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Posted: 1 September 2011 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Market news
Jozi, Jozi. I could see a whole lot of green yesterday, more than just green shoots on a day early. Mind you, do not get ahead of yourself, as comforting as the recent rally has been, we have not quite scrubbed the big oopsie from the beginning of the month of August. But nearly, we managed to close only 200 points down for the month, nice. On the day we added a whopping 640 points to 31005 on the Jozi all share, that was a percentage gain of 2.11 percent. A pretty broad based rally, there was only one blip from all the major indices, with only real estate off half a percent, otherwise every other index was in the green. Awesome. For the bulls that is.

There was a jobs number, the taste tester to the real deal, the ADP employment report, which was about in line with expectations. More on that a little later. There was a Chicago PMI number that was better than anticipated, a factory orders number that was better than anticipated, all this lent to the cheerful feel amongst the bulls. Of course the sceptics would be more sceptical, markets are not supposed to rally for the bears, in the same way the opposite is true for the bulls.

Murray & Roberts reported numbers for the full year, yesterday afternoon. The big broom is what a twitter mate called it, set the base low is what he suggested. Disposing of business units that they figured were non-core, and recalibrate. So the ugly part first, the group made a loss of 678 million ZAR versus a 1.535 billion ZAR profit last year. Yech. Here is a short list of the charges recorded for the period:

1.15 billion ZAR for the Gautrian contract finalisation costs.
"Marine Construction: Gorgon Pioneer Materials Offloading Facility ("GPMOF") – R582 million of estimated contract completion costs;
Middle East – R164 million for impairment of contract receivables in respect of legacy contracts; and
Construction Products – R79 million impairment of assets."

Ahhh, man. This is one of the reasons why we have always been reluctant to own construction companies, when the tide turns your trunks get sucked out to sea too. All revenue, not all profits through the good and bad, even though Murray & Roberts are quick to point out that their business is geographical diversified and divisionally so too. And that does show.

I am not going to look too long and hard at these numbers, they certainly are ugly at face value. But I think that the new team has done the right thing. Get it completely off your chest. The stock was off the highs by about two and a half percent after this release, but still closed up and is off a fraction this morning, telling you that the market knew this all along. We knew this news, it was priced in. The most important question is then, do you buy the stock at these levels? On balance we do not like the sector, because of the margins and project risk, which you see cycle after cycle, but at these levels I am thinking that it could get no worse. Read the transcript or listen to the podcast here on Moneyweb: Murray & Roberts full-year results: Henry Laas - CEO, Murray & Roberts. Let me know what you think, particularly if you are in the industry, how it looks from here.

Byron's beats takes a look at the green economy, which is most apt, because today is spring day, the first of September. Come one summer. Only one third of Africa is in the southern hemisphere. Kenya is only partly in the Southern hemisphere. There is only one Asian country which is mostly (but not entirely) in the Southern hemisphere, and that is Indonesia. So let us just say that the rest of the world is less excited about today, because that signals winter is imminent. But that is one of the reasons we live here, good weather. And it is an awesome day today in Jozi!! Let the beats of Byron begin:

    Because it is spring day I want to talk about how we as investors can benefit from this very obvious shift into environmentally friendly practices. I think it is quite obvious that climate change is taking place. I do realise that we have more access to media than we have ever had before and we are much more aware of climate related disasters. To give you an example, when the earthquakes hit Washington, news of the event reached New York via Twitter before the actual aftershocks did. Although we are more aware, scientific evidence tells us that the ice caps are melting and this has long term implications, especially for our future generations.

    As investors we can allocate our money into sectors that will profit from authority initiatives and policies which are aimed at protecting the environment. Our original choice was Impala Platinum. It may sound ironic that we chose a big dirty miner but it is what they mine that is important. Legislation around the world is forcing car manufactures to install catalytic converters. These are made out of either Platinum, Rhodium, or Palladium and they convert toxic exhaust emissions from vehicles into non-toxic substances. Unfortunately we have taken Impala off our list due to rising costs but you knew that already.

    Unfortunately the South African market does not offer too many other options. There is Interwaste, a small cap waste management company who also delve into recycling innovation. Check out their website if you are interested. They definitely look interesting but unfortunately they are very small and not at all liquid. History tells us that bigger blue chip companies bring back better returns and that is why first choice in this field is GE. I know that they are not listed in SA but unfortunately we don't have any other choice.If you want exposure to GE you are going to need to open up an account in New York.

