have an extra 6988 shares, to add to his 20000 shares. His average price is now 1534 cents.

The next claw back offer in March 2010 was at 360 cents per share and the ratio was 33.233 for every 100 shares. He would have had to pay 360 cents for 8969 shares. And now Mohamed would have 35957 shares at an average price of 1241. Still comfortably below the 735 offer price. So I can understand his frustrations and irritations. What would have been a whole lot worse for Mohamed would have been if he did not add to his positions.

So two things, one the management reshuffle saw a different set of folks with different reasons for entering the business. So don’t feel let down by the new management, they had a different perspective of having performed CPR on the battlefield and nursed the patient back to health. That is the new managements perspective. And yes, the hedges have unwound and the copper price looks fine now, but things could have been worse and you could have ended up with nothing at all. On balance the risks taken on the DRC deposit were too much, but we did not know what the future held. My take away is that all is fair in love and war, if Mohamed is against any deal at this price, when time comes to vote, he should exercise his rights as a shareholder, and vote against.

And then another awesome piece from a school and university friend, I was asking him about the new Brazilian president. Why, you might say? Well, it concerns him, he lives there, in some deep iron ore country. My question was simple, I asked him, what can you tell me about Dilma Rousseff that I have not read already? And then he sent me an awesome long answer which he said I could use, so here goes, the new Brazilian president:

She is an ex bank robber and terrorist but these are the credentials today for an inspiring popular presidency! ……..

Pro-business, yet extremely protectionist outlook with recent enactment of almost 100 policies to protect local industry, more government control over iron ore with ousting of Agnelli as CEO of Vale and of course control over oil (Petrobras).

Very popular – same as Lula, thought was that Lula would be pulling the strings but seems she is actually doing this.

She drove past me in the back of an open jeep waving a flag – no bodyguards needed at all and she can really relate to the average people in the street. This is one of her strongest points – same as Lula. She is much stronger than Lula in business though and this will ensure huge success for Brazil.

She has a US angle now (Lula did not) and the US will milk this but she is much smarter than Lula and will milk both the Chinese and US for funds, technology etc whilst trying to protect and grow the Brazilian industry. Focus in on jobs, lessening government red tape and tax reform.

My worries about her: Ever increasing meddling and Involvement in companies like Vale and Petrobras for the social PT party aims continuance of Lula. Chatted to my mate who worked with SNC Lavalin (large engineering company in Canada with big Brazil presence) and analysis was done on steel making and ship yard building in Brazil (what Lula and her focus on and all that Angelli was very much against) and worked out to be almost unprofitable and definitely uncompetitive due to high energy costs (Brazil around 85% hydro but remember has to travel huge distances to get to market)

Inflation a problem in Brazil now with some clothing lines out for the winter up 30% from the previous year – everyone jumping on the band wagon to make a quick buck aka Brazilian style with rising wages. Fuel on a comparative basis is much higher in Brazil even with self-sufficiency – no real regulation with prices varying greatly even from street to street never mind town to town.

Also still mafia type business practices used often with no real respect for the law by Brazilians (respect for the law is hard to find in the dictionary there)- a new airline that wanted to start up has had serious problems and people on the ground tell me that TAM are all to blame with their mafia type tactics. But, think when I first went to Brazil this practise was everywhere and now becoming less and less.

Look at this deal Brazil just signed with a major Chinese corporation: Foxconn Plans $12 bln Investment in Brazil. There will be a lot more of these types of deals with the Chinese.

You need to read a magazine called Veja which is about the only one that is half decent and is critical of the government and exposes the corruption in Brazil. In Portuguese though and will send you some stuff once translated.

The corruption is still a problem but it is 100 times better than anything I have seen in SA. There is a willingness for private companies to root it out and expose the levels of corrupt government and often lawyers that are involved in it.

Here is an excellent article on (advertisement ?) for Brazil (might meet Mark in a few weeks time in Brazil) mostly all true (except for the free press part as it is owned by the government): Brazil is in a Class By Itself

Thanks James, that is awesome. He makes some good points here.

Byron’s beats

One of my favourite companies in the whole wide world, Google, released results last night. Revenue for the first quarter was up 29% yoy (3% qoq) to USD6.5bn which was generally in line with estimates. EBITDA came in at USD3.6bn (wow those are great margins of 55.5%) but was slightly less than what highly expectant market participants were hoping for. This equated to USD8.33 dollars a share for the Quarter.

The stock dropped 5% in New York last night because margins have decreased slightly due to an increase in operating expenses. This includes salaries, marketing and research which represents a third of quarterly revenue (around USD2.16bn) and has increased 54% from a year ago. This is because Google have been increasing salaries and remunerations as well as putting big cash into finding new projects. I’m fine with this, they are looking to grow and compete with the likes of Apple and Facebook. I have said before, technology is a ruthless industry if you fall behind, you will be eaten up. Even if you do rule the planet.

Let’s take a closer look at the numbers. If they maintain adjusted EPS of USD8.33 every quarter they would look to make USD33.32 for the year. They are currently trading at USD578 a share so a PE of around 17. However you would think at this rate they’d be able to grow earnings each quarter. So if they maintain this three percent quarterly growth they would look to make USD44. A very respectable forward PE of 13. Not bad for a company that literally affects our everyday life and has the ambition and track record to carry on innovating and growing.

Investment case against Google. They have struggled to get into the social network world and face very stiff completion from Facebook. That is why they implemented a 10% salary increase across the whole company and made an extra effort to keep valuable employees from jumping ship into other internet start-ups. Competition is rife in this sector and one has to be on their toes 24/7. The risk is that these companies fall behind and become a Yahoo! or a Myspace.

Investment case for Google. They are too big and too ambitious to fall behind. Larry Page, the creator, has taken the CEO position now because he feels he is ready to turn this company into the biggest in the world. He has a different management style and really encourages innovation and individuality. They have people designing cars that drive themselves for example. The company looks cheap, internet is the present and the future and at this stage Google is the internet. To reiterate my point, I read an article last year that most computer illiterate Facebook users actually search “Facebook” via Google in order to access the sight.

Byron is right here. This might be a slip up from Google, but finally the stock looks cheap. And I agree with him. I think that they are going to change the world. Today there is the small matter of US CPI. The fact that people are focused on economic fundamentals kind of excites me. And earnings run in the background.

Sasha Naryshkine and Byron Lotter
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Jozi, Jozi. It could have been a whole lot better, we started slipping in the afternoon, a little anxiety over what the US president would deliver with regards to the budget a little later in the US session. And after we would be closed. And thinking about dinner, or in my case dinner was long finished, have to eat with the little family members you know. Resources bounced back from being sold off, and closed up around two thirds of a percent, pulling the broader market higher by 0.35 percent or 113 points to the good on the Jozi all share, which closed at 32353. Banks actually slipped half a percent, there were decent enough earnings out of JP Morgan Chase pre the US market open, interpretation of the results of banks this size are always more than a little tricky.

I think I might be wrong on this one, Metorex. A couple of days ago I wrote about the fact that the price was trading at a discount to the Vale offer price. That meant in my mind that there would be no other offer out there. But now the Metorex price is trading above the offer price. Which tells me a few things, either folks are betting that shareholders are going to ask Vale for more, 735 is a discount for such a fantastic asset. Remember the annual Frazer Institute survey of mining companies on where are good places around the world to mine? The DRC came third last on the policy potential. The only two below the DRC were Venezuela and Honduras. From a policy point of view.

But the rumoured buyer has Chinese connections. You know, “the Chinese” are considering making a bid is what I have read. What, all 1.325 billion of them? Ok chaps, one US Dollar each, we are going to own a fantastic copper deposit in the Democratic Republic of the Congo. Well, you can read table three of the same report —> Survey of Mining Companies – 2010/2011 and you can then see that sans restrictions, it is one of the most favourable places to mine around the world. And knowing that Chinese companies, with the backing of the state, have much longer time frames than most folks. 30 years minimum. AND, more importantly, a higher risk tolerance. You know what you are getting into.

Metropolitan have gone along with the Oliver Twist line “Please sir, I want some more” and that Vale’s bid is too low. And saying that there could be a rival offer. Well, show yourselves please. What do they know that the directors do not? Who have basically agreed. Don’t they want to fight for more? I don’t know any more than anybody else, perhaps Metropolitan do, but the recent rush up to above the offer price yesterday means buyers at these levels, folks with short term horizons (I am assuming) are banking on a rival bid and perhaps a bidding war. As usual, I prefer to operate on what I do know, not what I do not know. Confused? Read the Miningmx story from Monday —-> Competing bid likely for Metorex.

Who knows. The balance of the market forces see the price at around the Vale offer level, meaning that if a counter bid comes, it would have to first take up the break fee (75 million ZAR), so that is seven and a half cents a share for starters. And then another 7 to 10 percent I think would be about right. Myself, I am not too sure where this is heading. And seemingly I am going to be wrong, that is what the price is telling me. *Scratch head*.

Byron’s beats The summit everyone is talking about. The new kid on the block, South Africa joins the fellows from Brazil (with their new president Dilma Rousseff who has great struggle credentials), Russia, India and China. On a *nice* tropical island. Byron has a look at the summit.

South Africa’s colourful president, Jacob Zuma is currently in China attending the BRICS leader summit. If you are unaware of what the BRICs are, they are an economic group of emerging market economies which meet certain requirements and look to overtake the developed world in global GDP contributions by 2050. The phrase was coined by former Goldman Sachs head of global economic research, Jim O’Neil (he is now chairman of asset management at Goldman) and it originally stood for Brazil, Russia, India and China.

According to Jim we don’t meet the criteria even though we have been inducted by the other four nations. We don’t have a big enough population and our growth outlook does not meet his requirements. I suppose you can’t argue with the man who coined the acronym, he thought it up and even took a long hard look at other possible candidates such as Mexico and South Korea but they did not fit the bill (too developed already).

However it has now gone beyond Jim and the original BRIC nations have invited South Africa to join the bloc from both a political and economic perspective. I think the rational comes from the fact that we are the most developed economy in Africa and often dubbed the gateway to the ‘Dark Continent’. Although we have a population of only 50 million, Africa has over 1 Billion people, most of which are stuck in an awful poverty trap and ready to break free into a world of consumerism.

To think that South Africa represents the whole of Africa would be naive. There are many sovereign states within the continent, many of which have dictatorships which are uncooperative and stubborn in their beliefs, and who won’t for a second listen to our pleads for democracy and liberalisation.

The fact of the matter is however, that we are one of the most politically stable nations on the continent and we do have a significant influence. If there is anyone to turn to when it comes to Africa, it would be South Africa. How can you have a forum representing the developing world without involving Africa. Nigeria, the next best candidate, cannot even organise an efficient election at the moment.

That is from a political point of view, from an economic point of view we do not meet the BRIC criteria but we do offer access to Africa through our highly regarded market. Companies like MTN, Standard Bank and Massmart have made successful inroads into the continent and all of which are listed on our highly liquid and reliable JSE.

