December 2, 2011 in Uncategorized
Jozi, Jozi. 26o 12′ 16″ S, 28o 2′ 44″ E. It was always going to be tough to hang in there, just to hold onto the gains of the prior day. We almost did, by the close, the Jozi all share index had shed 63 points to 32748, that is a percentage loss of 0.19 percent for the day. Basic materials, the resources 10, those collectively added one quarter of a percent whilst the banks gave up one quarter of a percent. Gold miners were the real winners (on the day), having added 1.38 percent from where we started. I am going to keep on saying it, over a longer dated period gold miners have not been a good investment, the Rand gold price, a Kruger Rand for instance or even better, the GLD ticker, now that has seen some amazing gains.
Over five years exactly, 1 December 2006 to closing price last evening, the gold index is up 5.6 percent. Whilst the Rand gold price is up 197 percent! Whoa!!! I explored a little further, there are 334 companies listed in the Basic Materials index in the US, 71 of those are in the sub category Silver & Gold. That index is up 32.67 percent over five years. The Gold ETF, ticker GLD in New York is up 164.57 percent over five years. The precious metal miners around the world have solidly underperformed the bullion price. It would have been better to have just held the physical. Next question however, what to do from here. Personally and at a company level, like I (and we) have said many times, I do not understand the fundamentals of holding something (paying associated costs) for something that does not pay any dividend. I am prepared to lose out on the price because I do not understand the hype and historical significance of holding physical metals.
I will side with Warren Buffett on this one who famously said (I am sure I have told you this 100 times): “Gold really doesn’t have utility, I’d bet on a good producing business to outperform something that doesn’t do anything.” Or my other favourite one: “It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.” Phew, enough playing with fire today, I will step aside and excuse myself from the gold bulls who are seething now. Bye!
I was starting to worry that there was not too much corporate news going on, it was all being dominated by news flow from Europe specifically, when SABMiller confirmed that they had got all the necessary approval to buy Foster’s. Good for them. As hard as I try I just cannot see Australia as an emerging market, but that is perhaps the point, diversifying away from the fast growing Latin America region. Here is the simple announcement:
“SABMiller plc (“SABMiller”) is pleased to announce that, following the approval by Foster’s Group Limited (“Foster’s”) shareholders yesterday, the Supreme Court of Victoria has today approved the Scheme of Arrangement pursuant to which SABMiller will acquire all of the shares in Foster’s. The Scheme will be implemented on 16 December 2011.”
Dr. Foster’s is done and dusted. What next? Business as usual, but perhaps this does signal something subtle, a) no deal is too big and b) that SABMiller are looking outside of developing markets. Perhaps because most of the heavy lifting around half a decade back has been done! Meaning, all the acquisitions in emerging markets were done, almost like most of the big mobile deals in Africa were done too!
Another day, some more Brussels. I swear to you, this “European debt resolution process” has almost been as unappetising as actually eating a bowl of Brussels Sprouts for breakfast, lunch and supper for the last six months. The Netherlands, the UK and Germany produce a whole lot of them. The only reason anyone outside of Europe eats them is because they must have colonialist tendencies. The word delicious and Brussels Sprouts do not belong in the same sentence. But this is not a culinary piece, but rather trying to understand what the Europeans are up to, how they are closing in on a deal of sorts. I was pretty amused with this piece: Europe’s Race to the Bottom: How Austerity is Killing the Euro. Phew.
But I agree, and the opposite of austerity is stimulus, which you pay for later, whilst austerity means that you take the pain right now. Now I do not care which school of economics you belong to (the only school where you don’t have professors or sit with fellow students), ultimately the growth path is more important than what to do in a crisis! Yes, because only then will revenue collections improve and only then will countries be able to record budget surpluses. Or you hope. I was completely astonished and had not heard or read this before, but France last recorded a budget surplus in 1974. Yes. Since then their debt to GDP has risen from 22 percent to 82 percent last year. France however itself has been a huge benefactor of the appreciating Euro to the US Dollar, as have most of the economies of the region. I can see why ordinary citizens have felt the benefits.