    So why GE? The massive conglomerate has been investing in alternate energy for years now. It launched an initiative in 2005 called Ecomagination which aims to capitalize on environmental problems. In 2007 revenues from renewable energy which included wind, solar and biomass came to $7bn. Last year revenues from the energy sector came in at $37,5bn. R18bn of that came from ecomagination. That is 12% of all revenues whilst the company looks to grow this by investing up to $10bn into the initiative in the next 3 years. The initiative includes everything from appliances to energy management to power and water to transportation. Solar plants, capturing carbon, wind power, fuel cells, you name it. Check out this link if you are interested, it's fascinating. Ecomagination

    This brings me to another point. I am a believer in human innovation and when you browse through the link above and see what amazing things are being done you can see how capitalism can sort out real social and global issues. We are experience a convergence of energy sources. While the petrol price increases and dirty energy sources become less economically viable due to regulations or input costs, cleaner alternatives are becoming cheaper and economically viable as technology improves and more investments are thrown at the problem. I'm not saying problem solved but I feel we are getting there.

It is a tough old job being a central banker, but imagine being a central banker in China, where you have to cater for the very different needs of around 1.34 billion folks? Just plain hard really to run an economy centrally, but I guess you have to say that they have done a good job. Did you see that piece I keep referring to (boring now) Sylvia Nasar "Grand Pursuit", in which the book (and artist) explain that in 1952, when Mao Zedong came to power, China's standard of living was half of that of Africa and only 5 percent of that of the USA. And there were plenty of Great Leaps forwards backwards that would have seen that not change for a long time.

The standard of living calculation is just a crazy calc, you can check it out here ---> Human Development Index. The top countries over the last twenty years have been Japan, Canada, Norway and Iceland. Sadly we find ourselves at the wrong end of the list, behind Indonesia and just ahead of Vietnam. Check out "the list" ---> List of countries by Human Development Index.

OK, but this is not a history lesson, nor trying to figure out what the UN could do better. No sir. We are rather focusing on Chinese PMI data for the month of August out this morning. It is complicated, because there are quite a few moving parts, I have already heard two different views on the same data read. One saying that there is a soft landing taking place in China right now, another still concerned about inflation. On balance, and feeling the very bumpy ride that we have had recently, I would say that this is a good number. Check out the full details here ---> China PMI rebounds in August; export orders fall.

The part that pleases me the most is internal consumption, that is increasing slowly but surely. That would be where everyone wants it to "end up", we cannot be reliant on one particular geography forever, a diversification of consumers is a good thing. A pick up in wages is again not a bad thing but I noticed this piece in the morning when I switched on the fruit box ---> Another Company Moves Production Back to U.S. Strange, but true, the Chinese still have a lot of work to do.

New York, New York. That ADP number as promised, here we go, a look at the private market. Here it is, I can almost hear Hampton Pearson in the background, The ADP National Employment Report for the month of August. Bookmark the page, because the release is always at the end of the month, the last Wednesday of the month. Just before the non-farm payrolls number, which is tomorrow, how very exciting!! For the August 2011 ADP National Employment Report, follow the link there.

You know my view on these surveys and reports, the grouping is often too small and unfortunately this one has been pretty unreliable. But I like the ADP number, for one reason only, the company (listed, ticker ADP on the NASDAQ) has a nice enough spread of their own data to work with. Check this out via that website: "Automatic Data Processing, Inc. (ADP) is the nation's premier provider of payroll-related services. Currently, ADP processes over 500,000 payrolls, for approximately 430,000 separate business entities, covering over 23 million employees, in all major industries and states. While doing so, every month ADP collects a wealth of information related to payroll employment well before publication of the Employment Situation." 23 million employees!! So, I guess this does give you a fairly good guesstimate of the overall number, the missing part in the government number are the government employees.

For the record for those stock jockeys that are keen as beans for the number Friday, expectations as far as I can tell are for an increase of 125 thousand jobs for the month of August. I wonder what the impact of the Washington D.C. debt ceiling standoff would have had here. I suspect, like with these consumer sentiment numbers, which translate into real life, this number might well disappoint. But then again, 125 thousand is not great either, better to be adding jobs slowly than none at all.

And then something that might get the pro business types spitting nails, the antitrust regulators have expressed concerns over the AT&T purchase of T-Mobile. No, the regulators say, too few operators means that the consumer will not benefit. I suppose a working example of that is here in South Africa, where the major provider is not that influential anymore and prices are decreasing.

Strangely, if you think this FCC Expresses Concern on AT&T Deal as Justice Challenge Unfolds is not that friendly for business, then spare a thought for the event that took place 27 and a bit years ago ---> Regional Bell Operating Company. Broke it up all those years ago, as you were, is what I guess is what the regulators are saying. Are the regulators really looking after the best interests of the consumer? Surely a business with size and scale, with stronger cash flows would also help consumers with more aggressive packages? Can't fight the government.

Commodities and currencies corner. Dr. Copper last traded lower at 414 US cents per pound, the gold price is also lower at 1817 Dollars per fine ounce, the platinum price is down at 1838 Dollars per fine ounce. Note the marginal gap, it does tell me something. The oil price is off the session high, 88.48 Dollars per barrel. At the current currency conversion rate, 7.02 ZAR to the US Dollar, that is 621 ZAR a barrel of oil. There are just short of 159 litres in a barrel of oil. 3.90 ZAR per litre. Now that puts it into perspective. This is for NYMEX WTI, we pay more for Brent, which was last quoted at 114.08 Dollars a barrel, or 5.03 ZAR a litre. The Dubai Mercantile Exchange Oman Crude trades at 109.35 Dollars a barrel, or 4.83 ZAR a litre. Nice work if you can get it, to process, not to transport and not on the retail side. Although as you know, that is a costly business.