All in all I think it can only bring out positive results for SA. I feel the other BRIC nations have more to offer us than we have to offer them and we have done extremely well to be included in the group. Whether actions will result from the forum is yet to be seen but like I said, it can’t be a bad thing to be included amongst these potential global super powers whose relationships with us and our economy can make a huge difference.

For a bit of fun check out the debate Sasha and I had on the topic which was put up on the Business Day website. BRICS or CRIBS?

New York, New York. The Obama speech on reducing the US deficit was bad from a timing point of view for me, too early. And he was late. So, I tried to watch it. The funniest thing that happened was that my older daughter fired up the iPad and we listened to one of her favourite songs on the Disney’s The Princess and Frog app, “You gotta dig a little deeper”. I almost fell on the floor laughing, Obama telling Americans that they have to try harder and my nearly six year old jiving to “you gotta dig a little deeper”. Hah-hah, I had to laugh at the irony. So, how was the speech? Who thought what where when?

The WSJ says this Obama Stokes Deficit Fight. And the sub heading says this: “President Rips GOP Fiscal Plan, Says Mix of Taxes, Cuts Needed; Foes Dismayed.” Which is not cool. It is the taxes on the rich that the rich Republicans are not even wanting to talk about. Check out the whole speech if you have an hour to spare: The Country We Believe In: Improving America’s Fiscal Future. If you forgot to watch it. Tired of reading bad news everywhere? No really, it is human nature to think that what ever happened in the last eighteen months is going to happen in the next eighteen months. It is tough to be cheerful in these trying times. Often, I use a generalisation to say to folks, equity markets would not exist if investors constantly lost money. Because what is the point then of investing in companies if they don’t make money? And if they do not make money the share price reflects that, not so? In a much more efficient way.

What happened to the genius predictions that “the Nouriel” Roubini made about equity markets going lower? He got it so wrong through 2009. Luckily for him he is really smart and captivates audiences. His real allure is exactly that. And for some unknown reason, sounding bearish all the time seems to make you sound clever, as if you know something bad about the future that nobody else knows. Here is the buzz really. The future is going to be better than you think. Rewind 50 years. No microwaves. Credit was hard to come by. There was a cold war. People listened to music on a plastic long play thing called a record. And then there was a compact disk player. Which was cool. Nowadays you need none of that. It is all digital. Rewind ten years and that was not the case.

Average life expectancy 100 years ago was between 30 and 45. Nowadays that level globally has risen to 68. It is *nice* to live longer and have a better quality of life, not so? Yeah, of course. Heck, moral argument aside, we can grow a kidney from stem cells!!! We can do that as humans. CDO’s, MBS’s, CDS’s are financial instruments that were not used properly, but have a place. I suspect better regulated markets of these contracts with more participants will be a BETTER outcome, not a worse one. Oh, getting back to the tired of reading bad news, subscribe to this blog: Carpe Diem – Professor Mark J. Perry’s Blog for Economics and Finance.

Highlights today are March Pulse of Commerce Index At 32-Month High and Job Openings Reach 2.5 Year High in February. And if you are looking for something more “out there” then his lead story no doubt will excite you —> L.A. Crack Dealer on The Economics of Drugs.

That is so very funny. The Czech president taking a semi precious jewel encrusted pen and with a guilty look sticking it in his pocket during a press conference with his Chilean counterpart, all this happening last week. If you have not seen it, and want to see what I am talking about, when I did a Google search for Czech president, the top option is “steals pen”. Hah-hah. President of Czech Republic steals pen (Vaclav Klaus krade pero v Chile). That is in Spanish and has over two and a half million views. Politicians. Sneaky bunches really. I love the way he nods his head, should have just stuck it in his top pocket.

And that is where we end off, we have started lower by around half a percent or so.

Sasha Naryshkine and Byron Lotter
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Jozi, Jozi. Thanks for nothing masters of the universe, I mean vampire squids. A Goldman Sachs “lock in your profits” on the recent commodity surge has the desired outcome. No doubt of course He-Man (Goldman) stymied Skeletor (the rest of us) by making the money decisions before we saw the news, of course that is bound to happen. Quite simply, as this Barron’s article points out, this is for trading types —> Time To Take Profits In Commodities.

We saw a much weaker oil price and a falling copper price, and those long the resource stocks on a short term basis took the Goldman advice to heart. And sent Anglo American down four and a half percent. BHP Billiton sank nearly two and a half percent. Sasol was down a little over three and one third of a percent, Anglo Platinum down by a percent less than Sasol, but still looked all rather ropey on the day. Impala Platinum the least beaten of the lot, down ONLY one percent. Kumba Iron Ore down 2.83 percent. AngloGold Ashanti down just a fraction more than the Implats share price.

All in all this led to a Resources index that was off 3 percent dragging the broader market lower by 1.75 percent to 32239, off 574 points on the day. Swap He-Man for Skeletor please. As I looked over the score sheet it was awash with red, it was only a small sector that caught my eye, Technology Hardware and Technology, up one and a half percent, but includes only two companies, Pinnacle Technology (which knows only one way) and Mustek. In an American context you are talking about Apple, Dell, HP as dominating the same sub sector in the US. Pinnacle and Mustek combined are not quite 2 billion ZAR market cap.

Pinnacle is an AMAZING story. The share price was at a low of 7 cents in the financial year ending June 2003, and a high of 14. But traded only 7 million shares inside of the whole year. 685 is where it trades now. And they paid 16 cents worth of dividends last year to June. And now trades 45 million shares a year, nearly 7 times more the number of shares on nearly 100 times the share price. 180 million shares in issue. Amazing. At face value the share price hardly looks expensive either. Margins in selling computer hardware is a tough old business. But actually, Dell has a worse net profit margin. Go figure!!!

It is that time of the month again, but this time I have waited, to see if there is a correlation of sorts. I am of course talking about Mooi River Index time, which is just as important as hammer time. Please don’t wear those Luftwaffe like pants. My wife tells me they are cool, and she knows, she is fashion guru number one. No really. But here is a place where fashion might not be high, at the Mooi River Toll plaza. A place where you have to pass though on a trip from Jozi to Durban. But what we are more interested in, is the heavy vehicles, what are called class IV by the folks that manage the toll and the toll roads.

These are typically big trucks carrying heavy loads around 25 tons. And is complied by a team at the Mooi River Greenfields farm nerve centre and was thought up by a fellow called Adam Kethro, who knows transport and shipping like few do. So credit to them on this stuff. I did a copy paste job there, but some of you might not know how this came about. Here goes:

This is the second best month ever for heavy vehicles passing down to the coast. And Easter was included in this period too. Now, is this simply a function of improving economic prospects or just more trucks using the roads, because many folks struggle with this. Here are the ports data numbers, because if “stuff” is being shipped around, then you should see it going through the ports.

Here goes, sent to me by a very punctual person at Transnet. And the numbers are pretty telling. These are for March 2011 and for March 2010, and quite simply when you look at the headline numbers you can see that exports are flying. In particular bulk exports. Here goes, for the month of March 2011 compared to March 2010, total cargo handled, imports and exports, increased by 9.4 percent. Exports surged 17.77 percent, but imports fell 7.58 percent. Quite simply, in March 2011 we imported 3,472,065 metric tons and exported 13,616,111 metric tonnes. Just sounds too heavy to even think about properly, perhaps someone can do the math and let me know what they think this volume would be per day, in containers. Thanks in advance.

I tell you, this data is so amazing. It really is for geeks. For instance 24 oil tankers landed at our ports for the month of March. Only 24. 87 general cargo ocean going ships arrived at all ports, mostly Durban (34) and Cape Town (21) but followed closely by Richards Bay (19). At Richards Bay however, the dry bulk stuff is a lot more interesting, 98 arrivals for the month of March, for dry bulk, 7 bulk liquid. Someone please tell me what bulk liquid is? Durban is second on the list as far as dry bulk is concerned, 58 ships arrived in March and then it is Saldanha Bay third, 29 there. 217 dry and 11 bulk liquid ships came and went. And in terms of the overall number, by bulk exports, a weight percentage of 93 percent goes through Saldanha and Richards Bay. No guesses, coal and iron ore are HUGE EXPORTS for us. Massive.

AND, 72 percent, by weight, of all cargo handled at all the ports in South Africa is bulk exports going through Richards Bay and Saldanha. Iron ore and coal again. So even if the absolute numbers from a volume point of view come through Durban, 87 thousand containers out of a total of 156.6 thousand in total are handled there, the volume stuff flows via the bulk ports. So then. Which one is better for the country, in terms of upgrading infrastructure? Shouldn’t it be a matter of urgency that we upgrade the two bulk ports? Durban completed a plan back in April last year, which saw the port entrance widened and made deeper. Saldanha is a problem, apparently with an oil storage facility in the way of any upgrade. And that same storage facility as I understand it, is rented by the Iranians. Makes you think.

And lastly, to tie the two together, the Mooi River Index and the ports data, it seems that the same old problems might be dogging us here. Transnet rail inefficiencies, because the ports data does not suggest a spike in container traffic, which is only 5.7 percent higher at Durban port. Whereas you can plainly see that road traffic has rocketed ahead, 20 percent more versus March 2010, last month. Makes you think, all we need now is to get the rail traffic data in order to blend into a clearer picture of what is happening.

Byron’s beats Silver. With the surging silver prices I have been thinking about selling my wifes’ Thomas Sabo charms sneakily and replace them with……. see that is where I fall flat. Byron has a look at the price gone wild.

Everyone is talking about silver these days. Why? Because it has done fantastically well of course. It’s nearly doubled this year in fact. That’s certainly enough to grab the attention of the average investor. Why the surge in price? Other than jewellery, coins and tableware what use does silver have? It does have a few industrial uses which include electrical conductors, a catalyst for certain chemical reactions and compounds used in photographic film. But does that justify such a surge? Check the graph below for a perspective of price movements over the last 10 years.



Silver is easily recycled so a lot of this industrial demand will be stifled. But silver also has some environmental friendly uses which include solar energy and water purification. So are we approaching a new silver revolution? I suppose that is where the speculation comes from. With the current silver reserves available (which does not come close to gold) we could be approaching a supply shortage. At the same time it is the cheapest of the precious metals so it allows a hedge against inflation for those who believe in that story (we don’t, but people do).

So basically, it’s rare, it’s cheap and could be approaching an industrial revolution. That is why the price has surged. Most bloggers in the industry however think it is more speculative than anything else and the commodity has become a favourite for the traders. Silver has a history of being a speculative play because it is a small market that can be easily manipulated. Josh Brown actually referred to it as “the crack to gold’s cocaine: cheaper, wilder and faster.”

