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Posted: 3 May 2011 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Market news

2 May 2011 should most certainly have been a public holiday this year - and not just because Mayday fell on a Sunday.


2 May was "Tax Freedom Day" - the cross over day from when you work 100% for the tax system to when you start eaning a little for yourself!


“This year, South Africans will start working for themselves eight days earlier than last year’s 10 May as a result of the recession. As a percentage of GDP, we will earn less money and pay lower taxes, but, unfortunately, that does not mean that government will spend less. They are going to borrow and spend more, which will mean all South Africans will be faced with higher taxes in future to pay the interest on these borrowings and to repay the loans.” This was the short version from Garth Zietsman of the Free Market Foundation


See more about Tax freedom day on  Wikipedia's Tax_Freedom_Day entry



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Posted: 4 May 2011 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Market news

A new game in the US is now to offer financial adviser selection - as a service. For a fee, houses like Spring Reef  will ask (on your behalf) the following of people you may be considering appointing to run your money.

You may therefore like to ask them yourself (or of yourself if you offer such services)
Separating Exceptional Advisors from Good Salesmen
The Essential Foundation – a set of criteria that must be met by advisors we recommend to clients.
1.Minimum seven years experience in investment management
2.High quality compliance and regulatory record
3.Client-aligned personal values
4.Employment stability
5.Transparency regarding potential conflicts, pricing and risk
6.Focus on and experience with similar clients
Qualitative Differentiators – indicators that help us distinguish exceptional advisors from their less-talented associates, and allow us to match advisors with the needs and values of our clients.
1.Clear end-to-end wealth management process
2.Deep solution expertise
3.Best-in-class solutions
4.Clear, concise reporting
5.Diversified idea flow
6.Superior performance results
7.Risk and attribution
8.Fair pricing relative to value and complexity
9.Client satisfaction
10.Narrow “sales gap”  - defined as the difference between what is promised and what is delivered.
11.Demonstrated client service matrix

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Posted: 9 May 2011 - 6 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Research

It was a delight watching Sonny Bill Williams combining brawn (he is huge) and finesse on Saturday at Newlands - one is reminded of the old adage of fight betting - "a good little 'un will always get beat by a good big 'un".


Relevance? - just that the week's tickertalk bulletin highlighted the pure size of the big guys (by total market cap) on the JSE -  Link .


And that makes one wonder if the big companies get that way because of unfair positions (licenses or monopolies), having influential kin on their boards, or some other aspect we would idealistically prefer not to invest in. Well here is the thing - see here the top 10 JSE titans, and note their return on equity and their expected dividend yield.



That's right - the 3 year average ROE (right through the global crisis) was a weighted 23%. And you can earn almost 3% just sitting with these big guns in your portfolio (or a tracker product, which will get you very close to this).


So it seems that companies do tend to get big based on real success (and the more they succeed, the more entrenched their relationships with labour, with suppliers, with governemnet etc etc become). And if you fancy your skills at picking market-beating shares - you need to beat some really strong players - so be sure to get your investing ducks in a row...








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Posted: 11 May 2011 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Research

There are 3 kinds of people out there - firstly the ones who ignore China (and who can therefore be ignored), and then the ones who see China as an inexorable carnivorous predator, systematically eating back control of the world's economy, and then the most sophisticated - who try to gauge China's progress critically, and look for reality among the hype.


And hype there is a-plenty - with RenRen listing and raising $740m while western social media jockey for position. See Beyond Brics:- Chinese-internet-ipos-icarus-syndrome


For type three, see this piece from Reuters - it seems to me that the maturity of a managed Chinese economy may be our greatest saviour - if it succeeds in making their economic resurgence (even if more measured than the all hype oputcome) outlast the sponginess ofthe US domestic and European sovereign debt crises.


What is your view? 