The Rand is steady, you know where it is the US Dollar, to the Euro it is last at 10.02 to the Euro and 11.39 to the Pound Sterling. Yields here will be more exciting I guess. We are comfortably off the best for the session, I guess caution will be the watchword ahead of the big jobs number on Friday. Happy spring, if it is your hemisphere.

Sasha Naryshkine and Byron Lotter
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Posted: 2 September 2011 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
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Jozi, Jozi. A strange day for the equity markets yesterday, there were moments of everything, and we ended in the green after wallowing deep in the red mid morning. The Jozi all share index crept up a little, up 82 points to 31088, general retailers led the charge up two and a half percent. A few patches of red around, the gold stocks were off, the currency continued to catch a bid and went stronger. Like the Boks hopefully, catch a bid chaps and crush the opposition. Traffic around the Sandton area was pretty sluggish yesterday. Kind of like global PMI, there were poor reads in the Eurozone area, and in the UK, the local reading was not better, but improved on the month prior.

There was a little corporate activity, it flashed up mid morning on the screens, Optimum coal had received a letter from two interested parties to acquire all the shares, for cash at 34 ZAR a share. A big cheque in any language, around the size of the Metorex deal, if you want to compare. The two parties submitting the bid are none other than Glencore's local subsidiary and a company wholly owned by Mr Cyril Ramaphosa. Almost not a surprise.

But it is not as easy as that. Firstly, the letter does not meet the regulatory requirements, but I am sure that the consortium knew that, so in the true sense of the law, it is not a proposed offer. Therefore the board is not required to provide a recommendation on the letter, to the other shareholders. Legal subtleties, but important nevertheless. But, the consortium has concluded a deal with various shareholders, and through a Special Purpose Vehicle (SPV) will acquire a fair slug of Optimum Coal, but nowhere near all. What complicates it a little more is that one of the shareholders, Kwini Mining Investments (a 10.33 percent shareholder of Optimum), "is subject to a pre-emptive right in favour of a third party which has until 21 September 2011 to validly pre-empt such acquisition and as such the Consortium may not conclude this transaction." Phew.

So, if all goes according to the Glencore/Ramaphosa plan, the consortium would have acquired a "total effective interest of 38.14%, plus an additional 5.37% if the pre-emptive right over the Kwini interest is not exercised, in the issued share capital of Optimum." Including, obviously, the 14.1 percent that Glencore acquired last Friday. Before the consortium makes an offer, the Optimum board must a) provide a recommendation and b) get an independent party to give the thumbs up to the price, say that it is fair and reasonable.

But wait, there is more (this sounds like a TV advert for something that will make a coin bounce off your abs), there is actually another interested party in the background, "the (Optimum Coal) Board has also received a further unsolicited, non-binding expression of interest from a third party ("the Alternative Party") to acquire a controlling interest in Optimum.". But no firm offer. Don't worry, it is easy to get confused on this one, all I can say is that this is potentially good news in the mining space, which has been dominated lately by poor news, regarding strikes and the still as yet resolved Nationalisation debate.

Possibly one of the best brands amongst middle class South Africans, Discovery, reported full year numbers to the end of June 2011, and the results were well received by the markets. The stock gained 2.6 percent on the day, versus a market that was up one quarter of a percent. They really have done well. I mumbled something on the box yesterday morning about the clouds of NHI hanging over their future, the funding thereof, perhaps some marginal folks on the screens would have to stop contributing to private healthcare. Perhaps, we are not 100 percent sure yet.

The numbers from the fellows over at Discovery were very good. No, rephrase, in the context, very good, well done guys, three cheers. A whole lot happened in the last financial year, the launch of Discovery Insure, the JV in the US with Humana (and the launch in the US of HumanaVitality) plus the acquisition of Standard Life Healthcare in the UK and the subsequent integration in Pruhealth (where Discovery increased their stake to 75 percent from 50 percent). And do not forget the Chinese JV with Ping An Health, which covers 300,000 lives with sales of 155 million ZAR for the six months. Early days still.

If ever you wanted or needed a nice explanation of embedded value (as complicated as it is), then Discovery gave you a top notch one. Explanation that is:

"The embedded value of Discovery at 30 June 2011 consists of the following components:
- the free surplus attributed to the covered business at the valuation date;
- plus: the required capital to support the in-force covered business at the valuation date;
- plus: the present value of expected future shareholder cash flows from the in-force business;
- less: the cost of required capital and secondary tax on companies ("STC")."

Got that? Feel better?

