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The big BoJ bang

January 22, 2013 in Uncategorized

“At the same time the BoJ has raised their economic forecasts. I don’t know what to think of this. Surely all the past programs were designed to escape deflation? Reminder, the Japanese stock market, the Nikkei hit an all time high on the 29th of December 1989. The intraday print was 38,957.44. The closing level today for the Nikkei 225 was 10709.93 points. Over ten years ago during the dotcom bubble, the Nikkei topped 20 thousand points. A lot of folks think that the Nikkei is dirt cheap, specific stocks that might benefit from exports. But imported energy costs are going to rise, this is a double edged uuuummmm…. Katana?”


To market, to market to buy a fat pig. US markets were closed for the celebration of Martin Luther King day, one of ten federal holidays. The day does coincide with a US presidential inauguration, every four years. Text from the WSJ: President Obama’s Second Inaugural Address. This one was attended by one million people. I am pretty sure that it must be a cool to do event, in the flesh. I remember the day that Obama was sworn in the first time, that was a pretty cool speech. The first couple certainly look like the freshest folks since the Kennedy’s. The US president is certainly greyer in hair, but other than that he looks the same to me. It must be a difficult job that. I can’t imagine the pressure. But, as fun as the day was, the real work of bringing the US together starts now. In fact just tomorrow the US house will vote on whether or not to extend the debt ceiling for just four months. Still, this is a test. Perhaps both sides of the aisle will agree that four months is long enough to bash out something meaningful. We all need it, the overhang of more policy uncertainty is too much to bear.

Talking of banishing uncertainty, the Bank of Japan, the BoJ, (with political push) have embarked upon Buzz Lightyear monetary stimulus. You can read both the Price stability target and more importantly I think, the Open-ended asset purchase method. The intro is simple, “to purchase assets without setting any termination date” tells you what that method will entail. 2 percent is the new inflation target. The Bank of Japan suggests that their program will take some time to filter down to the rest of the Japanese economy. The statement suggests that the Bank of Japan expects that both internal and external demand will pick up gradually this year.

I guess everyone is on the same page on that score. At the same time the BoJ has raised their economic forecasts. I don’t know what to think of this. Surely all the past programs were designed to escape deflation? Reminder, the Japanese stock market, the Nikkei hit an all time high on the 29th of December 1989. The intraday print was 38,957.44. The closing level today for the Nikkei 225 was 10709.93 points. Over ten years ago during the dotcom bubble, the Nikkei topped 20 thousand points. A lot of folks think that the Nikkei is dirt cheap, specific stocks that might benefit from exports. But imported energy costs are going to rise, this is a double edged uuuummmm…. Katana? If you don’t know what that is, check it out on Wiki, I did.


Jozi, Jozi 26o 12′ 16″ S, 28o 2′ 44″ E Richemont dragged the broader market lower, a sales miss and warning about an uncertain Chinese outlook weighed on the stock. Down just over six percent on the day. This fall and the general sentiment amongst the luxury goods stocks prompted a FT broader special report on luxury goods, I emailed the pdf to my kindle. Imagine using that line twenty years ago. Email? Pdf? Kindle? What is that? Email, OK, Plato and Unix mail systems existed, I remember using Plato in the school library. I wonder what that place looks like? The school library that is. I do know that all the Lance Armstrong books have been moved to the fiction section. I didn’t make that line up. The truth is that Swiss watch exports to China have fallen at the end of last month. I do wonder if some of this had to do with the ruling (and only) party in China deciding to take a stance on corruption and cutting back wasteful expensive ceremonies, and if that knock on effect delayed certain purchases. As the FT piece said, when quoting a luxury goods analyst, the rich uncle is not going to stop buying an expensive Rolex at his nephew’s wedding. No. The culture of gifting is not going away soon.

But. And this is a big but. The article also suggests that if the current head of the communist party, Xi Jinping (expect him to be president of China in the next two months) does not have a taste for the culture of gifting. And perhaps a fancy wristwatch might impact progress forward internally in the party, how am I to know? We are probably, according to the FT report in a period of normalisation. A period where European sales would continue to be strong, with the tourism trade, whilst North America would improve. And I noticed that the Japanese market was starting to pick up too. So, should we be anxious about owning Richemont? The short answer is no. The company was in excess of 3 billion Euros in cash, either to take advantage of a deal (not now) or as a buffer if times get tougher.


Staying in the region and staying with a multi-national company with South African roots, SABMiller released a Trading Update this morning. At face value it does not seem too impressive: “Lager volumes for the third quarter were 2% ahead of the prior year and soft drinks volumes were 3% higher, both on an organic basis.” Group revenue grew by 8 percent in the third quarter, that is a little more impressive. The company is satisfied with the performance.

You can read across the regions that there was fairly ordinary growth, I see that some people are getting anxious about the one line specifically: “Lager volumes in Asia Pacific declined by 1% on an organic basis (which excludes Australia volumes altogether), largely as a result of subdued volumes in China, which declined 3%, due mainly to an exceptionally cold and wet winter across the country.” That hardly really matters as Paul points out, that division is not that profitable really. But it is part of their future, along with the continent that I live on. They don’t seem that bad to me. The Chinese miss is poor, but not unexpected. The market has taken it in its stride. Neither here nor there, folks are still willing to pay up a lot for what is still considered an emerging market consumer stock. Indeed.