By Kevin Yao and Aileen Wang | Wed May 11, 2011 | Reuters (BEIJING)
"China's industrial output growth eased much more than expected in April to suggest the world's second-biggest economy is cooling, reducing the need for further aggressive monetary policy tightening even as inflation remains stubbornly high. Consumer inflation eased modestly to 5.3 percent in April from a 32-month high in March of 5.4 percent. The outcome topped expectations but still underlined the view that price pressures are peaking and may start to ease in the second half of 2011.
Industrial output rose 13.4 percent from a year earlier, but that was more than a full percentage point below both expectations and a strong pace in March.
Retail sales growth eased more than expected while annual increases in money supply and outstanding yuan loans hit their lowest pace in 29 months, signs that measures to slow the economy are starting to bite. Most analysts said the central bank could now reduce the scope of further tightening in monetary policy, while a prominent Chinese government economist went further, saying policymakers may be concerned about an overly rapid slowdown. "The central bank will be very cautious about raising interest rates," said Wang Jian, a researcher with the National Development and Reform Commission. "In fact, I believe it may stop raising interest rates but cut interest rates in the second half of the year," he told Reuters in an interview. Other analysts were not so sure. The central bank is approaching the end of a monetary tightening cycle after four rates rises since October, and seven increases in bank reserve requirements to a record 20.5 percent for big banks, they said. But some more tightening would be needed, they said.
"The April economic indicators make it less likely that the central bank will raise required reserve ratios or interest rates. I believe the central bank will, at most, raise reserve requirements once in the coming two months," said Shao Yu, an economist with Hongyuan Securities in Shanghai. The world's fastest-growing economy expanded more than 10 percent last year as it emerged strongly from the global financial crisis. Policymakers, targeting 4 percent average inflation this year, have declared tackling inflation their top priority for this year after high food prices raised fears of broader inflation that could derail the recovery or even spark social unrest. Food prices fell 0.4 percent in April from March but were 11.5 percent higher than a year earlier. Non-food prices rose 0.4 percent in April from March.
Analysts have said that falling food prices point to an easing of overall inflationary pressures. Overall inflation may still rise through mid-year -- partly to reflect a low comparative base in 2010 -- but it would ease in the second half of the year. "The data suggests that previous measures to get a grip on lending and growth have had an impact," said George Worthington, chief Asia economist, IFR Markets, a unit of Thomson Reuters, in Sydney.
Figures from the National Bureau of Statistics showed that output growth in all major industries slowed down in the year through April. Growth in output of most major products also slowed down, including cement, although the pace of crude and cast iron production picked up. Analysts said industrial output was partly reined in by supply constraints in electricity, but still showed the economy was cooling. The slowdown "reflects progressing weakness in final demand as tightening measures start to bite," IHS Global Insight said in Beijing. "A hard-landing scenario is still a low probability, though," economists Xianfang Ren and Alistair Thornton said in a note.
Retail sales rose 17.1 percent, lower than 17.6 percent forecast in a Reuters poll and weakening from 17.4 percent in March. Chinese banks extended 739.6 billion yuan ($113.9 billion) in new yuan loans in April, more than market forecasts for 700 billion yuan, People's Bank of China figures showed. M2 money supply growth of 15.3 percent was lower than forecasts of 16.5 percent and was the lowest pace in 29 months. Outstanding yuan loans at the end of April were 17.5 percent higher than a year earlier, also the weakest pace in 29 months, adding to expectations that inflation, which usually lags money supply trends, may moderate. "The economy is slowing, but not very seriously. It is still far from the warning line for the Chinese leadership. There is no room for the central bank to relax its monetary tightening," said Chen Gang, economist with CEBM in Shanghai.
But the possibility the central bank might resume issuance of 3-year bills, on top of other short term bills it issues, suggested it might opt for open market operations rather than outright rate rises or higher reserve requirements to manage monetary conditions, analysts said.
Though far too soon for Beijing to declare victory in its battle against inflation, the stabilisation of prices suggested that tighter policy was beginning to produce initial results. "We should say that the upward price trend has been curbed initially and the government measures to control price rises have produced initial effects," Sheng Laiyun, the spokesman of the National Bureau of Statistics, told reporters. "But we are still facing relatively big inflation pressure. On the one hand, we are facing the big imported inflation pressure, and on the other hand, from the domestic market, we are facing rising labour costs. "Therefore, we must not underestimate the situation and keep making it the priority to control price rises."
Still, some analysts said it could be tough for China to achieve its 4 percent inflation target this year given increasing labour costs and rising commodity and fuel prices. Chinese policymakers have made it clear they will deploy the currency as a weapon to deal with the inflationary impact of rising commodity prices, although they also worry that faster yuan rises could hurt exporters and fuel hot money inflows. U.S. Treasury Secretary Timothy Geithner has pressed China in talks in Washington this week to allow a faster rise in the yuan, which it argues is kept on a tight leash by Beijing to boost exports.
The yuan has gained about 5 percent against the dollar since it was depegged from the dollar in June 2010 and nearly 1.5 percent since the start of this year. Sheng highlighted Beijing's dilemma on the currency. "Theoretically, the appreciation of one currency may help ease imported inflation pressure. But currency appreciation is a double-edged sword, which should be used depending on different conditions," he said." (Additional reporting by Zhou Xin, Langi Chiang; Writing by Neil Fullick)


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Posted: 12 May 2011 - 1 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Research

While the market for new tech winners stays hot, there has of course been criticism of big valuations attached to Facebook. Some of these will be from ignorance (I remember a SCMB executive in 1996 stating emphatically that MTN (MCell in those days) could never in a million years  warrant a valuation of R6bn). Some, too will be from envy - after all when Goldman Sachs is an inside player, its just sort of easier to slate the face-wrapped squid than to consider any facts.