That Adrian Gore guy has an enormous amount of energy, and is passionate about the business that he founded, after all he is still listed as a 9.34 percent shareholder. Of a 23.2 billion market cap company. That means that he is a made billionaire times two, in around two decades. So, it is always easier to back someone who backs themselves. A simple example. Remember the launch of the Discovery credit card? Remember? According to the release, their card captured 8.9 percent of the point of sale market share. I remember an interview with Gore in which he said something along the lines that their products must try and achieve a 15 percent plus market share. Those are his and the businesses goals.

Numbers, Discovery Life (1.558 bn ZAR operating profits) and Discovery Health (1.357 bn ZAR operating profits) dwarf the other two, Vitality and Discovery Invest (101 million ZAR operating profits), in the overall mix. Headline earnings clocked 1.638 billion ZAR, translating into HEPS of 295.3 cents a share, a six percent increase on last year. The dividend for the second half was 48 cents per share bringing it to a total of 90 cents for the year. Is it expensive? I guess there has always been the premium built into the company, their ability to innovate in the space that they are comfortable with. And then the ability to innovate and compete outside of that (think credit cards, investments, life cover and now short term insurance) means that they deserve a premium. Because to innovate is one thing, to be as successful as they have, is another. We like healthcare as a whole, with more middle class people living longer we think that it is a growth sector. But we prefer Aspen.

Talking Aspen, they have just released a trading update for the full year end June. And the market is liking it, I can tell, because they are outperforming the broader index by around three percent. Quite simply, earnings per share are expected to be between 18 to 22 percent higher. HEPS are expected to be below that. BUT, HEPS from continuing operations are expected to exceed that 18 – 22 percent range given for EPS. It will be interesting to see how the Aussie operation is doing, we will learn more in 11 days time, on the 13th of September. Look forward to those!

Byron's beats has a look at the grand Google, the patents and Motorola.

    This is a tech update which involves two of our recommended stocks that are both huge competitors in the smartphone industry. I'm talking about Google and Apple. Fortunately Google offer a big mix of services other than phones otherwise it would not make sense buying into both. We know about Google's acquisition of Motorola's cellphone business which is going to set them back $12.5bn, I wrote about it 2 weeks ago. Most thought that this was purely for the patents in the Motorola portfolio but former CEO and now chairmen Eric Schmidt said that this was not the case. On top of the patents, Google are looking to integrate their Android software with the Motorola hardware. Now this is going to be very interesting. Not only does it compromise Androids relationship with other hardware producers but it is directly taking on Apple who, as we know, produce both the hardware and the software.

    I'll be honest though, Google has what it takes. They have a great track record producing products that everyone loves. They are all about the client and have improvised a unique business philosophy which is clearly very successful. Android is apparently an extremely cool operating system and is making headway when it comes to market share. In fact they are the most popular platform with 41.8% compared to Apple's 27%. It must be noted that Apple make over 50% of smartphone profits. People pay a premium for the iPhone. Plus no one is able to match the iPad in the tablets space. Regardless I expect some very impressive Motorola phones coming out soon.

    Sticking to the topic I want to reiterate the hype and obsession people have over Apple. Stories keep making headlines about lost iPhone prototypes which could give clues as to what the iPhone 5 is going to look like and what features it may have. I don't pay too much attention to these stories but it reminds me of the cult following Apple has. It has become an obsession. If you think I am exaggerating, wait for the queues and the hysteria when the iPhone 5 comes out. You will be amazed. It's an obsession that I would want to be invested in. We will keep on adding to both Apple and Google.

New York, New York. The bulls finally ran out of gunpowder and the bears roared back from the edge of the woods, with the broader market S&P 500 ending down nearly a percent and a quarter. The initial surge at the beginning on good manufacturing data in the form of the Institute for Supply Management, dissipated as the jobs report came into market participants cross hairs. Jobs, or the lack of them seeing caution prevail, plus also equity markets have been on a tear for the last week and a half after a horrible no good August. Perhaps some of the verbiage in the report (which you can find here August 2011 Manufacturing ISM Report On Business) spooked some types: "The overall sentiment is one of concern and caution over the domestic and international economic environment, which is affecting customers' confidence and willingness to place orders, at least in the short term."

Or I saw a suggestion that it could have even been this, a Greek budget official, a supposed neutral on the matter: Greek budget expert quits after finmin comments. Well, strangely the market did start to sell off stronger after that news, but perhaps it was just a coincidence. Not good news for the Greeks. Not at all. This, as it emerges that Greece is to miss 2011 deficit target, privatization goals are in doubt. Oh dear. And at the root of the problem, as the Economist points out, the Greek banks are hardly better off: Dance of the dead. I suppose there are very few civilizations who were thought to have ruled the world, even if it was over two and a half thousand years ago. 'Nuff said.