Personally I like to invest in fundamentals I can believe in. From what I can see from silver it does not fit in the themes I like. Yes, I believe global consumption is going to grow and yes I believe that investments in environmental protection will increase but silver does not seem to have a big enough role in both these sectors. Let the speculators do their thing and if the fundamentals show signs of materialisation, then I will show more interest. For interests sake if you wanted to invest in silver locally Standard Bank have a rand denominated Silver ETF listed on the JSE with code SBAS1. Here’s a link to some info on the index —> STANDARD BANK SILVER-LINKER

I can’t really add anything useful to this piece that Byron has on silver, all I know is that the relative production for gold, platinum and silver on an annual basis. Which is why the one is cheaper per ounce than the other, although by this measure, platinum should be wildly more expensive. Or the gold price should be less. All that happens in simple economics is when a product of any sort gets “too expensive” the demand side slows. Until that happens for silver, it won’t.

Revisiting a piece from last year December, because it is relevant here:

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.

But silver tarnishes, rhodium and palladium were discovered only in the 1800s, and platinum melts at 3,000 degrees–way too hot for pre-industrial man. The reporters asked their expert, chemical engineer Sanat Kumar: “If we could run the clock back and start history again, could things go a different way, or would gold emerge again as the element of choice?” Kumar explained, “For the earth, with every parameter we have, gold is the sweet spot… It would come out no other way.”

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. (Prices back then in December) 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.

I found something, or rather I bashed together something I found from a Business Insider slideshow that they in turn took from a Niall “I am greater than Ali” Ferguson presentation —> Niall Ferguson’s New Presentation On THE DECLINE OF THE WEST. And Ferguson has a slide in the presentation, slide 18, with US deficits (mostly) and surpluses since the Second World War. And for the trained and untrained eye alike, the facts are that there are few surpluses since WWII. And I have written all over it:

Perhaps everyone is just politicising these things in light of the debt cap being reached and a shutdown just averted. Perhaps the problem is just structural. I mean, was it the policing of the globe, Vietnam for instance and then fiscal responsibilities in the late 80′s that saw the US economy run a surplus. Perhaps too much fuss about too much, and although the debt burden seems way too much now, it is not insurmountable. My two cents. We wait and see the Obama proposals.

Commodities and currencies corner The gold price today last traded at 1458 Dollars per fine ounce, the platinum price last at 1782 Dollars per fine ounce and the silver price last at 40.39 Dollars per fine ounce. Even the Perth Mint is starting to mint one ounce coins. Bubble. Hah-hah. The oil price is better at 106.57 Dollars per barrel WTI, 121.06 Dollars per barrel Brent. The Rand is weaker at 6.75 to the US Dollar, 10.97 to the Pound Sterling and 9.78 to the Euro. We have started better here after a savage sell off yesterday.

Sasha Naryshkine and Byron Lotter
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Jozi, Jozi. The highlight yesterday was basking in the glory of another famous golfing son, didn’t think we would get several folks asking which planet we were on. Perhaps the same one as Trevor Immelman, see below. We managed to squeak through at the end of the session with a 8 point gain on the day to close out at 32814 on the Jozi all share. Leading a small pack were the resource stocks, up half a percent as a whole. It was a strange old day because the scoreboard suggests nothing happened, but the half a percent gain by the biggest index masked poor showings by construction (down 1.4 percent), fixed line telecommunication, actually Telkom (down 1.65 percent), Paper and forestry stocks (down 2 percent), Media (down 2.1 percent) and oil and gas, as you well know, Sasol really (down 2.5 percent).

Sasol getting thrashed as a result of an oil price coming off as President Jacob Zuma (happy 69th birthday Msholozi!!!) brokered a deal near Escourt Tripoli with whatshisface brother leader. Pity for President Zuma that the rebels have rejected the plan, but nevertheless, the tension part has disappeared a little, even though eyes are still trained on the region, Yemen and Syria are the obvious candidates for more violence. Ivory Coast emperor Gbagbo has been deposed by the elected president, who says that he will stand trial. Cocoa market back to normal? Our family went into the Lindt shop at Design Quarter over the weekend, it is for serious chocolate fans and amateurs alike.

And if this violence is not enough for you, next door in Swaziland the situation is about to get a whole lot worse. Protests expected today, even though they are banned, the folks are tired of human rights abuses whilst King Mswati III (who celebrates his 43rd birthday a week today) continues to live a lavish lifestyle. Forbes estimates that he is worth 100 million US Dollars. And his number of spouses pale into insignificance next to the former monarch, Sobhuza II. Who reportedly had 70 wives. And over 1000 grandkids at the time of his death. Wow, 14 wives (Mswati’s number) is a whole lot less than 70.

But the people of Swaziland are sick and tired of a lack of democracy. The UN suggests that 50 percent of adults in their 20′s are infected with HIV. YIKES!! And that over two percent of the Swazi population succumb to AIDS. Life expectancy in Swaziland is the lowest in the WORLD!! 32. Check out for the protests, COSATU is keeping a close eye on the proceedings for us. Pro democracy protests are good not so? Yes, in the long term democracy does wonders for economic progress.

I object! But then again you can show the way that you object by not owning the shares. Zeder Investments. They own food, agricultural and beverage companies. Zeder has stakes in Kaap Agri (43.9 percent), Capevin holdings (39.5 percent), Capespan (22.7 percent), Suidwes (21.8 percent) and NWK (8.8 percent). The two big stakes in Kaap Agri and Capevin are worth 1.27 billion and 691 million ZAR respectively. With a sum of the part valuation (in the Zeder management view) of 274 cents per share. And an intrinsic value per share of 314 cents. But yet the stock trades in the market at 246 cents a share. Stupid market doesn’t know what it is talking about.

But, why do I object? Because for holding all these wonderful stakes in illiquid co-ops and food and beverage companies you get management taking a monster fee. 53.2 million ZAR. Or 2.2 percent of the market cap of the company. Or 5.4 cents per share. So, if this management fee is taken every year for the next five years, that is around ten percent of the current share price. In management fees. Given to PSG. And there is a performance fee element too, which means that the fees could increase. For the same reason that we don’t want to own Reinet (seems like hedge fund fee structure), I would not own this one. They did not outperform this year because they failed to beat the two benchmarks. So it more about luck than legendary performance.

I wanted to do a comparison to the famed fund manager Bill Miller, who runs the Legg Mason Value Trust (LMVTX) fund, which beat the market for 15 years in a row in the US, the overall S&P 500. A difficult thing to do, and the reason why Miller is really highly regarded. So what would you pay for someone who beats the market in the US, year in and year out? Turns out that the fund has a net expense ratio of 1.76 percent, almost half a percent cheaper than Zeder charges their fund holders.

So you can’t beat the market and you charge more than half a percent more than the best of the best. Just saying. Check the expense ratio —> Legg Mason Cap Mgmt Value C. And as Forest Gump said in that favourite old movie of mine, and that is all I have to say about that.

I was asked on Friday as to why the local healthcare stocks had been under pressure. I did not really have an answer, but was informed that the creaking debt levels of the two majors was all the focus. Medi-Clinic as at March 2010 reported interest bearing loans of 20.667 billion ZAR. Yowsers. With net interest paid of 1.483 billion ZAR. Rising rates around the world is going to be, how do we say, not good. Netcare are in a similar position, 21.63 billion ZAR of interest bearing loans as at September 2010 and a net interest paid of 1.978 billion ZAR. Those are pretty big numbers for both groups.

Net operational cash flows for the year to end September 2010 for Netcare was 1.813 billion ZAR. And for Medi-Clinic net operational cash flows for the full year to end March 2010 was 1.96 billion ZAR. Tighter for Netcare, but remember that there is a lot that they can do, including selling the sites of their hospitals “if things get a little tight”. Medi-Clinic fixed assets are valued at the last year end at 28 billion ZAR, Netcare 23.8 billion ZAR. The problems are not unsolvable, but higher rates and therefore higher interest bills are a given, it is the rate at which the businesses can pay them down. Don’t get me wrong, I like the sector.

And then there is Life Healthcare. Who yesterday said “that earnings per share and headline earnings per share are likely to be between 30% and 40% higher than that reported for the six months ended 31 March 2010.” Excellent, their trading update looks good. And they do not have the same issues that the other two have, although in fairness are a MUCH smaller operation. 2 billion ZAR worth of interest bearing loans, net operational cash flows are 1.87 billion ZAR and the net interest bill is 0.3 billion ZAR. No wonder the community actually prefer the South African focused entity, and the rating for Life is a solid buy. And the yield looks like it is around 3 to 4 percent over the next three years. And earnings growth comfortably better than their peers.

Byron’s beats I actually met the deputy minister of Science and Technology on Friday (he introduced himself as Derek, plain old simple Derek), whilst waiting in the green room at E-News. He was going on the Sunrise program to talk about this very next subject that Byron is passionate about, those giant telescopes in the Karoo. Seems like a cool dude.

Have you heard of the SKA (Square Kilometre Array) radio telescope yet? It is potentially the most powerful telescope the world has ever seen and they want to build it in South Africa. The other potential host is Australia and both countries are very keen to pick up the €2bn project. Apparently the venues are the last two radio quiet areas in the world with our designated area being situated in the Karoo.

The project which will be funded by a consortium of international agencies will not only require the initial outlay of 2bn Euros but will also require around 150m Euros a month to maintain. Clearly good for our country in terms of foreign investment and an opportunity for us to contribute to Science on a global level. The telescope will be about 50-100 times more sensitive than any other radio telescope on earth and will be able to answer questions about astronomy, physics and cosmology that we would previously have never even dreamt about.

What benefits will the project bring to SA? Firstly it will give the Northern Cape the fastest broadband speed in the country. That will definitely have external benefits on the community. It also looks to reach out to the surrounding communities, focusing on education in science and maths, subjects we are struggling with. Science labs will be opened and a Science town will be developed.

The reason I bring this up is because it relates to the recent fracking for gas in the Karoo story that I wrote about. Apparently the threat of fracking for gas is compromising our bid for the project. Is this legitimate or are the environmentalists using this as an excuse to appose fracking in the Karoo? Again I don’t know the full details but according to Moneyweb Is Northern Cape off Shell’s hook? there is legislation in place which may trump Shells bid for the land. This is because the Northern Cape has been declared an Astrology Advantage Area by the Minister of Science and technology.

There have also been reports that both South Africa and Australia may get the project because having two locations on different sides of the world could add extra benefits. Regardless of this, I do hope that we get this project as it sounds like a fantastic opportunity with sustainable development potential. But so does mining a sort after energy commodity which we may have huge reserves available. The saga continues, at the end of the day we all want what’s best for our country and hopefully the authorities can pave the correct path.

First off the bat let me apologize for not celebrating the finest sporting achievement by a South African in a long time. The 26 year old Charl Schwartzel who hails from the “V-Town” area, whose name everyone across the networks is mashing with an industrial grade sized mincer, won the golf equivalent of Wimbledon. The NY Times actually bungled the story in their email alert, suggesting that Schwartzel was the first South African to win the Masters since Gary Player the optometrist. I mean the I specialist, who won the tournament three hundred times. Of course Trevor Immelman, the 2008 winner must be from Mars.

I swear, this is what I got in my inbox from the NY Times email alert subscription:

“Schwartzel Captures Masters
Charl Schwartzel finished with four straight birdies to become the first South African in 50 years to win the Masters.”