Fact-wise, here is some work from Tim Beyers at The Motley Fool which may warrant some thought.








Value hounds will tell you Facebook's crazy valuation is proof positive of a social media bubble that's doomed to pop. They're wrong. Actually, that doesn't quite capture it. They're not just wrong, they're spectacularly wrong.
Facebook is cheap because it's the most important online display-advertising platform. More important than Yahoo! (Nasdaq: YHOO  ) , Google (Nasdaq: GOOG  ) , AOL (NYSE: AOL  ) , or CBS' (NYSE: CBS  ) Interactive Group. But don't take my word for it. According to comScore data, The Social Network accounted for roughly one-third of all online display ad impressions during the first quarter. No one else got close:

Display Ad Impressions*
Share of Impressions
Yahoo! sites
Microsoft (Nasdaq: MSFT  ) sites
Google sites
Turner Digital
Glam Media
CBS Interactive
Viacom (NYSE: VIA-B  ) Digital

Source: comScore. * Numbers in millions.
History makes these numbers even more extraordinary than they might seem. Facebook's 346 billion first-quarter display ad impressions exceeded its entire 2009 count by 16 billion. Meanwhile, that year's market leader -- Yahoo! -- is currently on pace for 450 billion display ad impressions, a 14% decline.
The one rule not even Facebook can break
Skeptics will say, rightly, that seedy affiliates are partly responsible for the ads you see. It's also hard to know how effective Facebook pitches really are. Trouble is, you could say the same about Google. Both companies nevertheless continue to take in billions in revenue. What makes Facebook particularly appealing to advertisers is the audience it attracts -- 500 million strong at last count.
Apply the 80/20 rule -- as in, 20% of the population accounting for 80% of the activity -- and that's 100 million active users accounting for 560 billion minutes of activity, or about four days' worth of time on Facebook every month.
Going by the same math, it stands to reason this same population helped generate $1.6 billion of Facebook's estimated $2 billion in revenue last year. Advertisers paid just $16, or $1.50 monthly, to engage with this highly engaged group. No wonder analysts expect The Social Network to double revenue in 2011. Ad buyers are paying too little for access to an audience that rivals the viewership of the highest-rated U.S. television show of all time. (1983 finale of M*a*s*h*)
Problem, meet opportunity
Bearish investors will tell you that these numbers, too, are misleading because Facebook ads underperform other forms of display advertising. According to researcher Webtrends, Facebook performed half as well as alternatives and worse last year than in 2009. (The average click-through rate dropped from 0.063% to 0.051%, Webtrends says.)
Yet this is good news for investors. Why? Ad spending on Facebook more than doubled last year. If social ads are proving to be this attractive now, imagine what happens when The Social Network's Groupon alternative and location-based ads begin to really take hold. Prices will go up, margins will increase, and cash will flow.
And that's exactly what analysts are expecting. Bloomberg cites an anonymous source that says Facebook is on track to generate more than $2 billion in EBITDA this year.
Thus, at its latest valuation of $65 billion, Facebook trades for between 30 and 40 times projected EBITDA. Sound big? I suppose it is, but Capital IQ tracks 18 other software and services companies to have traded in the same range over the past year, including cloud computing infrastructure specialist
So while I get the hysteria that comes with valuing Facebook higher than Boeing (NYSE: BA  ) -- a poke over a plane -- this pre-IPO stock isn't anywhere near as expensive as the arm-wavers would like you to believe. If anything, it's still cheap.

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Posted: 13 May 2011 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Research

Gary (FIGJAM) Player is known to advocate the line that "the harder I worked, the luckier I always got". And some epic research scientists have owned that "chance favours the prepared mind".


Here is Aswath Damadoran's  take on the concept - proof positive that one needs to work hard to uncover enough luck to make a difference, and also needs to work smart to ensure that you can harvest (or mitigate if the luck is bad) when you and luck find each other.





A tide in the affairs of men...
In my last post, I noted how difficult it is to separate luck from skill in  both investment and corporate finance.  While I remain leery of stock picking success stories (and believe me when I say I hear dozens each week), I continue to admire successful businesses of all stripes, from the bagel shop in my town that manages to sell out every day to Facebook in the social media world.