Let us preview the biggest data release of each and every month, because that is what it has been made, the monthly release of non farm payrolls. The expectations as far as I can see from is for a gain of only 74 thousand for the month of August. And why is it so important, you might ask? Well, if you needed reminding, then the same source, has this to say: "The total non-farm payroll accounts for approximately 80% of the workers who produce the entire gross domestic product of the United States. It is the single most important piece of data contained in the employment report, which considered to offer the best overview of the economy." The more jobs, the more spend, the faster the US economy will grow. Expect the release at 14:30 local time Jozi.

Commodities and currencies corner. Dr. Copper last traded at 413 US cents per pound, the gold price is higher at 1836 Dollars per fine ounce, with platinum prices flat at 1846 Dollars per fine ounce. The oil price is hovering, last at 88.68 Dollars per barrel. The Rand is last at 7.01 to the US Dollar, 11.36 to the Pound Sterling and 9.99 to the Euro. Expect a worse open and expect us to trade lower into those non-farm payrolls. I see that Goldman Sachs have a "bad" expectation, only around 25 thousand is their number. Here is hoping that they are completely wrong.

Sasha Naryshkine and Byron Lotter
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Posted: 5 September 2011 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Market news
Jozi, Jozi. Zero. Zip. Nil. Nothing. Luto. Niks. And then a whole lot of other expletives that I can think of to explain zero. Zero is good when it means points or goals conceded, weight gained after a holiday or incorrect answers, but when talking about US jobs created, zero is the wrong number for about everybody. Markets (let me rephrase, the bulls) across the world were hurt by a worse than expected jobs number, time to fire the expectations predictor bots. Sentiment for the best part of the day was weak as it was, and heading into a long weekend ahead of the Labor Day holiday in the US, saw more folks bail.

At the end of a sorry session in Joburg (the weather at least was stunning) the Jozi all share index had fallen 608 points or 1.96 percent to close up shop at 30479 points, financials and banks feeling the punch in the kidneys (or guts) the hardest. In fairness to those two sectors the selling was pretty much broad based. The last 40 days have been tough out there, that is for sure. The only winners, surprise, surprise were the gold miners, up over two percent after all was said and done.

AVI Limited (which used to be one of my favourites) reported full year numbers to end of June 2011. How does this company differentiate themselves from the others in the sector? The way that they have positioned themselves is as a "branded goods" company. In fact their website says as much: "Single-mindedly focussed on their growth and development, our brands span a range of hot and cold beverages, sweet and savoury snacks, fresh and convenience foods, out of home ranges, cosmetics, shoes and accessories, and apparel." You would know favourites like Five Roses, Ellis Brown, Frisco, Bakers Biscuits, Willards and then some other high end fashion brands, like Jimmy Choo and Kurt Geiger.

The commentary part is interesting, the fashion brands, shoes, has been strong, the food and beverage portfolio have performed well in a competitive environment. Their words, not mine. So, shoes before eating, which makes sense, because eating is cheating. Group revenue grew nearly 6 percent to 7.69 billion ZAR, headline earnings rose to 750.8 million ZAR an increase of 32.3 percent. Reason for that as the company points out is because of "higher operating profit and lower net finance costs." HEPS from continuing operations is 248.2 cents per share with a final dividend for the year of 75 cents, bringing the total to 125 cents. The stock trades at 32.75 ZAR a share. So, you could say, neither cheap, nor expensive.

In the discontinued operations the Alpesca and Denny operations basically add nothing, so there is no impact in the overall number. Both businesses have been sold, or are in the process of being sold. The outlook segment reveals something that I have not seen for a while, the group has engaged in hedging, check it out: "the Group has a material level of forward exchange cover in place to protect the cost of imports and commodity costs have started to soften, both of which will allow more leeway to manage the balance between price, volume and profitability with the flexibility that constrained trading environments require." Phew, you can either get it completely right, or completely wrong.

The group plans to continue to focus on costs as the consumer is expected to fumble around in the dark as the economy chugs uphill. But AVI will continue to look for opportunities, both locally and regionally, the surrounds. I like the business as a whole, a good management team delivering time after time. There is very little exciting, but perhaps that is what you are looking for if you are investing in this company. If you own them, continue to do so.

This is interesting. Anglo American is divesting from their 16.8 percent stake in Palabora Mining, a little over a month after some really good results from the copper miner. See the coverage here at: Palabora Mining reports very good results. OK, boring headline back then. But that is the least of the worries of Palabora mining, because the process is actually being led by Rio Tinto who have indicated that they want to sell their 57.7 percent stake and Anglo are going along for the ride. Imagine being the board (who were probably aware of this, I am guessing) waking up and finding that almost three out of every four shares needs another shareholder. The company currently has a market capitalisation of just shy of 6.9 billion ZAR.

And it looks dirt cheap. So why the sale by the two key stakeholders? Anglo American's official line is as follows:

    "Palabora's principal asset is a copper mine in South Africa which also produces vermiculite and magnetite and, while studies are under way for a potential extension to the copper mine's life from 2016 to 2030, the operation is no longer of a sufficient scale to suit Anglo American's investment strategy."

