February 1, 2013 in Uncategorized
“Expectations today are for around 160 thousand more jobs to have been added for the month of January. I am always amazed that so much emphasis is placed on the number when you consider the sheer size of the numbers. 160 thousand new jobs when compared to the overall labor force is only 0.1 percent. But I can promise you that if the number is 220 thousand, market will rally. And if the number is 80 thousand, the markets will fall, and hundreds of billions of Dollars of market capitalisation will be added or deducted from listed companies. When in reality, not too much (in the big economy that it is) has really happened. But like I pointed out, that market trades like crazy.”
To market, to market to buy a fat pig. Chinese PMI numbers released this morning, although above the 50 mark and indicating growth rather than contraction, have disappointed somewhat. That was the official data, which had been better than the HSBC PMI, but this time around it was the private institution that printed a much better number, in fact a 24 month high. I see….. now which one suits you better? I see some people are worried about the recent Chinese employment numbers, suggesting that we could see a hard landing in the second half. What? Same old stuff over and over. Get this now, the Chinese economy is not going to grow at next to eight percent forever. It is impossible. Growth will slow as the country grows economic output. In around two weeks the Chinese will usher in the year of the snake. I’m no snake, I am a dragon. And then in March the Chinese will officially change their government structure, the once in a decade Communist party changeover has taken place already, just around the same time as the US elections. Poor Chinese officials, I read in the FT that festivities associated with New Year are to be scaled back from the normal lavish celebrations to much more muted affairs. From sizzle to fizzle. Anyone here taking note?
The whole day today will be about Biff. I mean, the whole day today will be about non-farm payrolls. The most eagerly anticipated numbers for almost anyone who watches markets closely. There are 12.2 million folks in the US without a job, but because the country is so large that “only” equates to an unemployment rate of 7.8 percent. The civilian labour force in the US is 155 and a half million folks. The participation rate (the measure of those actually working out of the Civilian noninstitutional population, which is 244.3 million strong) is 63.6 percent and has been hovering around that area for some time now. There are more men in the civilian labor than there are women, but it seems that women are better at keeping their jobs than men.
Expectations today are for around 160 thousand more jobs to have been added for the month of January. I am always amazed that so much emphasis is placed on the number when you consider the sheer size of the numbers. 160 thousand new jobs when compared to the overall labor force is only 0.1 percent. But I can promise you that if the number is 220 thousand, market will rally. And if the number is 80 thousand, the markets will fall, and hundreds of billions of Dollars of market capitalisation will be added or deducted from listed companies. When in reality, not too much (in the big economy that it is) has really happened. But like I pointed out, that market trades like crazy. Like gang busters. Employment Situation Summary is where you must tune in around 15:30 our time this afternoon, if you don’t already have the telly and your favourite business channel on later this afternoon.
Jozi, Jozi 26o 12′ 16″ S, 28o 2′ 44″ E Stocks managed to eke out a tiny gain, financials dipped but industrials gained just enough to see us into the black. There were some strange moves, FirstRand sank, all the other banks gained marginally. Gold stocks took an absolute pasting as the bullion price sank a little and Rand firmed up a touch (better than anticipated trade numbers), back below that nine to the US Dollar mark. Harmony Gold took a lashing at the close, ending the day down a whopping five percent. Whilst some stocks look to beat or near all time highs, I am sorry to say that Harmony keeps testing multi year lows. I suppose a combination of costs, the Eskom outcome is one that everyone will be watching really closely. A story from last evening, by David McKay over at Miningmx lays it out: Eskom tariff is ‘tipping point’ for mines: Cutifani. Government is hell bent on declaring coal a strategic asset that they kind of forgot about their customers. Power generation cheaper at a micro level? Well, we should encourage Sasol to provide solutions to these businesses, but that might mean competition. And efficiencies. Hell no!
There was a surprisingly strong update from beleaguered mining company Lonmin, indicating that they have had at least had time to reflect on that infamous day etched into our memories forever. The company is important to this country, they are after all the third largest producer of platinum on the planet. And the company has answered the questions around their social issues that plague so many of these mines, who operate often away from urban areas and employees are from afar. It is certainly not a place that mine workers can call home. Migrant labour must be certainly the one of the trickiest issues that any company has to deal with, not just here, but globally, look at the issues that Foxconn had in China with riots and suicides around their working conditions. The production report themselves were also ahead of expectations, sending the stock 12 and a one third of a percent higher.