Nice one, new paywall and all. Good one guys, oh, and Wiki is for free, right where I found the info I needed. The story on their website has obviously been corrected. But if you need the original, I kept it just in case. {sarcasm starts} I suspect that the Americans need to setup a media tribunal to make sure that these mistakes are not made again. {sarcasm ends}

New York, New York. After hours the fellows from Alcoa reported earnings above market consensus, but revenue growth was worse, lower than expectations. And costs are rising. But really, earnings are patchy at best for Alcoa, the company that traditionally kicks off earnings season. Q1 2011, here we are baby. But the stock is trading down nearly three percent after hours, telling you all you need to know what market participants are thinking. Or not wanting to think about anymore. And the stock has almost always underperformed the market.

A 30 year plus graph comparison to the S&P 500 sees the broader market comfortably ahead. In fact that is not fair, the market beats Alcoa by a country mile. Even over ten years. And over five years the market has drubbed the Alcoa share price performance. I don’t know what to say about the aluminium making business other than it seems like a tough old neighbourhood. Margins are low, costs are high, cycles are wild and unpredictable. Perhaps just at the bottom end of the cycle right now. Quarterly dividend went from 17 cps in 08 to 3 cps currently. Phew. To be fair, many companies had the same sort of problems when the world ended as Dick Fuld’s world fell from under him. Lehman collapsed.

Maybe Alcoa looks cheap at face value. And if you believe that the US is going to recover strongly (I do), half of their sales come from the US, so they should rebound well. But for the aforementioned reasons (margins, rising costs) this is why we will not be buying the company stock anytime soon.

Commodities and currencies corner Dr. Copper is lower at 441 US cents per pound, Goldman stuck out a note telling traders to sell resource equities as they expect the oil price to go lower. Suggesting that they could see the oil price lower by over twenty percent. That oil price is actually higher at 109.99 Dollars per barrel, that is WTI and 123.42 Dollars a barrel Brent. The gold price is lower at 1463 Dollars per fine ounce, the platinum price is also lower at 1792 Dollars per fine ounce. UK inflation lower than expected. Perhaps austerity. Retail sales in the toilet in the UK, falling at the fastest annual pace in six years. Gooooooo austerity!!! Just feel better and listen to Winston Churchill droning on about beaches and landing strips. And all that. The Rand is trading at 6.68 to the US Dollar, 10.86 to the Pound and 9.66 to the Euro.

We are getting a Goldman one two punch up here, commodity stocks which sat in the pound seat yesterday are getting flayed today. And as a result the market is off one and half percent.

Sasha Naryshkine and Byron Lotter
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Jozi, Jozi. Our power finally came on mid afternoon and we trundled down the hill back to the office. No more generators chugging away, relative tranquillity again, what a relief. All this ahead of a potential US government shutdown. I did hear from someone on the box on Thursday who had lived in France for nearly a decade that this is an annual occurrence in Europe’s second biggest economy. But not a frequent event in the US. Anyhow, it didn’t happen, I got an alert on the CNBC app on my iPhone just to tell me that everything is going to be OK. Relax and breath in and out.

Resources rushed ahead on Friday, the overall sector up just over one and a half percent, commodity prices were flying Friday. Not winning were the industrial sector, the banks were down a percent, retailers were up less than the overall Jozi all share, which ended the session at 32806, up 173 points, or 0.53 percent to the good. Wow, a month on from the terrible natural disaster in Japan and here we are sitting nearly back at the levels in early February. 15 March (beware the ides) the Jozi all share had dipped below 30 thousand points.

See, hindsight is the most awesome science, why didn’t we and we should have acted there and so on. I had a look at the worst business confidence numbers in South Africa and they coincide with the March 2009 “generational lows” in the equity market. But how were you to know that at that point it was not going to get worse. I remember thinking that in January of that year that “things” were not going to get any worse. It got 12-13 percent worse first before it is currently 60 percent better since Jan 2008. And we are currently 80 percent better on the ALSI since the March 2009 lows. Nuts. Crazy. Wild. Perhaps not generational lows, but we could be close to that point.

Cement sales released by the Cement and Concrete Institute came in late Friday with expectations of a turnaround of sorts not quite intact, although we are definitely starting to stabilise. March 2011 sales were 2.1 percent less than March 2010. So that is good enough news. But the moving annual total (MAT), which aggregates the last 12 months back and then compares it at the same stage last year, is kind of a better indication of how deep this trough is in building. The MAT as is 6.3 percent worse now than it was last year. A refresher, in January the MAT was 7 percent worse, and in Feb it was 6.4 worse than the prior year comparisons. Although the Feb year on year comparison showed a 2 percent drop. So, expect the MAT to start moving upwards from here, and perhaps this is an indication that we have bottomed.

Byron’s beats The other big news Friday. Vale, the Brazilian giant making a go for some of the best copper assets around. Sadly for the shareholders of Metorex, these assets are in the DRC. Which is a place where risks are well documented. Bryon has a look at the bid.

The rumours were confirmed as Metorex announced that Brazilian mining group Vale have made a bid for the copper miner at a price of R7.35 a share. This equates to R7.5bn and a small premium of 3.5% to Fridays opening price. The deal has already been given the go ahead by 26% of shareholders including 2 directors who sold over R1bn worth of shares from vehicles they were associated with.

What are analysts telling us about the deal? A couple of commentators are talking about a counter bid because Vale are getting a good deal for a company that could make up to R1 a share this year. I think the market tells us that the chances of a counter bid are small. The stock is trading at R7.15, 20c less than the bid price. If the chances of a counter offer were high, the stock would be trading at a premium of the bidding price. Sasha and I also went through the possible counter bidders and couldn’t find a good candidate. Anglo are derisking, Rio Tinto are not interested in the DRC and neither are BHP. It looks like the location of their biggest asset is the clincher.

What I also think is interesting is how the share price has moved prior to the bid being made public. Are our markets really as efficient as we make them out to be? If you have a look at the graph below which I got from the Metorex website (it’s a good looking site) you will see how the stock has rallied over the last few weeks. Rumours of the bid had been doing the rounds for a while now. This is supposed to be material non-public information.



But clearly, by looking at the share price movements, people knew about this already. Volumes also shot up from 2.8 million shares traded a day to 14.2 million for the 5 days last week. This tells us that a lot of people knew and were acting on it. It’s extremely tough to regulate such a thing and it seems unfair that who you know can often be more valuable than what you know. I have no solutions but I am just pointing it out.

I think shareholders will be happy with this deal overall. I’ve spoken about this stock a fair bit and it has been a great turnaround story. Well done to Terence Goodlace and his team for surviving the downturn. Moneyweb did interview with him following the announcement. Check it out here —> Vale’s bid for Metorex: Terrence Goodlace, Metorex CEO. Interesting that Vale approached them. Metorex had no mandate to sell.

Would I buy the stock now in anticipation of a bidding war? The short answer is no. Over the last few weeks the market was telling us that a bid was in the mix and it was true. I think the market is right here again as the share trades below the bidding price. But as ever, things could change and we’ll keep a close eye on it.

BHP Billiton have sort of thrown water on a Woodside Petroleum bid. In fact the plot thickens as the Shake My Head, I mean Sydney Morning Herald reports that the Western Australian premier, Colin Barnett, is long Woodside Petroleum aware of talks between the two parties. And is happy if BHP Billiton takes the 24 percent Shell stake, but not the whole company. Check it out —> Barnett says he was ‘aware’ of BHP-Woodside talks.

Bloomberg are reporting, although from earlier this morning, Woodside Shares Rise on Speculation BHP Billiton Will Make a Takeover Bid. Seems plausible in theory, but a little late not so?

In fact BHP Billiton have said that they are NOT going down this path. So Woodside plunged midday in trade and then closed in the green. Wow. And BHP Billiton rallied over three percent in Aussie as they flat denied “it”. All rather strange that the premier would say one thing and the company says another. In short, ignore until you get something concrete.

BHP Billiton have also announced this morning the end of this round of off market share buy backs. In short, 4.4 percent of shares bought back, at a 14 percent discount to the market price. In US Dollar terms we are now nearly 80 percent of the way through the entire program, 2.2 billion left to buy back in what is left of the year, nearly three quarters. All these off market buybacks were done down under in Aussie Dollars, and the company is able to fulfil two things in that geography. Why not a dividend then? Because down under this is a better utilisation of their excess cash resources. I do not mind to be honest, as long as the shares are taken out of circulation. That, my friends, is a better question to be asking, are they going to sit and act as part of remuneration over time, or taken and retired.

Around the world. Are the Chinese moving towards an internal consumption story? That would be great I think for the rest of the world. Richer urban Chinese folks need the same things that their urban counterparts do in Europe. They are interestingly earning not quite as much, but the gap is narrower than you think. The first question I asked myself when I saw the story China sees first quarterly trade deficit in 6 years was simple, how much of that has to do with the price of oil, rather than the Chinese importing a lot more.

But then as you can see, Japanese imports into China slowed naturally. Not just oil, copper, iron ore, coal, the whole lot. I think that the WSJ nailed it: Higher Commodity Prices Hit Beijing’s Trade Figures.

This next piece is awesome. This is as exciting for people who like economic content. OK, please don’t stop reading, because this guy, Bob McTeer, a former president of the Dallas Fed writes really well. It has to do with the Feds various liquidity programs, commonly referred to as QE2, the second round. Of course QE stands for Quantitative Easing, and has been nicknamed after the monster passenger ship.

Investopedia have a *nice* definition of QE: “Central banks tend to use quantitative easing when interest rates have already been lowered to near 0% levels and have failed to produce the desired effect. The major risk of quantitative easing is that although more money is floating around, there is still a fixed amount of goods for sale. This will eventually lead to higher prices or inflation.”

That last line is telling, because Bob McTeer basically argues that we have not seen any of this, read this fantastic piece titled China Chronicles. There are some great lines in there, like where he interrogates the Chinese about their inflation issues, asking whether or not 10 percent growth for a decade, could that be to blame to some extent for internal inflation? And then perhaps the funniest line, telling you everything that you need to know about the Chinese, we will entertain the subject only if it is in our best interests:

“The Chinese recently hosted a high-level conference on exchange rates and prohibited a discussion of the Yuan”. Hah. And we think that we have problems about our currency. OK, but the part in the piece that I was most interested in is that inflation in the US is not a problem. And all the excessive “printing of money” has not created any runaway inflation. As of yet. And as the Federal Reserve tee up to exit from their programs at some stage, would the timing be perfect? Perhaps. Often the Fed are accused of being too slow to take the punch bowl away. This term taking the punch bowl was actually coined by William McChesney Martin, who is the longest serving Reserve Bank governor of all time. Longer than Alan Greenspan.

The Fed are actually cornered by a time frame, the end of June is when the US Treasury repurchase program ends. Excellent. The less extraordinary participation the better. The only question that remains, and this is often what the Fed will decide, do they continue or exit in an orderly fashion prior to the date. The Europeans have started tightening, perhaps it is time to take the last punch bowl away from the table. Sorry for everybody. I am pleased by this, the Fed acting when they need to. Be gone all you arm chair Fed chairman, let Ben “the measured” Bernanke do his job.