In fact, the Rio Tinto website substitutes the word Rio Tinto in the same Anglo American statement, check it out ---> Rio Tinto announces intention to divest shareholding in Palabora. Written by the same people. Here is the catch though for existing shareholders, including the big two shareholders, an offer to all of Rio Tinto's and Anglo American's shareholding would mean an offer to all minorities too, in terms of the South African companies act. The next question, who would buy all of it, and would there be a premium? The short answer I think is that both these companies think this asset is non-core and would take the ruling price. That is my sense.

The stock looks cheap, but that could be to someone else's advantage. Is it naughty to suggest that the current climate for miners in South Africa pushed the two stakeholders to do this, or have they recognized that the asset is a little tired and that they are going to move on? Any insight on what the two shareholders might be thinking?

Byron's beats has a look at the biggest construction company in South Africa. Not Murray & Roberts.

    South Africa's biggest construction company, Aveng Group came out with full year results for the year ended 30 June 2011. And how the construction companies have fallen from grace. Aveng is now only 69th on the list of SA's biggest companies with a market cap of R13.1bn. Next on the list is Murray and Roberts with a market cap of R9bn. At its height Murrays was a R33bn company. It must be noted though that Aveng is not a pure construction company and have some other operations in their portfolio. Of their R34 billion revenue (profits in brackets), R9.5bn (R443mil) came from construction and engineering in South Africa and Africa, R13.2bn (R291mil) came from construction and engineering in Australasia and Pacific, R3.6bn (R414mil) came from their mining contracting business and R7.8bn (R321mil) came from their manufacturing and processing of steel and concrete.

    So let's see what Aveng have been up to in the last year. Headline earnings were down 36.9% to R1.2bn which equated to R3.06 per share. This was as a result of tough trading conditions in the SA construction sector as well as project execution issues in Australia and some competition commission penalties. However the order book remains strong, managing to grow 19% to R37bn. From a valuation perspective the stock trades at R33.76 and a historic PE of 11. Some may say quite expensive for a construction company in these conditions but at least these guys are still making a good profit and growing that order book. Plus they are trading well below their asset value.

    Of the mix you can see from the first paragraph that the mining sector really did well in terms of profit and margin. I guess this is a prime example of how diversifying a portfolio can benefit a company. The reason for the bad performance from the Aussie division is attributable to the floods which delayed projects. It also increased the order book however as relief contracts were handed out. The manufacturing division did better due to an increase in the demand for steel. However volatility in the steel price plus increased competition hampered margins.

    As an investment we are not a fan of the construction companies. There is too much project risk (see Murray and Roberts) and the margins aren't great. It's nice to look at these companies however to try and suss out the construction sector. Although earnings were down it was good to see an increase in the order book. At the same time Aveng have weighted their SA order book 80:20 in favour of the private sector which could indicate a pickup in private spend.

    From a company perspective this is a good mix. Government has built up a bad reputation in terms of honouring contracts and you don't want to be too exposed to that. In the bigger scheme of things, a good set of numbers from a company operating in a tough industry. The outlook gave no surprises anticipating further tough conditions. However the growth in the order book represents some light at the end of the tunnel. Management said that private sector growth will pick up due to continued demand for commodities fuelled by China. As an investment we prefer PPC in the sector. We will remain patient.

New York, New York. Yech. I kid you not, five minutes prior to the announcement of the big "jobs" number Rick Santelli said that his prediction was zero. And when the number came in at zero, Rick shouted, a big fat goose egg. Be gone predictors, welcome Rick. The nitty gritty of the jobs number from the official release at THE EMPLOYMENT SITUATION – AUGUST 2011:

    "Nonfarm payroll employment was unchanged (0) in August, and the unemployment rate held at 9.1 percent, the U.S. Bureau of Labor Statistics reported today. Employment in most major industries changed little over the month. Health care continued to add jobs, and a decline in information employment reflected a strike. Government employment continued to trend down, despite the return of workers from a partial government shutdown in Minnesota."

The last time that the employment number clocked zero was in February 1946. This was post the bloodletting of some of the worst months where troops were decommissioned post WWII. The last zero was seen 785 months ago. Manufacturing jobs were lost, just a few, but that is against the trend. Government jobs continue to be lost at quite a rate, I thought that is what the spending hawks would want to see, less government spend. People unemployed for over half a year still top 6 million, which I guess is not encouraging, and that segment of people account for nearly 43 percent of all the unemployed people in the USA. Sis.

A graph caught my eye, tweeted by Barbarian Capital, now, it looks ugly. BUT, the big but is, if this is the worst financial crisis since the great depression, how would it look if you included that bit? If that period was the worst, and unemployment was at 25 percent plus, then surely this period is not that bad. Is that right?

