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The plague was worse

December 3, 2012 in Uncategorized

“This is by no means the worst time ever for the Europeans. The bubonic plague, I am guessing that was pretty bad. According to Wiki, that killed between 30 to 60 percent of the European population. World War II, that sucked as well. That only ended 67 years ago. 2.5 percent of the global population died in that conflict, it was very bad for the Russians, just less that 14 out of every 100 people in Russia lost their lives during WWII.”


To market, to market to buy a fat pig. On Friday we raced ahead in the second half of the Jozi, Jozi 26o 12′ 16″ S, 28o 2′ 44″ E market session, led mostly by a weakening currency that buoyed the Rand hedges. There were loads of August interim (and a few year-end) smaller companies that reported as the week wore on, remember that listed companies are obliged to report results inside of three months or face suspension. The currency swooned to 8.90 to the US Dollar as the Trade deficit widens to worst level in several years (BusinessDay story) thanks, or no thanks to a weakening Rand. See, a weak Rand is bad for the country, be careful what other economics funks wished for. Unless of course we become energy independent. And the only way that is going to happen is if we let free enterprise unleash their expertise on solving that little problem. Big problem. Like I showed you last week with the US trade numbers, energy imports are costly on any economy.

After the final bell rang for the close, we had topped 38 thousand points and closed there for the first time, half a percent better to 38104 points. We are now an amazing 19.1 percent higher for the year. Yes, this was the year that nearly saw the disintegration of the Euro. Or at least in the eyes of many a market yapper. Our base case was always that Greece and all the others would stay in the Euro zone. And that in a number of years that there would be more members, not fewer. Make no mistake however, it is still tough there: Eurozone Unemployment Hit Another Record High on Friday, the worst level in the 13 year level of the common currency.

This is by no means the worst time ever for the Europeans. The bubonic plague, I am guessing that was pretty bad. According to Wiki, that killed between 30 to 60 percent of the European population. World War II, that sucked as well. That only ended 67 years ago. 2.5 percent of the global population died in that conflict, it was very bad for the Russians, just less that 14 out of every 100 people in Russia lost their lives during WWII. So to say that this is the worst time ever for the Europeans, well, possibly in the last 15 years. The Yugoslav wars “ended” a mere 13 years ago. I am pretty sure that was worse for them, than now. Outsiders might think that for the Greeks it is a “good idea” to leave the Euro and restructure, but imagine the anarchy if overnight people’s pension funds would lose more than half their value. Bear in mind that many European countries have huge safety nets, Greece is no exception.

Ironically the core of the problem and part of the debate in the US right now on budget reforms is taking centre stage. Some call it the “fiscal cliff”. I finally saw a decent enough explanation in the WSJ titled: Q&A: What Is the Fiscal Cliff? Indeed. The fiscal cliff (more like a windy downhill) might well be the pain the Americans need. But the timing is perhaps off. Ironically (again) when times are good, nobody really wants to talk about cutting back. Because cutting back is seemingly not necessary. We are strange things, us human beings. From the same publication, the WSJ is the answer from the other side: GOP Takes Aim at Entitlements. It is tough to take stuff away when you have it already, humans do not adapt well to negative changes.

Markets in New York, New York. 40o 43′ 0″ N, 74o 0′ 0″ W effectively stayed at the non strikers end for the session Friday, stocks had barely budged by the close, although much of the day had been spent in the red. The week ended with marginal gains, very slim gains actually, with only the NASDAQ adding 1.5 percent for the last week of November. That is right sports lovers, this happens to be the first working day of the last month of the year 2012. Year to date the S&P 500 is up 12.61 percent, not bad if you think about all the problems that we have had. The hardest question to answer often is, well, what next? I suspect that our base case of multiple expansion will continue to happen over the next 18 months or so. What that means, is if the S&P 500 collectively can earn 111 Dollars a share, at a 14 times multiple that translates to 1554 on the S&P 500. On a 15 multiple that translates to 1665. You see, it does not take too much, just the return of deal making related activities and confidence to increase for stocks to get re-rated with not too much changing. I came across this good piece from Calculated Risk, which gives one an overview of next year: Goldman Sachs: “Moving Over the Hump”.

Just this morning we have seen from Beijing central. 39o 54′ 50″ N, 116o 23′ 30″ E the release of the HSBC PMI. I am not a big one for these releases, partly because this specific release is based on the replies from purchasing managers from “more than” 420 manufacturing companies in China. An awful amount of importance is placed on the accuracy of the answers of 420 odd questionnaires filled in, don’t you think? It is what it is I guess, whichever way you think of it. Anyhow, it is pleasing that the final read has been ratcheted up for the month of November. Which, when I had a look at the early release dated 22nd November was at a 13 month high. Above 50 means expansion, I would take 50.5 right now, thanks. The knock on effect has meant that commodity prices have lifted somewhat. Dr. Copper has been stagnant for a while, but the early signs are that we are seeing a recovery in the prices. The copper price has hit a six week high this morning on this news.