British banks have learned this morning that perhaps worst case scenario of a break up of sorts is off the table. The independent commission on banking was released at 7 am this morning in London and will take a lot of focus today. The report is being well received today, banks are topping the gains on the FTSE 100, check out the FT piece, which pretty much covers all you need to know about the report —> Vickers urges banks to protect deposits.

Call me a cynic, but any government sponsored report has one objective only normally. Bleh. Perhaps I shouldn’t be a cynic, because it turns out Banks top FTSE 100 after ICB report and that tells you what the markets think. Final report is actually due in September.

New York, New York. Saved by the bell really. The prospects of a government shutdown did weigh on markets and the lack of participants lately has left people also asking, when will the retail investor return? Or are they tainted by two to three horrible events over the last decade to even think about coming back with any great gusto, that we might actually be underpriced here. In fact the detailed look at market levels in the series being run by the US version of Squawk Box has included some legends echoing exactly that. Many of them are in agreement that levels are still *good* and that there is value in the US stock markets. I agree a lot. Do a search for the string, or watch the videos online at CNBC.com under the videos section. Fun and enlightening.

Commodities and currencies corner Dr. Copper is last at 445 US cents a pound, off the best levels of that session. Day. Week. Who knows, is there an end or beginning to any session anymore. The gold price is slightly off the all time highs at 1472 Dollars per fine ounce, the platinum price is last at 1803 Dollars per fine ounce. Long may that continue. The oil price is lower as the Libyan conflict seems to be coming to an end with a deal brokered by none other than our president, who as far as I heard on the wireless, turns 69 tomorrow. Confirmed via the web. He looks great for his age. President Zuma is over 19 years older than President Obama, amazing hey. Obama turns 50 this year. The oil price last at 112.54 Dollars per barrel WTI and 125.37 per barrel Brent. Wow.

Only BHP Billiton is holding everything together here this morning, the stock is up over two percent as it turns out Woodside is a no-no. As I gaze over the top 40 it is the majors in the green, BHP Billiton and Anglo are up, and about five or six others, mostly in the commodities space. Perhaps the better US futures will see us through to the green later today, another hefty aftershock in Japan sees us feeling still flat about the region.

Sasha Naryshkine and Byron Lotter
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Jozi, Jozi. A power outage in our area forced Vestact HQ to run to the hills. Not for any other reason than to find a power source. This morning sadly the power at HQ is still not on, but City Power promises by midday. So we are going to locate ourselves at Paul’s house again, but trusty Mavis will be at the office, if you have anything to drop off. The authorities have told us that power should be restored by midday. But yesterday afternoon, a spokesperson on the wireless suggested that power would be restored this morning. So, I am holding thumbs but expecting little in the way of time commitments, that is just the nature of the beast I guess.

Yesterday’s markets felt like we lacked power too in Jozi, slipping away. The ECB were first to blink and raise rates by 25 basis points, the biggest percentage rate hike you are likely to see from the bank in a long time. .25 on 100 is A LOT, even if it does not seem like that. Jean Claude Trichet, the ECB governor defended the rate hike, but I guess he would defend him and his teams vigilance. In the usual central banker speak the decision was made and then —> Trichet defend(ed) the ECB rate increase.

I guess you cannot say it is not time, the five year graph of the ECB rate level looks like a Mayan pyramid. With the long road on the right. Where the poor victims head off to get sacrificed, luckily we can only move the graph to the right. But how much further right? How much higher are rates in the Euro zone going to go? Depends on growth and inflation ultimately, who wants to be a central banker? Not me thanks, seems way to stressful and plus one might have to grow a beard to seem wise.

But, what is the objective of the ECB? As per their website it is as follows:

“The primary objective of the ESCB shall be to maintain price stability”.

So what is price stability then? InvestorWords.com says that Price Stability is: “A situation in which prices in an economy don’t change much over time. Price stability would mean that an economy would not experience inflation or deflation. It is not common for an economy to have price stability.” I love that last line. It is not common for an economy to have price stability. If your number one objective is for something that is supposedly not very common, your job is going to be incredibly hard.

Not a sector that I particularly like, but not for moral reasons. That is the mistake sometimes that people make with us. When we say, we do not like cigarette, alcohol or gambling companies they think we (here at Vestact) have a moral reason for doing so. No. Wrong. It is because someone else is making a moral judgement call on their product, and that is mostly governments on behalf of broader society. When government recently introduced a 15 percent tax on all gambling winnings, I promise you, Vestact had NOTHING to do with that. And if you think that it is going to become easier for the three aforementioned sectors to operate then I suspect you would be wrong.

Government locally are mulling reducing operating times for of the sale of liquor, and raising the legal age. Again, that is not us here in this little office. Taxes on booze and cigarettes have been increasing above inflation yearly, and that is not us. I am of course talking about the six monthly release of Phumelela’s results. The horses. I was talking to a journalist friend of mine this morning and said to her, if you took the betting out of horses, would people pay as much attention? I don’t know what the answer is to that, but I suspect that dressing up for a huge event with only prize money involved and no betting might be less exciting.

This is a company that listed in 2002 at 50 cents apiece. And at the interim stage, 9 years later, they are paying 25 cents a share on just over 42 cents worth of earnings, which is 18 percent lower than this time last year. Remarkable, not so? Buy a share in 2002 at 50 cents (now it is at 1150) and then get back in dividends 421 cents over that time. Including this one today. If you had stuck in 10 thousand Rand back then at 50 cents you could have got 20 thousand shares. That would be worth 230 thousand ZAR today. AND, the dividends that would have accrued to your account would have been a remarkable 86 thousand 200 hundred ZAR. Including the one declared today. And most remarkable of all is that the company only raised 9.6 million Rand back in 2002.

But these phenomenal gains were made in the early days, in early 2008 the stock reached an astonishing 19.50 ZAR. Two years earlier at the beginning of 2006 the stock had traded at 900 cents, so you can see what I am talking about. All of the gains as far as the price is concerned came in the first four years of listing. Since then the dividend payments have been really good.

“Things” have been tough out there, that we all know. Revenue stream is twofold, international and local, with the local operation dominated at about 90 percent. The balance of the financial year seems to show signs of improvement: “Management remains cautiously optimistic of a stronger performance in the second half of the year.” Getting better.

Horses are beautiful things. Except the one that once dragged my sister through the dirt for 100 metres or so, many years ago, she looked like she had gone 10 rounds with Buster Douglas. I remember the horse name being Dinky. Dinky should more aptly have been named Donkey actually. Would I be looking to make an investment in this company? I don’t think it quite fits the themes that we try and follow, even though gambling is hard coded, older than recorded history no doubt. What is truly transformative? It is however not going away anytime soon. Liquidity is also a problem with this one I can remember, midday Friday and not a single trade yet.

Byron’s beats Carbon credits is what the beat on the street is all about today. Kyoto, emissions, all seems hazy until you read this next piece. It is closer to home than you actually think, or know of.

I’m sure you have heard of Carbon Credits before? Well basically it is a permit which represents the right to emit 1 tonne of carbon into our atmosphere. More importantly however is that they are tradable. Even more importantly than that is that they are tradable globally. Why do I emphasise the tradable part? Because it brings the efficiency of an open market into play. Remember Economics 101?

How it works is the authorities under the Kyoto Protocol estimate how much carbon our atmosphere can absorb and sets that as the limit. Companies around the world then have to earn these carbon credits or buy them, depending on the opportunity cost of giving up emissions for each individual company. Companies can also earn credits by donating to or helping environmental projects. At the end of the day however the right amount of carbon is emitted and companies who prefer to buy the credits and pollute will purchase credits from companies who can afford, within their business model to slow down on emissions.

What brought this topic to my attention was an announcement by Nedbank who just sold 98 000 tonnes of carbon offsets to The PPR group, the luxury goods producer from France. It’s a great example of how the system works. Nedbank have been involved in a project called REDD (Reduced Emissions from Deforestation, Degradation) in Kenya and from this they have earned extra credits which they are now able to sell.

PPR who cannot afford to cut down on their emissions can also take credit for this environmental work because they paid for it. It was obviously more economically viable for them to purchase the credits rather than to hamper production. At the end of the day everyone wins and the efficiency of the markets allocates carbon credits effectively.

Everyone has environmental protection on the tip of their tongue these days and it’s a great investment theme because you get to make money while feeling good about yourself. Remember the article I wrote about Nike who made shirts from recycled plastic bottles? It’s becoming more and more regular for these companies to get involved in such projects, almost necessary for marketing and PR. Just another way human innovation is making our lives better now and in the future.

New York, New York. Better than where it was after an hour of trade, but still below par at the end. Which is only good when you are taking part at the Masters, nowhere else, not that I can think, is below par a good outcome. A marginally better weekly jobless claims number did nothing to offset the ECB’s decision. Even though that was telegraphed from a mile away. I mean come on, we knew the ECB was raising rates yesterday. Didn’t we??? Meanwhile the Bank of Japan and the Bank of England decided to do very little with their stodgy economies. Even though the Brits have the inflation problem, sometimes I think that the Japanese would like to have some inflation. Anywhere. Energy stocks were amongst the winners, the oil price rose to a fresh two and a half year high. In the era Pre Lehman Brothers.

Oh, and time is up for Washington DC and the US government. If both sides do not meet ground on small issues, then expect a freeze. I have a solution on how to solve the problem. Make sure that every person in the Senate has to pay for their perks, drivers, body guards, places to stay, all of that. I guess you might see the process speeding up. Check out the AP report: Time’s up: Obama and GOP scramble to halt shutdown. Government, midnight, work on weekends? Perhaps not too fair.

OK, confession. I am reading that Ross Sorkin book, “Too big to fail”. And even though we discussed it in the office here, when we talked about having lived and sweated the detail, there are some useful pointers. And the reason why the book is so big is because there are all sorts of interesting facts. LIKE, Tim Geithner lived in modern day Zimbabwe as a kid, his father moved around a lot. He also lived in Zambia, India and Thailand. And that the Treasury Secretary is an ace tennis player. And because he looks so young, people struggled to take him seriously. On the opposite end of that spectrum is Hank Paulson, who apparently has no social skills. And that Jamie Dimon when asked at the age of nine as to what he wanted to be, he simply answered: “Rich”.

The reason that actually prompted the book read is that there is a movie being made out of the book and the true life events that transpired. James Woods, William Hurt, Bill Pullman, some good actors in the movie. I am about one million pages through ten million, in the booked dubbed by the fellows over at the Business Insider as “too big to read”. On a lighter iPad Kindle application, it is completely bearable. And so far much better than I thought, I hope that Ross Sorkin makes bucket loads on the movie rights. Or made. Not sure how that works.