Another thing that caught my eye was a New York Times article that sees the end of an era. It just can't go on like this forever. I am talking about the US Postal Service. Now, many would have said that this was an essential service, and quite right, it was perhaps one of the most valuable utility companies thirty, even twenty years ago. Sadly, the USPS are a victim of technology. And are bleeding. Check it out: Postal Service Is Nearing Default as Losses Mount.

The problem for the post office in the US is that they cannot hike rates beyond the inflation rate, like UPS or FedEx, because the law prevents them from doing that. But, because they basically are a government agency their productivity levels would be nowhere near the same as the business folks. Volumes are plunging, with 167 billion pieces delivered last year, and the article suggests that by 2020, the number could be only 118 billion pieces. And, again as the article points out, the challenges are too many. All I can say is that there was a place for government to be involved, but if you want something overnight, you are not going to contact the Post Office. But that is the easy part, the hard part is what to do with the nearly 600,000 employees of the loss making operation. The days of government back stopping is over sadly, time to make folks pay up in far flung regions. There is seemingly no happy ending here for the post man.

Commodities and currencies corner. Dr. Copper is last at 408 cents per pound, softer even as the news that once again demand will outstrip supply for a third straight year. And there are going to be supply problems over the coming days. The gold price has once again overtaken the platinum price, last at 1891 Dollars per fine ounce, whilst the platinum price is flat at 1878 Dollars per fine ounce. The oil price is lower at 85.24 Dollars a barrel. The Rand is weaker at 11.44 to the Pound Sterling, 7.09 to the US Dollar and 10.03 to the Euro. We are getting thumped at the start here, and I guess that trend will not reverse any time soon, as the US are away today. On ironically, Labor day.

Sasha Naryshkine and Byron Lotter
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Jozi, Jozi. Take cover. Oh, no don't, these are the same old problems, someone cried wolf again. Or were they the same problems? Was this about European sovereign issues, or was this rather the hangover from the jobs number in the US on Friday. Perhaps it was a mix of both, but perhaps the most important moment of this week is not about economics, but rather about the judiciary, a German court is going to rule on the legality of the countries participation in the central European rescue fund. What? That would probably, for me anyhow, be the biggest issue of the week. And remember, the Americans were on holiday yesterday, so the lack of liquidity was telling, and a lack of direction. I laughed when I saw this piece, Why Everyone Hates Labor Day.

This is also against the backdrop that a national strike is called in Italy today, as the parliament starts deliberating the spending cuts and tax hikes in Europe, a little later this afternoon. In a nutshell, austerity means fewer benefits, and this is never good for public unions. Italian bond yields are starting to tick up again (now yielding 5.56% on the ten year), whilst the insurance cost for an Italian bond reached an all time high. Now, I think that there is very little (very, very little) chance of Italy defaulting, but insurance is often for the worst case scenario.

And let us face it, politicians are stuck. Stuck, stuck, stuck. Because they (the law makers) realise the need to act, and to make sure that they act quickly, otherwise raising money in the open market becomes impossible. Just ask the Greeks, who just yesterday saw their 2 year notes for the first time yielding above 50 percent. Now if that means not completely bust, then come over here and give me a clip on the ear. Or, as Byron says, I should buy some Greek bonds, that would hurt more.

Stocks, in particular the financials in Europe were mashed, avo and banana style. Hey, I made a smoked salmon, feta and avo pasta for dinner last evening, it was delicious, even my youngest daughter approved. Completely not delicious were those financials in Europe. Some stocks were stopped, limit down, Unicredit, the giant Italian bank was one of them, sinking 7.3 percent before the exchange called it a day. The Royal Bank of Scotland was crushed 12.3 percent, no such safety net. Credit Suisse's share price crumbled 8.1 percent, Deutsche Bank worse off, down 8.9 percent. You get the idea. This is turning into a war of politicians in the European Union versus the European central bank. With the market participants not believing governments ability to tell citizens this is the way that it is going to be. Because it is politicians jobs to get re-elected.

Our sell off came later in the afternoon, perhaps as the Americans, who were on holiday came into the office to sell emerging markets, hit that big red sell button in the corner, wont you, Billy Bob Weston (the third). Broader based selling across our markets, the Jozi all share index closed down two and a bit percent to below 30 thousand points, 29888, a loss of 630 points on the day. Our banks outperformed the index, down (only) 1.1 percent. Yes, perhaps this is a case of quality trumping uncertainty. Gold miners, they were better!! Up nearly 0.9 percent on the day. Resources were the biggest losers on the day, down nearly two and three quarters of a percent, mainly the copper price falling, on what is often referred to as "risk aversion". Yeah, take no risks.

This brings me to the next couple of pieces, with regards to taking risks and current valuations in equity markets. The first was a piece in Barron's over the weekend. I thought to myself, this is exciting, I could imagine Benjamin Graham, the great value investor, doing a good old fashioned heel click in the air if he came across this gem, well sort of a gem. The Barron's article is titled Wake Up and Smell the Profits, referring to the fallen heroes of yesteryear. The article points out how the share prices of these large companies have in large part gone backwards, whilst the profits have swelled and by function valuations have improved significantly. One of our favourites in New York, Cisco, as the article points out trades at less than 9 times earnings, and if you exclude what is effectively 5 dollars a share in cash, then that price to earnings multiple is six. SIX TIMES? This was once the biggest company in the world by market capitalisation, but it was expensive back then, now it is crazy cheap, completely crazy cheap.