It is not that luck does not play a role in business success. In fact, most successful individuals and businesses can point to a stroke of good luck that got them started.  Microsoft was lucky that IBM allowed it to write the code that made the first personal computers work and Apple was lucky that music companies were too bullheaded to deviate from their traditional sales model of bundling a dozen songs on an album and forcing people to buy the entire package. It is what great companies do with that initial lucky break that set them apart: when they get lucky, they take that success and build on it. Most other businesses, however, view good luck as a windfall, report higher earnings for the year, but have little to show for it in the long term.

In fact, this was the reason I wrote
my book on strategic risk taking. If the essence of risk taking is that you are going to be right some of the time and wrong the rest of the time, here is what I see separating good risk takers from bad ones. When good risk taking organizations get lucky and see upside from risk taking, they find ways to build on that upside. When they are confronted with unpleasant surprises, they manage to minimize their losses and move on. In option terminology, successful risk takers create their own call options to augment upside risk and put options to minimize downside risk. Of course, I am not the first to recognize this. Here is one of my favorite quotes from Shakespeare:

There is a tide in the affairs of men.
Which, taken at the flood, leads on to fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries.
On such a full sea are we now afloat,
And we must take the current when it serves,
Or lose our ventures.

Brutus had a splendid grasp of risk taking (though I don't quite know where to put the stabbing of Julius Caesar in the risk taking scale).

Put in less lofty terms, each of us will be blessed with good luck in our investment and business endeavors at some point in time. What we do with that luck will determine whether it leaves a lasting mark or not. In the same vein, each of us will also be unlucky at some point in time and how prepared we are for that contingency will determine whether it will bring us down or just dent us.


Oh? FIGJAM? An unkind nickname for Gary Player - it stands for:- Gosh I'm Great, Just Ask Me.

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Posted: 17 May 2011 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Market news

OK - its just a municipal election, but:-


Its the only voice you get


Its the most specific way to tell the (local) government what you feel about their efforts


You get to see who your rep will be - its not as faceless as the national proportional system


The national goverment are listening - so you really get two votes if you think about it!


We are 17 years into the inclusive SA democracy. The Nats only had it their way for 40 odd years - so we are almost at halftime in this regime. Are you happy to let them run without comment either way?


No democracy can work without balance and choice. We have had choices (some daft) now we may be getting balance at last.


AND - there are some (loons?) who are saying the world will end on May 21 2011 - isn't it nice how that tallies with the way JZ said the ANC would rule "until the end of the world" or similar....







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Posted: 20 May 2011 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Market news

Many feel that there is one man on the planet who is never, ever, wrong. But Mr Buffett raised some eyebrows recently when he opined that :- “The United States is not going to have a debt crisis as long as we keep issuing our debts in our own currency. The only thing we have to worry about is the printing press and inflation.”


This got up the nose of experts like Harvard University historian Niall Ferguson, who has written extensively on debt, and is aghast at what he calls Buffett’s highly simplistic view. “Buffett,” he says, “must know this is nonsense.” Ferguson continues, “Britain had complete monetary sovereignty in the mid-1970s and yet the IMF had to be called in. I could give numerous other examples. And then there is the inflation risk, which is implicit in his statement. We won’t have a debt crisis because we can print unlimited quantities of paper dollars. If that’s the good news, I don’t want to hear the bad.” Other experts are similarly amazed. Carnegie Mellon business school professor Allan Meltzer, a pre-eminent scholar of monetary policy, agrees that having the world’s reserve currency gives the U.S. a huge advantage when issuing debt. But Meltzer adds, “We can have a crisis if the Chinese or Japanese start selling their mountains of dollar debt, or if the dollar collapses instead of declining, and if we get a big inflation.”
So what is the truth, and which approach is the most dicey?
The delightfully frank Pragmatic Capitalism website thinks Ferguson should get back in his box:-
Now, it’s helpful to put things in perspective. Ferguson has been predicting the demise of the US empire for well over a decade. In a 2003 working paper he said the following:
“So what will happen? And when? The answers to both these questions depend on how quickly Americans wake up to fiscal reality. Perhaps the hardest thing to figure out is why they haven’t done so already. Even financially sophisticated Americans seem not to appreciate the fragility of the country’s fiscal position.”
He went on to discuss how the bond market would one day awake and yields would surge and catastrophe would strike:
“A widening gap between current revenues and expenditures is usually filled in two ways. The first is by selling more bonds to the public. The second is by printing money. Either response leads to a decline in bond prices and a rise in interest rates – the incentive people need to purchase bonds.”
There’s a reason why Ferguson writes books, teaches and doesn’t run a fixed income trading desk – he could have blown up several hedge funds betting against US government bonds since 2003. And yes, it is important to point out these horrible calls because someone who has been wrong as long as Ferguson must reconsider their thesis or be shunned by the investing public. Being right matters in this world. Particularly when we are discussing matters that influence millions of people. This is not a joke to me and should not be a joke to anyone else. And frankly, we should all be sick and tired of people who trot out the same old tired arguments year after year and fool people into buying their new book…