Commodities and currencies corner Dr. Copper last at 443 US cents a pound, or for the purists, 9697 US Dollars a tonne on the LME. The oil price last crossed the wires at 111.59 Dollars per barrel for WTI and 123.61 for Brent. Wow. The gold price is setting fresh records as the Dollar loses ground to the Euro, last at 1471 Dollars per fine ounce. The platinum price trading at 1811 Dollars per fine ounce. And in case you were not noticing, the palladium price was last at 795 Dollars per fine ounce. The Rand is last at 6.64 to the US Dollar, 10.86 to the Pound Sterling and 9.56 to the Euro.

A much better start here this morning, resource stocks are diving us higher here again.

Sasha Naryshkine and Byron Lotter
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Jozi, Jozi. Markets closed at their highs for the day, the session before felt like a grind, this felt more fluid, even though the size of the gains as a percentage was only about one fifth more than the session prior. Some days just feel like that. Whilst TEPCO, the company responsible for the stricken power station have suggested that radiation contaminated water has stopped leaking into the sea. Phew, this has been a lesson for humans, nothing is safe I guess. Ironically it came on the day that Toyota could or might get a ratings downgrade, and, Toyota notched their millionth sale of their Prius in the US. Amazing hey? Not the ratings downgrade but reaching one million hybrids.

Winning the race in the top 40 yesterday was Harmony Gold, flying ahead as the bullion price rockets. Did you see that Harmony will have to raise a sizeable amount of money through different sources, for their half of the PNG project. That big one, check it —> Harmony Gold May Sell Bonds to Fund Share of $3 Billion Mine. I wonder what the terms are going to be? Surely not any more or less favourable than Portugal got yesterday.

All these “high” gold prices ahead of a US government shutdown of sorts. Which might or might not happen, both sides are acting like, well, like my daughters when they want something that the other has. And there is only one of “that thing”. No quarter given or ever asked for. So the thinking is twofold I guess, one, a government shutdown would mean some sort of a safety trade (I guess) and the other is that the Dollar might take a hit on two sides this week. This one and the Europeans raising rates today. That would see a slight Dollar sell off, even if expected.

The Jozi all share closed at 32887, up 256 points or 0.79 percent on that day. Platinum miners added 1.2 percent, the resources ten were as close to one percent up for the day as you could get. Noticeable losers were the one horse index named beverages, down half a percent, dominated by SABMiller. This might be the reason why —> SABMiller is in talks to take over Brazilian brewer Schincariol. A sizeable Brazilian operator it seems, judging from the report.

British American Tobacco buying back shares. And I get quite a few emails talking about their developing of nicotine products without tobacco. I see, then they call themselves British American Nicotine. British American Tobacco to Create ‘Safer’ Nicotine Products. There it is, safe stuff, lozenges. Have a coffee and some lozenges with your friends. Have a lozenge. Here is the WSJ take on the new venture —> British American Tobacco Creates Start-Up. Interesting, not so.

Meanwhile in Australia, something strange is afoot about the packaging of cigarettes. Seems strange to me anyhow, but it involves BAT anyhow. And because there are not that many people in the country (Australia), I do not think that the market matters a lot. Smoking is about volume, think China, India, Indonesia, those types of places. But this is just weird, read it and let me know what you think —> Big tobacco fights back against plain packets. No logos or brands on cigarette packaging? And “green” packaging with pictures of all the ailments you can get from smoking. Question is, where do you stop? Should you stick a picture on the back of a McDonald’s burger box of a fatty heart? As Byron said, people are more worried about looking overweight than the appearance of their heart.

Sappi raising more debt, 705 million US Dollars. Euro notes at 6.625 percent, due 2021, sometime between now and then most rich people will be reading on a tablet of sorts. Well, a lot of people. I am told that I am wrong on this point, glossy paper usage is going to increase as more middle class people read more glossy magazines. On what though?

And then DRDGold announcing that costs were rising and production was lower. No, you are not reading the quarter before, or the one before that headline. Same-same. 67400 ounces for the quarter is their production. Cash costs higher, the group cites lower production. I guess. I must be honest, the more I think about the weakness in South African gold mining and the slippage I feel sad, but luckily we have large iron ore and platinum exports (and coal) that have to some extent offset these gold production losses.

To a real mining company, Anglo American, I came across something quite interesting from them, no doubt continually swinging stuff governments way. Or at least those calling for mine nationalisation. Check it out: Financial contribution to South Africa.

Basically indicating that they have invested 143 billion ZAR in South Africa since 1999 and indicating that they are planning to invest another 50 billion ZAR. And check it out, they account for around 2 to 2.5 percent of GDP and are the biggest tax payer. Directly of course. Oh, and Anglo employs more people in the private sector than anyone else, 80 thousand folks. And 2009 export revenues were nearly 60 billion ZAR. All big numbers. Someone please show the folks who keep calling for mine nationalisation.

And, some big coal expansions in Queensland. A mate of mine left a short while ago to go and work for Anglo Coal in Brisbane. And we saw someone yesterday who works for an Aussie American coal mining company, who speaks of massive things happening in Queensland. Not the Reds, but rather on the coal front. This town is a mere 1000 plus kilometres from Brisbane, North West. Wow. Check it out —> Coal CEO shares $2.7b mining plan. Excellent. And we hear that Anglo are exiting Canada. Smalls really in the bigger picture.

JD Group and Steinhoff. The suggestion of the amended terms where the Steinhoff associate will take the stake in the Polish furniture retailer, apart from Steinhoff here locally, which does not change things. But does it? The reason why Steinhoff is so profitable is because of their smart tax structures.

Remember from their results back in early March I wrote:

Steinhoff has an unusually low corporate tax rate, check it out: “The taxation rate of 12.3% was in line with that of the comparative period (1H10: 12.5%) and management anticipates, in relation to the existing operations, that the average group taxation rate should not exceed 15% of pre-taxation income in the foreseeable future.”

And then of course, how they arrived there, also written back in early March:

The reason for the unusually low tax rate is spelled out in the annual report: “The group operates in a number of countries in which the statutory tax rate is lower than in South Africa. The group owns and manages most of its brands in Switzerland, where the taxation applicable to intellectual property holding companies ranges between 8% and 12%. The group benefits from various taxation dispensations in selected eastern European countries where it operates.” Take what you want from that. And read into how it would all change over time, if at all.

I must admit that it does unsettle me a little and how the receiver here locally will view this arrangement in the fullness of time. You know the big debate currently in the US about how General Electric have structured their tax affairs and how the IRS and the people of the US feel cheated. The US corporate tax rate is probably too high. And to compete with the rest of the world, perhaps they need to lower it, once they are over the current “issues”.

My conclusion on that day about Steinhoff was that they seemed an interesting prospect, perhaps a listing offshore in time might (or might not) make them more attractive. Smart management, hard working, push the envelope, enriching themselves as shareholders in their personal capacity (*nice* to invest alongside management), perhaps there is a case to have some of these at the fringes. Something worries me, I just can’t quite put a finger on it yet.

Around the world. Portugal, or let us say that the outgoing Portuguese prime minister has admitted that a bailout is needed. Sending European shares higher. You know, socialist Europe is going to do what they do best. Check out the WSJ take —> Portugal Pleads for Rescue. Bailout Request – Europe’s Third – Will Test the Euro Zone. Amazingly, Spain raised some money at a LOWER rate than in March. Just this morning.

It seems like the Portuguese will have to refinance. They have to. 75 billion needs to be paid back to bond holders through to 2016. And then after that, provided the Portuguese manage to reign in spend, things will look a bit better. And as the WSJ article suggests, the Portuguese had only 2 billion Euros in reserves at the beginning of the year. Phew. I have not been paying enough attention to their announced asset sales of 17 part or fully owned state enterprises, a program announced back in March last year. Just think, once privatized how efficient these companies will be. The burden would have shifted and more taxes would be collected. And the problems would be solved a little quicker. At least in theory.

Byron’s beats He digs tech. I do too. But he likes it a lot. This is about smartphones.

A few days ago a report was announced which showed us the makeup of the smartphone market share in the US over the last three months. If you are not aware there is a huge war going down between the relevant players in a sector that is fairly new and growing so fast. I think why it is so important to be a market leader in this category and why these companies are so aggressively competing for top spot is because once one company dominates the arena it will be extremely difficult to knock them off. It’s the multiplier effect. If all your mates use one platform, you are going to want to follow suit so that you can share in apps, be included in chat groups and play games off the same platform.

In the industry there are three main players. Google’s Android with 33% share, Blackberry’s RIM with 29% and Apple with 25%. In this report it showed that over the last 3 months Android gained 7 points of market share, Apple flat lined and RIM lost 5 points of the market share. What does that mean for Apple? We are investors in both Apple and Google but Apple is a lot more reliant on its smartphones.

Where the difference lies is that Apples platform sits with one phone and one app store. Things are a lot less complicated that way. Android has a very segregated app system and their platform runs on different phones with different hardware’s. Apple also claim to dominate the premium smartphone market so they are not as vulnerable to Androids growth in the lower level phones. Interestingly even though apple only have 25% of the market share they get over 50% of smartphone profits.

Although this is true, Android’s growth is definitely a worry for Apple. I’m sure Google are aware of its shortcomings such as fragmentation and will look to fix them in ways only Google know how. With efficiency and originality. But again Apple are also pretty innovative and they already completely dominate the tablet market. They are trend setters and as investors we have high expectations.

Another thing to mention is that Android are not stealing market share from Apple, once an Apple fan always an Apple fan, it is RIM that are losing out. I may upset a few clients here who are Blackberry advocates and ironically, probably reading this on their phone but RIM’s clunky software and lack of apps is just not cracking it. Rumour has it that Apple are looking to buy Blackberry’s BBM service. After that I just don’t know what they’ll offer.

Disclaimer: I use an iPhone and will never use anything else. Enough said.

I use an iPhone too. I like the Apple technology a lot. And strangely, I can’t quite work out why, each and every Apple product user is the same as Byron. They all tell you how wonderful the product is. All Apple product holders are natural sales people. And THAT tells you all you need to know.

New York, New York. What is up with a government shutdown? Check out this NY Time piece, in front of the paywall —> Budget Fight Poses Test for Obama and Boehner. Check that out, political disputes around less than a quarter of a percent of the overall budget. Someone said on Twitter that President Obama should say to congress, if you don’t stop this fighting now, I am going to turn around and go back home. In this case however, there is no going back. Nothing.

But the biggest corporate news of yesterday is the “Cisco letter”. Every man and his cat AND dog had a view. Check out this Fortune blog which is quite good —> Cisco: What Should They Sell?

Barron’s had a slightly more pointed view from Barclays —> Cisco: De-Emphasis, Not Divestiture, Of Consumer, Says Barclays. All I need to know in the short term is that investors out there felt a little love for the stock and bought it aggressively.

Commodities and currencies corner Dr. Copper has ticked up on supply concerns around the world, last at 438 US cents per pound. And the gold price slightly lower as people don’t mind paper currencies anymore. That is sarcastic. Last at 1457 Dollars per fine ounce. The platinum price is at 1782 Dollars per fine ounce. The oil price is last 122.01 Dollars per barrel, that is the Brent price. 108.77 Dollars per fine barrel is where the price of WTI is. The Rand is weaker after being on a tear, 10.96 to the Pound Sterling, 6.71 to the US Dollar and 9.58 to the Euro.