But when I hear the French President say something along the line that if there was not fiscal integration then the Euro area would explode. Yes, he said explode. Why use words like that? But he also went on to say that they needed more discipline in Europe, and that they need to reshape Europe. Not physically of course, the Polish would have a heart attack. I remember my history teacher telling me something along the lines that the Polish borders had shifted more often than any other country in the region, so much so, that their most east Western border and most west Eastern border had intersected. Something like that. OK, but in the speech, Nicolas Sarkozy basically said that France and Germany had not come this far to lose the battle of the single currency, they had and have had that history in the past. I get it, no more battles on the battlefield. But my question is, even Italy has run a primary surplus, France has not recorded a surplus since 1974. What is the anxiety of the triple A rating then? Is it just me that thinks it is absurd that you can’t expect the top notch credit rating if you can’t come close to recording a surplus? And over 35 percent of the workforce works for the government. Eish, not fixable immediately.
Just this morning we have the German Chancellor delivering a declaration on suggestions for an EU Treaty, that I am sure will face much scrutiny. In fact she is speaking as I am writing this. I do not speak German and I have not seen any document as of yet sadly. But the wires are telling me that she is saying that “they” need to strengthen the EU economic union and this will be the central theme at the next meeting, 9 December. And more importantly, she said that they cannot solve this overnight. Really? And she says that this current crisis will take years to resolve. Yip, I have always been saying that, expect this to unwind over half a decade or so. This is the worst crisis since the inception of the Euro. Of course, nothing new there either. So, as we said yesterday, lots of muddling towards fiscal integration. And no, Europe or the Euro is not finished, I said that part. AND, she has said that Economic and Fiscal integration is on the agenda. And that the ECB is not the same as the Fed or the Bank of England. True!!
And in closing Merkel has said that Euro Bonds are unthinkable without Fiscal Union. My favourite “boytjie” this morning, David Bloom a South African that is at the top of his “stuff” in London, he is a currency expert for HSBC. He said this, the ECB do not want to “print” because they want governments to start running a surplus. But they eventually will “print money” because they will have to. In between now and then, we are set for tricky times. Credit Suisse have come out this morning suggesting that Euro GDP will contract by half a percent, but the US should skirt through a recession. All I can say is that the Europeans leaders are on it! And you should not get too anxious about the zone failing. Like I often say, there are more
New York, New York. 40o 43′ 0″ N, 74o 0′ 0″ W. Initially the weekly jobless claims disappointed, albeit by not that much, but the excitement about jobs was all Friday, what is the number going to be? Tech stocks did better than the rest of the market, some heavyweights moved north quite decisively, there was also a Zynga IPO range was between 8.50 to 10 Dollars a share and that they were looking to raise 1 billion Dollars. Now if you do not know who Zynga is, go and stand in the corner for a while and then come back and check out their website. Mail.ru owns a modest stake in Zynga. And Naspers owns around 30 percent of Mail.ru. Can you see now why the Zynga IPO is of a little more interest to us than most.
According to this old piece that I found -> Mail.ru IPO to Give Mortals a Stake in Facebook, Zynga, this part is quite interesting: “The company is clearly a Russian powerhouse, but the holdings that matter most to Western investors are its stake in Facebook (2.38 percent), Zynga (1.47 percent) and Groupon (5.13 percent).”
Obviously the Groupon stake has been diluted, but the Facebook stake is interesting, and Zynga is too here, because it is relevant!! Right now of course. So when trying to get to your Naspers NAV, you could measure what your indirect stake is in these businesses. Take the Naspers Mail.ru stake and multiply it by the percentage amounts that they (Mail.ru) own. Fun.
This “jobs number predictions” is like hide and go seek in the dark without any reference point, or knowing where the walls/tables/rugs are. I am sure that it is a very serious business predicting the number of jobs added in the US, the predictor bots have come back with 125 thousand new jobs. But that labour market is crazy, people carry cardboard boxes and nobody whispers under their breath, just say better luck next time buddy! All I can say is that this number is too unpredictable to chat about with any real authority. But like the rest of the world, we watch this number with the same interest.
Commodities and currencies corner. Dr. Copper is much higher at 360 US cents per pound, the gold price is also better at 1749 Dollars per fine ounce, the platinum price is “flat” at 1561 Dollars per fine ounce. The oil price is last at 100.71 Dollars per barrel. The Rand is last at 12.62 to the Pound Sterling, 8.05 to the US Dollar and 10.85 to that “finished currency” the Euro. Finished is sarcastic from my side of course. We have started lower and higher here, oscillating ahead of the big number.