Digest this linkfest.

Have you ever heard the saying, “that is the best thing since sliced bread?” Or so and so thinks that they are the best thing since sliced bread? Well, it turns out that sliced bread is a pretty old invention, according to this piece, that I came across in one of my RSS feeds: Bread that lasts for 60 days could cut food waste. The sliced bread machine was invented in 1928. But this new machine, pretty much the same as a home microwave oven, revolutionizes bread once again. And the part about Americans throwing away 165 billion Dollars worth of food a year, how do you feel about that? Crazy. A 700 gram loaf of bread here in South Africa costs around 8 to 10 Rands. So, roughly 1 Dollar. That is basically 165 billion loaves of bread wasted. Or, 450 million loaves a day. Enough to feed our continent no doubt, one quarter of a loaf each. Wow. I wonder if lower production as a result of lower demand would actually result in higher soft commodity prices, and not really “solve” the problem.


Another thing that I often wonder about is whether the negativity from our industry peers is as a result of people being under pressure. Not a week goes by nowadays without us seeing the headlines about job cuts, and bonus cuts in our sector. Headlines like this: Citigroup Securities Unit Said to Cut Bonuses, 150 Jobs. Surely if you worked in an industry that had negative public perception, and your job was not exactly safe, your outlook on life would be less rosy than before. Oh, and another thing that I absolutely love, next time some person at a gathering suggests that bankers and banks are to blame for the financial crisis, just ask, “how so and why?” I would love to know the answers.


I thought this might be a useful way of describing how low the inflationary environment actually is in the US, over the long term. The piece is titled: Congress Looks at Doing Away With the $1 Bill. Before you rush out and buy gold, because the doomsdayers were right on the inflationary front, bear in mind that this is actually as a result of savings. A one Dollar coin would stay in circulation for 30 years, whilst a one Dollar note needs to be replaced every 4 odd years. Saving money, more efficient.


Why didn’t I think of this? In fact, why didn’t more people think of this? The headline reads: Greece set to unveil terms of crucial bond buy-back. Makes sense no? If you are buying the debt at much cheaper levels, why not? Of course most folks would say that no, you should hold to maturity, but it almost looks like the Greeks are going to bully their banks, into participating. Patriotic duty is the suggestion from the Greek treasury. In addition to this repurchase, this interesting article suggests that the Greeks have done more than enough work: Greek debt “transformed into a zero-coupon perpetual bond”. Read it, it will enlighten you.


Crow’s nest. What is happening this week? Well, locally schools (not for the matrics, they are done and dusted already) break up. At least here on the “Highveld” in Gauteng. And that means like migratory birds, everyone flocks to the coast shortly thereafter. We however are still around and will only be away from the desks for the period between Christmas and New Year. But at the end of this week there are the non-farm payroll numbers. The expectations are low, on account of Hurricane Sandy. Happy week to all of you.


Sasha Naryshkine and Byron Lotter

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4 responses to The plague was worse

  1. “how so and why?” “HOW SO AND WHY?”
    1. The crises was started from a housing bubble that burst. A bubble created by sub-prime lending. This is fact.
    2. How about the fact that sub-prime lending is also called PREDATORY lending, offering loans to people who can’t pay – you can’t get more evil than that.
    3. How about the fact that Goldman Sachs offered sub-prime loans and simultaneously bet against them, shorting their own customers – immoral much?
    4. How about the fact that Barclays and other banks were caught manipulating the LIBOR rate for profits – banks cheating others yet again.
    5. How about the fact that bank chief’s salaries are unreasonably high compared to the rest of their employees?
    Now you’re going to say the poor should never have taken on a loan they can’t afford. Yes, but they were SOLD the loan. They were gamed! Bankers made them believe they could repay.
    Not even lawyers are hated as much as bankers dude. No-one has a forked tongue quite like a banker. But you knew all of this very well Sasha.
    “how so and why?” Honestly…

    • Hi Nick

      Can I possibly do a public answer to your questions in our message tomorrow?

      I think that it is useful to answer these questions and concerns from your side.

      We can either do it anonymously, or even better if we mention that you are just “Nick”.

      Are you OK with that?

      Sasha

      • Yeah man, go for it.
        I was just ranting yesterday – was in a foul mood. I don’t even need a reply.
        If you would like to make a new post/article about it that’s fine by me.
        Just call me “Nick” and don’t give out my email address.

        • Excellent. I think your points are well made. I often think that sometimes however it was a crisis caused by people. Not banks. Not the Federal Reserve. Not lack of government oversight. People. But I shall have my answer tomorrow.
          Take care (just) Nick!

          Sasha

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