The ECB meets today for what is the most anticipated meeting in years. No really. Years. We have started lower. Around half a percent. And, there is a massive power out across parts of Jozi. We have setup shop at Paul’s house for the day. If you need us, email us or call us on the mobile phones.

Sasha Naryshkine and Byron Lotter
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011 022 5440

Jozi, Jozi. We were cool here in Jozi. I am talking about the weather and not the fellows in the office. I hope you watched Paul’s Mad Markets on CNBC (DSTV channel 410) last evening at 20:30. It was cool, unlike the guys here. There was a Chinese interest rate hike yesterday —> Beijing’s Waning Interest in Rate Hikes, but as the WSJ article points out, there is very little that surprises markets nowadays. I guess we have read all about it, as the newspaper boy would shout. There is something not quite right about “newspaper boy”, that implies an underage worker.

Back to Jozi markets here, we were grinding higher here for most of the day, but in the last part of the day we managed to grab a couple of rungs up the ladder. The overall market closed 193 points higher to 32630, that is a gain of 0.6 percent. Awesome. Banks gained half a percent.

Construction stocks got another push, up two percent. Again, folks starting to find value in a sector that has been sold off heavily, even though through the market the whisper of Murray’s having to go embark on a rights issue. The biggest mover yesterday amongst the majors was two and a quarter percent rise from Sasol, benefitting from a much higher oil price, Brent touched a two and a half year high. And in truth these are normalised highs, through abnormal circumstances.

Whilst the oil price was at its highest since some time before Lehman brothers demise in 2008, remember those days, the local business confidence levels were starting to show that South Africa is starting to slowly, slowly recover. Tentative signs. Colloquially I am hearing from business friends on the ground that they are feeling better, and that the last few months were better than the previous 24. Check out the SACCI Business Confidence Index for the month of March.

88 is not quite 100 from 2006, but those were fairly wild days when nobody had fear. You know the old line, “I wannabe fearful when everyone is greedy and greedy when everyone is fearful”. The Charlie Rose show promotion sees Buffett using that line. Check out a long time frame graph of business confidence in South Africa:

Read the conclusion of the report. “Latest data indicate that the local economy has established some momentum and remained resilient in the face of global events. Business confidence remains sensitive to domestic socio-economic developments. The conduct of the local government elections, the decisiveness with which corruption is dealt with and the level of labour dispute activity will be key determinants of whether the BCI breaches the significant level of 90.” Why is 90 significant to Sacci? I shall ask Neren Rau, and see if he answers an email. Good signs that some key indicators are pointing to improving business conditions, and in line with what the chaps on the ground are telling me. If you want to share your experience feel free to email me, we can use it anonymously.

Our favourite Mooi River Index watcher, Mr. Rhodes has taken the data and plugged it into a graph going all the way back to 2004. Not only does this stuff interest him, but he works in a job that needs to know the trends. He kindly sent this graph, also with his explanation at the bottom.

Nice, thanks Mr Rhodes!!

Around the world. We sit here and agonise about the Portuguese crisis, which is the next one of the PIGs. I stick Spain as a small s amongst the PIGS, because I am not quite sure the debt problem is as big as people actually think. Sure it might have to be 90 billion Euros, and we are all left wondering how and why.

For the short term Portugal are today looking to raise one billion Euros by issuing twelve and six month notes, the yields are what everyone is getting excited about. The 6 month yield came in at 5.117 percent. To put this into perspective, the last set of bills were auctioned at 2.984 percent. All this even as Ronaldo scored a goal last night as poor Tottenham got smashed. It wasn’t because of Peter Crouch getting sent off, but rather because Steven Pienaar did not take part, he has a groin injury. But Portugal has real problems here.

Portugal defaulted in the 16th century, when bond markets were not what they are today. 1834 is another point when they defaulted. Portugal was basically bankrupt in 1892 and defaulted. Under the rule of King Carlos the first, who was assassinated as a result of economic woes in 1908. As we said in the office, this is not new, like Greece, there is a history here. Oh yes and by the way, the first democratic elections were held in Portugal for fifty years in 1975. Around the time that Angola and Mozambique were gaining their own independence. Just after that the Portuguese socialists in power nationalized everything.

Leading to a brain drain, sort of sounds stinky and familiar. The IMF had to come to their rescue in 1977 and then again in 1983. Debt to GDP was nearly 75 percent in 1988. All I am trying to say here is that Portugal has a history of lurching from one economic crisis to another. Time to print a T-shirt for all their citizens, “Bankrupt? Been there, done that!”

Perhaps we are making too much of these fiscal worries of the European periphery economies. There is after all a history of both Greece and Portugal having these problems. And let us face it, the Spanish empire and economy peaked over 200 years ago. Add another zero and you will see when the Italians/Romans peaked. It was the Americans, now it is the time for Asia again to take the helm.

The long and the short of it is that Portugal has to pay 9 billion Euros back to their bond holders this month and then in June. Perhaps a restructuring and a big haircut for bondholders isn’t out of the question. We forget that there have been lots of defaults. And recently, post the Russian debt crisis of 1998 there have been a host of defaults. Not that this is a good thing, but it is directly as a result of the recent crisis and overleveraged individuals, companies and countries. Check out this awesome paper —> Sovereign Defaults and Debt Restructurings: Historical Overview. Nice, puts it into perspective.

The end point? Restructuring. Check this out: “Unlike the classical bond finance period, most major debtors that began to experience debt servicing difficulties in the late 1970s and early 1980s avoided “outright” default by renegotiating their debts with creditor banks before missing debt service payments.”

The Chinese central bank, or better to call them the PBOC, the Peoples Bank of China, raised interest rates yesterday afternoon our time by 25 basis points. And it seems that nobody seems to care anymore, because everyone understands the issues. Inflation needs to be kept in check, upsetting the rural poor is the last thing that Beijing central want. Did you know that luxury goods advertisements in China have had to be toned down, nothing egregious is acceptable anymore. This as the wealth gap continues to widen, and young Chinese spend more.

I also do not know what to think of the Ivory Coast civil war. Because that is what it is, a civil war and an escalation of violence post the polls as the incumbent, who was voted out, refusing to step down. President Gbagbo lost the election back in November last year, well according to the polls. Not the constitutional court, stuffed with Gbagbo supporters, who declared stronghold regions of Ouattara to have been rigged and therefore null and void. And as such turned over the Ouattara winning margin and Gbagbo now won by a slightly larger margin.

Jeepers. And it is more complicated than this, Ouattara was not allowed to run back in the 2000 elections, because he was born outside the country. These were the first elections since back then, the 2005 ones were delayed for that long, because of skirmishes and ongoing unrest, as well as logistical problems. It is wildly complicated and I can understand the frustrations of Ouattara. For a more detailed look at what has transpired and how we got to the point where Gbagbo’s army has surrendered but he has not yet given up the ghost, check out the Wiki piece —> Ivorian presidential election, 2010. I warn you, it is complicated.

All the while in the background, the Cocoa price has traded wildly, but mostly higher, the country is the worlds largest producer of the crop. Ivory Coast is about the size of Norway or Poland. It has an economy of roughly one tenth of ours. The seven and a half million strong labour force are engaged mostly in the agriculture sector, around 70 percent or so. Each Ivorian individual earns a year about as much as an American who flips burgers for 8 hours a day for 24 days. Sad but true. All I can say about the whole affair is that it does very little to dispel the stereotypes that every developed world cynic holds against our continent. Perhaps justifiably so.

Byron’s beats Fracking. Gas. Karoo. Hot air. Environmental issues. They might or might not be founded. I think everyone is getting ahead of themselves of the benefits that could or could not happen if Shell moved in lock stock and (excuse the pun) barrel. Byron explains this sensitive issue.

Fracking of gas in the Karoo is an extremely emotional subject and an issue that I am going to remain neutral on, not because I do not want to step on anyone’s toes but because I do not know all the facts yet and unless I read a proper report on the matter, I’m not going to rely on journalistic opinions to form my own. What I will do is give both sides of the story as both parties seem to have valid points.

First let’s look at a simplified explanation of Fracking courtesy of Wikipedia. It comes from the term hydraulic fracturing and is a process that entails the creation of fractures in rocks so as to extract gas which sits within the shale. In order to do this a wellbore needs to be drilled which allows for liquid to be pumped into the fracture which causes the formation to crack even further.

This allows for gas in the rocks to flow into the well and then be extracted. Basically rocks have gas in them. Liquid is pumped into natural cracks within the rocks to make them bigger so that the gas can be extracted through these larger cracks. Sieved round sand is added to the fracture fluid to keep the fractures open for further extraction.

What is the biggest worry for the anti-fracking activists in the Karoo? The process uses a lot of water which is obviously not in abundance in that area. Not only does it use a lot of water but if waste is mishandled it may contaminate the underground water system which is vital for the survival of the Karoo inhabitants.

If you are interested in reading an emotionally charged article from Lewis Pugh, a lawyer and environmental activist via The Daily Maverick, check this out —> Lewis Pugh: Frack off, Shell!

Fracking is used often in North America which is governed by the U.S FRAC Act of 2009 so why is Pugh so against it? Where he has an issue is Shell’s shocking history with environmental concerns, especially in Africa. And there have been many incidents where Fracking has gone wrong so he has a right to be concerned. What I do know is that the Karoo is loved dearly by its inhabitants and these people are going to give their absolute all to prevent Shell from drilling.

From the other side of the spectrum there are also sum strong arguments. Gas is a lot more environmentally friendly than coal and releases one third the carbon emissions. If it can be extracted successfully in the America’s then why not here? If you have read my pieces regularly I have often commented on the benefits of gas. Companies like BHP, GE and Sasol have all been buying assets in the commodity because it has such potential in energy supply. It is a cleaner alternative to oil and coal in the production of energy, that is a fact.

If we have sufficient reserves we can use the stuff to create electricity via Eskom and Oil via Sasol. That would be fantastic for our economy as we become less reliant on global oil reserves and we could power our nation with a cheaper, cleaner commodity. You see both arguments point towards environmental protection. Not to mention the jobs created from the extraction and refining.

Like I said it’s tough to decide which side to take. From one side it could be fantastic for the country in terms of economic growth and carbon capture. But from the other side, if it goes wrong it could ruin a national treasure for eternity. Is it worth taking the chance?

Since writing this I have actually come across a detailed report on the debate —> Critical review of Shell’s draft EMP for Karoo – “fracking”, if you are interested in the read. I will have to take a long look at it to see which side I’ll take.