 (more at )


And there are alarms chiming from Asia:-


A bigger, uglier financial crisis looms – if outspoken Chinese economists are right, the world should brace itself for another rocky ride sparked by US troubles within months. They are warning that US derivatives worth ten times as much as the ones behind the sub-prime mortgage fiasco will rear their ugly heads around mid-year.  Some Chinese economists, like others elsewhere, are predicting another economic downturn in the US. And, they are saying it will come much sooner, and will be far worse, than generally expected. Prominent in the headlines this week was Wang Jian, secretary-general of the China Society of Macro-economics - which is affiliated to the National Development and Reform Commission. His calculations, he has told the Chinese media, suggest that derivatives contracts are set to deal a catastrophic blow to the global economy. Toxic assets that triggered the sub-prime mortgage fiasco were signed before 2002, he has pointed out. However, there was an "explosive increase" in the use of financial derivatives between 2005 and 2007, with contracts "coming due" this year. "Take credit default swaps as an example. Their total capitalisation was at $920bn in 2000. That snowballed, under loose lending conditions, to US$6 trillion in 2004, and further increased to $62 trillion in July 2007," he said.
Adding his voice to Wang's was Chen Daofu, a senior financial expert with the State Council's Development Research Centre (State Council is China's highest executive organ of power). Chen accused the US of covering up its financial problems temporarily through its quantitative easing policy. Others in China doubt the US will default on its debt because that will threaten the world's entire financial system. There is a school of thought that it is more likely to print US dollars instead and, in so doing, push up commodity prices and having a range of other repercussions.
Financial risks wherever you look
The US isn't the only investment headache for China. Most of its major customers and investment destinations are looking fragile right now. China, the world's second-largest economy, has a huge exposure to Europe. The European sovereign debt crisis, the International Monetary Fund (IMF) has warned, could easily spread to core Euro-zone countries and emerging Europe. China-EU trade hit about US$667bn in 2010, and China has said that it has continued to buy European debt over the past two years even though it is generally not optimistic about the region's economic prospects. There is trouble looming, too, in Latin America - an important source of business and trading partner for China. Nicolás Eyzaguirre, IMF director for the Western hemisphere, warned central bankers at a meeting in Rio de Janeiro last week that Latin America's economic boom could end in a full-blown crisis. Read more from this article at


 So what do you think?


It all does seem to confirm the eternal truth that money is simply the "hydraulic oil" that gets added, pumped and drained in the economy, acting purely as a re-distribution agent between producers consumers and traders. Imagine that - money has no value!






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Posted: 20 May 2011 - 2 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Off-beat


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Posted: 25 May 2011 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Market news

OK so in a particular society, if the top 1% of people have 40% of the assets in that society, and enjoy 25% of the society's income - that cannot last can it?


Now, which society could have such a top-heaviness - Tunisia before the Jasmine revolution?

Zimbabwe - with Bob'n'Grace shopping their heads off away amid pestilence and destruction? - why is no one chopping their heads off?


Neither (or perhaps both, actually), but not the answer here - which is that its the end result of The American Way.


That's right, folks - the top cohort of USA society seems dramatically detached from the underlings, and its gotten worse not better in the last decades. So will it end in revolution - like it did for Marie Antoinette?


Read more about this from May's Vanity Fair in an article by Joseph Stiglitz Vanity Fair/top-one-percent/article


And before knocking the findings, be aware that Prof Stiglitz has won a Nobel prize for economics among other work and achievements






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Posted: 26 May 2011 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Research

You may have the sense that you understand things.


Which may be a fatal error!


Here is an exceptionally common sense treatise on inflation (and PARENTAL GUIDANCE WARNING don't let your kids see this unsupervised - may I remind you that common sense is not the preferred language of the investment world, partly because it is not all that common!):-




Enjoyed that? See also this one on the monetary policy approach known as "Quantitative Easing"


Quantitative Easing Explained




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