Sometimes things are cheap-cheap for a reason. That is just so poor, sorry. Rainbow Chickens released a trading update for the 6 months to end December and it looks pretty tough out there for the chicken producers. We knew that issues around imports and higher feed prices were biting, but perhaps not to this extent. The company explains: “The lower than anticipated earnings are mainly a function of the two major issues facing the local poultry industry, namely record levels of imports and escalating feed raw material input costs. The resultant oversupply in the local market has meant that the price of chicken in retail bears little reference to its cost of production, and has resulted in significant reductions in chicken margins.”
The only good news I guess is that in the last 6 odd weeks the Rand has weakened significantly to the Brazilian Real. By around 8 odd percent. So, local producers are now competing against chicken imports that are far cheaper. We will have to wait to see what Mr. Market is going to do this morning when we open up, 65 to 85 percent lower on EPS and HEPS suggests that in the middle of the range the company is likely to earn around 17 cents per share for the first half. Dividend could be in question this year. So they will probably make around 50 million Rands for the half. All that effort. Over one billion chickens are consumed in our country every year, it is a massive industry, but feed prices have been volatile at best. Perhaps the weakening currency will lend a hand in the second half, we will have to wait and see. Typically we have always avoided these businesses, because they are unfortunately prone to disasters from time to time. Oh, and I can imagine that their tax contribution will come tumbling down, not good…..
We should make entrepreneurs (and the newly created ones) a strategic resource. Government is not going to change the jobless situation in this country. Unfortunately there is a lack of skills, evident in the huge amounts being spent on consultants and more importantly a complete lack of resources. There would however be more resources should the tax revenues increase because of increased economic activity. Too many walls for business to negotiate around, the lack of skills is also a serious problem that we have around here in South Africa. So why coal? Well, I can understand, the vast majority of our power production comes from coal fired power stations. And we are in the process of building another two. A favourite client (you are all favourites) in Botswana told me what we knew, these were the last two ones ever funded internationally. Botswana, sorry about that, and apologies that you have massive coal reserves, enough to power Eskom for the next thousand years or so. I suspect that the Beijing smog and pea soup is just a reminder why we can’t go on burning fossil fuels forever. But coal as a strategic resource. And putting a tax on exports? Was it you who created the external demand, or do the coffers just need to be filled so that inept folks can take their place in society at the expense of job creation in the private sector. That is what it all boils down to me……
New York, New York. 40o 43′ 0″ N, 74o 0′ 0″ W Stocks sank on Wall Street, but still managed to close out January with an incredible gain, year to date the S&P 500 is up just over five percent. I saw that the BusinessInsider had found a graph of how the year ends up if January is an up month. I am not too sure that applies to logic around here, but it was interesting nevertheless. The one tweet overnight that struck was when Josh Brown (who mixes well on Wall Street) said the following: “Rolling with the bankers – Four Seasons to Phillipe – trust me NYC is in the grips of bull market fever” That is interesting. Because the common thread that I am getting is that the professionals are the worried ones, but the flows into equity markets are strong, very strong. The economic news is OK, that big miss in GDP as a result of perhaps two anomalies were perhaps exposed a little later.
Like I said however yesterday, isn’t this what we want, more private sector, less public sector? Less government spending on behalf of the people, more people creating business activity in the private sector. Libertarian type James Pethokoukis had this interesting post: More on the supposed austerity threat to growth. In which he clearly tells you from which side of the aisle he stands in the debate around government involvement in the economy: “We should want economic policy that enables private-sector growth, not prop up GDP statistics through government spending. I also pointed out that from 1994 through 1999, GDP growth averaged 4% a year. But government spending added, on average, just 0.3 percentage points to that total. The rest came from private sector growth. So to the extent the fourth-quarter GDP report reflects a shift in composition to the private sector away from the public sector, so much the better” I agree with him. So many examples could apply here too.
Crow’s nest. We are higher to begin, markets at another record high.
Sasha Naryshkine and Byron Lotter
011 022 5440