Commodities and currencies corner Dr. Copper has moved higher to 430 US cents per pound. Ditto the gold and platinum prices. The gold price last at 1456 Dollars per fine ounce as we face a potential shutdown of government, Washington, not the whole of the country. The Platinum price at 1794 Dollars per fine ounce. The oil price is higher at 108.64 Dollars per barrel that is the WTI price, Brent is at 122.30 Dollars per barrel. The Rand is firm as the US Dollar hits a few speedbumps, 6.69 to the US Dollar, 10.90 to the Pound Sterling and 9.57 to the Euro.

We have started sort of better here, commodities and gold getting a big lift as that potential shut down in Washington looms. Futures in the US higher, European GDP for Q4 clocked 0.3 percent on the final read. Per capita, check how that varies wildly —> GDP per capita in Purchasing Power Standards (PPS) (EU-27 = 100). People in Luxembourg are four times better off than the people in Latvia. Or Lithuania. Or Romania. Just saying, not all Europeans are equal.

Sasha Naryshkine and Byron Lotter
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Jozi, Jozi. It could have been better, but it could have been worse. I guess an end where the market closed up 0.16 percent, or 52 and a half points on the Jozi all share index is better than nothing. 32437 points is where we closed. Construction stocks, which are much smaller in market cap compared to where they were in the past, advanced nearly a percent and a half. They all look so beaten up and the short term prospects look so poor that perhaps this is the time to pounce. It might be a long road back, but as I remember a comedian saying (in the 70′s I think), Britain can only go forward as they have their backs to the wall. I guess the same might apply right now for Britain. Paul Krugman has argued too much austerity in that part of the world.

The rumour doing the rounds right now is that MTN is talking to India’s cellular provider Idea, looking to buy a stake of sorts. Idea have rubbished the idea, even though, it was rumoured that in September last year Idea was talking to two companies to sell a stake. The stake in question is owned by the Aditya Birla Group, which owns 47 percent of Idea cellular. The Aditya Birla Group is a massive Indian conglomerate that operates across the region, and even in the developed world. According to the interwebs, the market capitalisation of Idea accounts for one third of the overall group.

So how big is Idea? Or !dea as their branding actually goes, quite a cool name. There are 3.3 billion shares in issue and the price last traded at 68.45 Rupees. 226 billion Rupees, which is around 5 billion Dollars. Which is around 34 billion Rand. Which is just shy of 13 percent of the entire MTN market capitalisation. Amazing, not as big as you think. You would not think that this would be hard to find, but check out the 2011 financial year third quarter media release —> Idea Cellular announces un-audited results for the third quarter (Q3), did you see subscriber numbers anywhere?

Wiki suggests that by the end of January this year Idea had around 84 million connections in India, and that is around 11 percent of all connections in India. In the Indian market there are another 14 mobile operators. Last quarter the group suggested in the 3Q conference call that they carry over one billion minutes a day. And in their presentation that they are amongst the most competitive anywhere in the world, their call rates are less than 1 US cent per minute. No ways!!

There is a lot of debt stuffed in there, around 97 billion Rupees (2.2 billion Dollars) at last quarter. And not a lot of cash, only 4.6 billion Rupees, 100 million Dollars. So roughly 44 percent gearing, and not hugely cash generative, for the moment, these guys are going through a bit of a rough patch here. And earnings have been falling, they made on 0.67 Rupees a share last quarter, around 2.70 Rupees a share for the full year if you annualise that.

And the stock is at 68 rupees. Hardly cheap on that basis, and trades at 25 times earnings. So already a premium of sorts has been built in here already. Just remind me, a foreign investor can only have a 26 percent stake in an Indian business? So at around 5 billion Dollars market cap that is only 1.25 billion. Which is about 8.4 billion Rand. Which is only 3.2 percent of MTN’s market cap. Does not sound like anything to get excited about. Whether, or whether it does not happen.

Two bits of news about the old darling Anglo American yesterday, one good, one not too bad, but better as a whole for the industry. The first one is that the production targets at Collahuasi copper mine in Northern Chile will NOT be met this year. Anglo have a 44 percent stake in the mine, Xstrata have 44 (remember the merger of equals) and Mitsui have the balance.

This is the third largest copper mine in the world, producing about three percent of global production. Last year as a result of strikes (33 days last year) the mine produced six percent less copper, with output at 504 thousand metric tons. 44 percent to Anglo, that is just shy of 222 thousand metric tons. Collahuasi contributed about 41.3 percent of EBIDTA to Anglo’s copper division. It is the most profitable of their three copper operating segments.

The reason for the production miss is twofold. First, heavy rains have caused floods in Northern Chile. Rain in Chile? I remember reading somewhere that the Atacama desert receives about as much rain as Mars. It is the worlds driest desert. But Chile is a country of contrasting climates. This mine as far as the website can tell me is located at 4400 metres above sea level, near the Bolivian border, in the northern part of Chile, away from the driest spot on the planet.

Wait, 4400 metres above sea level? Mafadi is the highest mountain in South Africa, with an elevation of 3450 metres. This copper deposit is nearly 1 kilometre higher than that. Wow. In fact, the height at which this mine is, would be the same height at which the highest point is on the US mainland, Mount Whitney.

Stopped marvelling at the height of some mountains and the height at which this mine operates yet? OK, heavy rains disrupted two months of production, both January and February were poor months, Anglo said in a press conference on Friday. And that they would try to catch up production as the year progresses. The second reason is completely beyond their control, a fatal accident in December at the port nearby, Patache port, saw the mine, Collahuasi declare force majeure. The port has just been repaired and the force majeure has been lifted. “Fancy Frenchie words” is what my favourite Eastern Cape friends would say.

But will this really affect Anglo that much? I suspect so, but the much higher copper prices so far this year will offset a lot of the production shortfall, plus there are many projects on the go in the background with production at several coming online soon. Los Bronces expansion sees production ramp ups next year. But the one that I am concerned about is the Collahuasi phase one that is supposed to come online this year. Anyone know more about this?

And the second piece of news which I got by the by is that the Unki platinum mine in central Zimbabwe has started producing. According to the last Anglo Platinum ore reserves and mineral resources 2010 document “The total estimated PGM Resources of the Great Dyke are in excess of 2,000 million tonnes at a maximum depth of 350 metres.” The Great Dyke of course is that freak of nature formed between 2.7 and 2.4 billion years ago. Before Oxygen, you know, that era. And wow, that is shallow. 350 metres?

I can’t find too much reference to the mine on the Anglo Platinum website. But the wires suggest that at maximum production, the mine will be producing 150 thousand ounces per annum. A sizeable operation by all counts. But little reference on the Anglo Platinum website, perhaps they do not want to draw too much attention to it.

What about the indigenization “issues” raised over the last few weeks? Well, according to their website, these were addressed, check it out: “In March 2008, an agreement was entered into with the Government of Zimbabwe (GOZ) in terms of which 31.3% of the PGM mining claims have been released to GOZ in return for empowerment credits. The agreement is expected to become effective during 2009.” So, as I understand it, the Zimbabwean government agreed to give Anglo Platinum empowerment credits for a direct swap of mining claims. That was then. This is now.

Remember the Government Gazette Extraordinary? I am mindful that the clock is ticking on this one, there must be over 30 days left to submit your plans. Again, there was a mistake on the document, it was meant to say a business with an enterprise value of over 1 million US Dollars and not 1 Dollar. I don’t know what the right answer is, but I always believe that private capital almost always does a better job than public capital.

New York, New York. One of the highlights of yesterday in the US was the announcement from McDonald’s of the creation of 50 thousand McJobs. Yip, the fast food, I mean casual dining giant announced that they are hiring. Slang for McJob implies that the job is a dead end one with low skills and absolutely no prospects of going anywhere. BUT. It turns out that three quarters of the McDonald’s execs have actually at some stage flipped burgers. Byron’s beats takes a detailed look at both the business and the hiring spree, here goes.

The plan is to increase their employee base by 50 000 adding both restaurant staff and managers in up to 14 000 locations around the U.S. This could add up to $54 million to the payroll tax as McDonalds increase their workforce by 3%.

I think this is fantastic news and a big contradiction to the high inflation naysayers who reckon high commodity prices are going to crush the likes of McDonalds and slow down the recovery. This is proof that McDonalds believe that both of these are not a worry. Such a hiring scheme could add up to $4.1bn dollars to their annual spending.

This would not be implemented if they believed things were slowing down in the United States. I’m actually looking at this as more of a proxy for the market rather than at a micro level. You know we are bullish on McDonalds as they grow globally and consumers take advantage of the great value for money service. But such a big commitment to hiring 50 000 new employees shows great confidence in the economy.

What else is interesting is that more than half of franchise owners are former burger flippers while 75% of the managers started at the bottom. This shows that advancement is an option and these new employees are not sitting in stagnant jobs. Its how capitalism works as these new employees will become permanent consumers of household goods, housing and loans.

From a company perspective and for our clients who currently own the stock we think the move is a good one. Amongst so much M&A activity doing the rounds the timing seems right (remember this is a $4.1bn a year commitment, nothing to be laughed at). It is good sign of growth for a company who recently released same store sale growth of 3.9% in February. When this report came out it was the US who lagged so this initiative is clearly a reaction to increase services in their biggest market.

Just some interesting stats about McDonalds so that you know what we are dealing with. McDonalds have more than 31 000 stores worldwide serving more than 58 million customers daily whilst employing 1.5 million people. 15% of these restaurants are actually owned and operated by McDonalds while the rest are franchised. So you would imagine that these employments relate to the operated side of the business. Nearly 1 in 8 workers in U.S have worked for McDonalds and it is the largest operator of playgrounds in the U.S.

Texas Instruments, the worlds largest maker of analogue chips have had a go for their oldest rival, National Semiconductor. Here is the WSJ report —> Texas Instruments Buys Age-Old Rival. I am just interested at the heightened levels of M&A and not on a small scale, Byron talked about that above. The one thing that confuses me, is why do a lot of tech companies have a listing in Germany?

Plus, more importantly in terms of where we are in the cycle, there are a few IPO’s doing the rounds. Check out this page from Yahoo finance —> Initial Public Offerings Summary. Some names there that I recognise. Some over the last year have done really well —> Best IPO Performers and some have done so poorly —> Worst IPO Performers. Action in the markets is always a sign of rising confidence levels. This is the best M&A since Q1 2007. That tells you a lot, back then the world was fearless.

Commodities and currencies corner Dr. Copper last crossed the screens at 422 US cents per pound, the platinum price is 1785 Dollars per fine ounce whilst the gold price is at 1434 Dollars per fine ounce. The oil price is last at 108.06 Dollars for WTI and 120.62 for Brent. Yowsers. Big petrol price hike here tonight. Thank goodness the Rand is firmer at 10.92 to the Pound Sterling, 9.54 to the Euro and 6.72 to the US Dollar. Oh, the only other thing that is weighing on markets across the board this morning is that Moody’s downgraded Portugals debt rating. As one of my favourite market journalist Silvia Wadhwa said who cares about that anymore. And don’t forget to watch Paul’s show, Mad Markets, on CNBC at 20:30 tonight and every Tuesday. The full edition, the short one is daily at about 17:20 on the same channel.

Sasha Naryshkine and Byron Lotter
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