    Byron beats the streets. This morning we received fantastic results from Ellies which saw headline earnings per share more than double for the 6 month period, registering 42.5 cents compared to the previous 6 month period of 21c. In case you were wondering what exactly Ellies get up to, here is a brief description from the presentation.

    “Ellies Holdings Limited (“Ellies” or the “group”) is a leading South African manufacturer, wholesaler, importer and distributor in diversified sectors, including consumer goods, renewable energy, and power and telecommunications infrastructure, servicing the local and African markets.”

    Of the consumer goods includes all the DSTV equipment such as the decoder, satellite and the controller. If you are bullish about the growth of Multichoice then Ellies is one of the best ways to benefit. It could be even more direct exposure than Naspers themselves who own so many other businesses along with Multichoice. They also say that a shift to digital TV is imminent which means that everyone is going to have to buy a new decoder at some stage, and that includes SABC users. Ellies of course will be the ones selling the equipment.

    Also within the consumer division is the Eskom Project Power Save programme. You know all those power saving lights which were given out for free a while back? Ellies supplied those. And there is the green shop within a shop initiative. Within many Builderswarehouses and similar type stores sits an Ellies section which sells household goods which are geared towards helping you save electricity and water within the home. This is of course an exciting theme. They also supply and retail generators which, since the lights went out in 2008, has been a growing division.

    The consumer division grew 112% compared to the previous period and is responsible for two thirds of the groups profits.

    The other third of profits is brought in by the infrastructure division, Megatron, who provide Eskom Power stations with products such as cables as well as equipment for solar and wind projects. This is also an exciting industry as Eskom continue to build power stations while private companies look for alternative opportunities to supply to the grid.

    So what would an exciting company like this trade at? As you would imagine the share price has followed suit with earnings having gone from 228c at the beginning of 2012 to 820c where it is today. But back of the match box calculations tells me that if you annualise these earnings the company is only trading on 10 times this year’s earnings.
    The future looks exciting. I am bullish on Multichoice and I know that people who can afford it will make a conscientious decision to go more green. In fact with current Eskom tariff increases power saving is fast becoming a necessity. The infrastructure division will also benefit as our population grows and needs more energy. At these levels I would be buying the stock.


I have been tempted at times to suggest that the annual WEF event in Davos is a giant hobnob and a complete waste of valuable time. Believe me, I have called it far worse “things”. But I can see why it is useful. The story goes that our own iconic former President Nelson Mandela was swayed away from a hell-bent socialist viewpoint in Davos. That would not have happened had he not gone there. The cynic in me suggests that all over the world, three billion poor people are thrilled that rich people are meeting in an Über exclusive location to discuss their problems and represent their fears and aspirations. It is darn expensive. No, hellishly expensive to get there, Andrew Ross-Sorkin wrote an article once about the costs: A Hefty Price for Entry to Davos.

See that part about a larger group: “And if you want to take an entourage, say, five people? Now you’re talking about the “Strategic Partner” level. The price tag: $527,000. (That’s just the annual membership entitling you to as many as five invitations. Each invitation is still $19,000 each, so if five people come, that’s $95,000, making the total $622,000.)” Whoa! That is nearly five and a half million Rands for five people, over one million ZAR per person for just being there. Forget the hotels, the air tickets, the train tickets, the costs of throwing an event and inviting a whole lot of people. Catering costs. Live bands. Google paid big bucks for that, see lower in the article.

But who fits the bill? I presume shareholders for companies and taxpayers for governments. So, that is people like us! And is it worth it? Well, I guess it could be. I can understand for a financial journalist that it is near the pinnacle of their respective careers. Being able to mix with the business elite globally and political heavyweights at the same time, I suspect that there are very few places one can do that. Plus, it is also a beautifully picturesque place nestled in the Swiss Alps. According to Wiki, there are a little over 11 thousand permanent citizens of Davos, which also happens to be the highest city in Europe. That helps, with all due respect to Mogadishu, if it was held there I suspect very few people would turn up.

Networking amongst humans is still key. Location of the event is key. But I suspect that Skype, or the Google tool to invite people into circles could work well, but then you can’t “feel” people out. The expense? Well, if someone else is paying, why not! But when it turns out that is you, perhaps you might think differently about it.


Crow’s nest. It is easy to always be anxious. To counter that you should not be drinking excessive amounts of coffee, washing down glazed donuts. Sunflower seeds, yoghurt (the healthy kind) and bananas. Try those. But the point that I am trying to make is that it seems like people are always preparing for market Armageddon. Remember when Greece was going to exit the Euro zone? Remember? That was awful. Check this out: Greece Govt Bond 10 Year Acting as Benchmark. March 2nd 2012, that same said bond was yielding 37.2 percent. The Greeks were going to default right? No. Wrong. That same said bond now yields 10.41 percent. Good luck with betting on the Armageddon outcome. Pfff…. recently I acquired a doormat, which stands at my front door that says Keep Calm and Come In. Quite. Welcome to all those folks who are feeling better about joining the equity market rally.

And. I spoke to one of my favourite clients yesterday (you are all my favourites I promise) and he said something interesting. He said that when he just got married (all of 45 years ago) a friend, who was an accountant said that the US debt situation was unsustainable. Hmmm… it seems to always turn out that people don’t count on humans, real people, to solve the problems and prefer to use calculators and spreadsheets to make predictions. Markets are slightly lower across the globe. We can back away from policy decisions and politics for a little to continue with earnings season.


Sasha Naryshkine and Byron Lotter

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