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A right royal rollicking rally

January 3, 2013 in Uncategorized

“We saw the all share index top the 40 thousand mark for the very first time, rallying just over two percent for the day. The year and the month. And the week. I suspect that this rally could be given another leg up as early as today and tomorrow again, we are expecting employment numbers in the form of ADP data today, and US Labor Department numbers tomorrow. Yes, it is jobs Friday everybody. If those numbers are good, you would imagine that the markets would rally some more from here.”


To market, to market to buy a fat pig. Boom. If you thought that the fireworks display had finished, this was a second look. Global markets really cracked on the pace as the powers that be in Washington DC reached a “deal” to avert automatic spending cuts and tax hikes. I guess I shouldn’t be too much of a sceptic, but the behaviour of elected officials taking it to the brink now two times, remember all the chest puffing around the last debt ceiling increase, in the second half of 2011. Cullen Roche had a good take on what has actually happened, or at least his view: Early Thoughts on the Fiscal Cliff Deal…. That last bit “The bottom line: this could have been much worse. Unfortunately, it’s not completely over.” refers to the automatic spending cuts actually now delayed and the debt ceiling negotiations having to take place again. Oops, politicians being stiffs again.

Adding to the global rally juice was a whole host of PMI reads from across the globe which showed progress. Whilst Europe continues to show recessionary conditions, elsewhere in the world the improvement in noticeable, and in fact locally we saw the benefits of improving PMI numbers in the commodity stocks. In Jozi, Jozi 26o 12′ 16″ S, 28o 2′ 44″ E we saw the all share index top the 40 thousand mark for the very first time, rallying just over two percent for the day. The year and the month. And the week. I suspect that this rally could be given another leg up as early as today and tomorrow again, we are expecting employment numbers in the form of ADP data today, and US Labor Department numbers tomorrow. Yes, it is jobs Friday everybody. If those numbers are good, you would imagine that the markets would rally some more from here.

Really cracking on the pace yesterday were the resource stocks up 4.3 percent collectively, BHP Billiton added nearly five percent whilst Anglo American added a massive 6.9 percent on the day. Aquarius added 11 percent plus. Arcelor Mittal added nearly seven percent. It was a big day for the commodity stocks. This was the first time that BHP Billiton had topped 300 ZAR since the middle of 2008. Anglo American on the other hand was double their current price in the middle of 2008, so their share price performance has been woeful when compared to our preferred commodity stock. Arcelor Mittal over five years are still down a whopping 72 and a half percent. Aquarius platinum is down 90 percent over five years, so the only stock amongst the movers yesterday that can hold their head high is undoubtedly BHP Billiton.

Oh, and over five years BHP Billiton has outperformed the all share index by ten percent. The other three, forget about it. Another last point here, the all share might have crossed 40 thousand for the first time, but the resource stocks in aggregate were flat last year. This year, with only one trading day having taken place, sees the resource stocks top of the pile. As they were in the three calendar years of 2005 to 2007. Perhaps their contributions this year will drive the index to even greater heights.


In New York, New York. 40o 43′ 0″ N, 74o 0′ 0″ W stocks rallied hard, with the boxes in front of me telling me that the last 300 point rally on the Dow Jones industrial average having taken place nearly 15 months ago. Something with a 2011 in front of it. Asian stocks this morning are trading at 17 month highs. I suspect that the smaller and less affluent investor was pleased that their dividend tax rate did not go up, whilst the richer folks probably resigned themselves to the fact that it was going to happen when President Obama was re-elected. But make no mistake, like the WSJ points out, there are already Fresh Budget Fights Brewing. Oh bother.

There was a little M&A activity on the go, Avis bought smaller operator Zipcar for a 50 percent premium on their closing price in the session prior, I guess that this news was really not telegraphed. Zipcar is an interesting business, it caters for those folks in the urban areas who might need a motor vehicle every now and again, the retail market. Say for instance if you are a college student who needs to go out of town for the weekend, you would use Zipcar. Or, if you are a young family without a set of wheels, you would use Zipcar. Zipcar goes a step further than a classic rental, they suggest that theirs is a car sharing service. So, if you need a vehicle for just a few hours, or the whole weekend, then your specialized card gets you into any car anywhere in the world. But yet, Avis “only” paid 500 million Dollars for this company, perhaps it had failed to quite live up to its expectations. And perhaps was just getting traction now, which I guess this is why Avis decided to nip their smaller rival in the bud. And to go into this more casual rental business, using smarter technology.

Talking of smarter, I noticed a subtle change this Christmas and New Years. And some of it is connected to the strong move in Facebook shares last evening, the stock was up a whopping 5 percent. A JP Morgan research note was positive on the company, I have noticed a few recently. Who would have thought that they could have monetized mobile? Pfff…. Sarcastic alert. That said, the stock is still down 26 percent from their listing. Which went off really badly and was a huge negative for the company and even worse for those who were involved in the IPO. However, the JP Morgan analyst in question expects Facebook to earn around 69 cents for the full year. And then for 2014, 86 cents. At 28 bucks a share the stock trades on a forward multiple to 2014 of 32 times. Which is still expensive, but the earnings growth rates (expectations) still look high. But back to my point, how many SMS’s did you get saying Merry Christmas or Happy New Year. I am betting very, very few. All of my wishes from friends were on Facebook and Twitter. See how the times change? Five years ago you were bombarded with a flurry of SMS’s. Not anymore. Well, at least not me.


These two things are related. First, this might not be too pleasing if you are an energy bull, via the WSJ (subscription only): OPEC December Output Lowest Since October 2011. That might sound like a bad thing, but it turns out that the Saudi’s have ratcheted back their production. But this second one was more interesting for me: US drilling boom for shale oil is remaking America’s energy picture and has brought net oil imports to a 20-year low. Now again I ask with tears in my eyes, why are we not advancing our fracking plans. The new techniques are far better than they ever were in the past, both in terms of extraction and cleanliness towards the environment. If we truly want to be energy independent we must try harder. I am sure, that having seen the US example that we would create a solid industry here locally. But that is my opinion, and you know what they say about opinions.


Crow’s nest. After yesterday’s heroic rally stocks have eased back a little. I suppose the relief somewhat. And now, people are starting to ask a few questions about the resolution reached. Better than nothing I say. If you are on the lookout for the next thing, remember ADP today.


Sasha Naryshkine

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