But what Barron's do not point out in this article is that times change. Dell, Texas Instruments, Intel, NVIDIA, Microsoft and even Cisco face headwinds with regards to newer tech, the Apple's of the world. But the article does talk about why Forest Labs looks so cheap, and why the future is a little clouded. But the conclusion I agree with wholeheartedly, the next ten years for these stock prices are likely to be much better.

Perhaps a much better article is this one, from the same edition: Which Way Up?, which is the cover story from the weekend issue of Barron's. Which sees almost all of the market commentators predicting rising earnings on the S&P 500 through to next year (all but two), and all expecting higher levels on the index by year end, all but one, where the other with a bearish outlook suggests markets will end at these levels.

They, these fellows surveyed are all money management titans. My take away is that healthcare and tech are the favourites. The avoid sector includes utilities and financials. Although, health care does appear in both the buy and avoid sections. Which tells me all I need to know about markets now, loads of conflicting views, but on balance markets look cheap. I am going to go with a lack of confidence on why we are not higher. The issues in Europe are well documented, but companies set equity market levels ultimately. And I am going to side with the balance of these guys here, we are still comfortable buyers.

Byron's beats stays with retail, who does not like a bit of therapy in that regard? No really, who does not?

    Yesterday The Foschini Group came out with an interesting SENS announcement headed "Statement by the CEO" which was basically an update of business activity over the last 4-5 months, since they released results in May. This announcement was spurred by their Annual General Meeting which was held yesterday and the company obviously found it necessary to reiterate how well they have done/are doing, to the shareholders. The beginning of the announcement just looks back on the last results report.

    A standard copy and paste will get the message across sufficiently. "After three very difficult years from 2008 to 2010, there is evidence that the economic cycle has turned and that 2011 was the start of the upturn. The first half of the year produced turnover growth of 12,5% with an increase in HEPS of 16,9% whilst the second half gained increased momentum with turnover growth of 18,1%. For the year as a whole, turnover increased by 15,5% while headline earnings per share increased by 21,3%. Our total dividend for the year increased by 21,5% to 350 cents per share."

    Sounds pretty bullish to me. But they also seemed positive on their 2012 prospects. "We expect the benefits of our strategic initiatives and the more positive consumer sentiment to continue in this financial year, but are mindful of the current inflation environment, the potential impact on interest rates and the current fragility of international markets." See, they are aware of the threats but from their experience consumer sentiments is still positive. In fact from the retail companies I have evaluated, all of them have reported strong numbers. Now Foschini are pointing towards this trend carrying on and are confident that even off this high base they are managing to gain market share and increase sales.

    What I also find interesting amongst the retailers is that most of them seem to be “gaining” market share. But how is that possible? Who are they gaining this market share from? In the grocery sector we know Pick n Pay have lost a fair amount of market share but other than that I cannot pinpoint any other culprits. What I am trying to get at is the premise that our consumer base is growing and growing fast. I know our unemployment rate is sitting at 27% but I think this article from the Mail and Guardian titled South Africa's hidden economy, brings up some interesting points about how the informal sector is being underestimated. Read it, let me know what you think.

    If our consumer is getting stronger than surely our economy is growing? Yes, the fears are coming from the developed world but I think it’s growth like this, in the developing world that we should focus on and expect to pull our global economy through the debt issues of Europe and the US.

Oh dear. The Swiss National Bank have intervened on their currency finally. The short of it all is that they are worried that they have moved into a deflationary environment, their strong currency as a result of safe haven status has had an impact on their local businesses. And now they have set a level, 1.20 to the Euro and all of a sudden BOOM, that sees the Euro strengthening by over eight percent on the day. And the local market, the Swiss market popping over three percent, some of the big exporters benefitting. As Paul said, this falls into the same category of banning short selling. Not good. The Swiss national bank say that their currency is completely over valued and this is an acute threat to the Swiss economy. But tell me, wouldn't markets then adjust if the Swiss economy hit the skids? And start asking questions about what are they going to do with all these Euros? Each Toblerone chocolate bar will come with a one Euro note free. Chocolate and Euros.

I am guessing that the dust will settle and we will be able to make more sense of what it actually means and whether or not the Swiss National bank can actually defend their currency. Richemont was down in a flash in this market. So, in Switzerland the stock is up five and a half percent, but here the stock is down over two percent, because of the currency translation back to ZAR. Phew, some long Swiss currency types must be getting thrashed. Finished. Done and dusted. How trading currencies has everything to do with paying attention every second of every day. Sounds too hard and requires too much luck. Equally you could have taken the opposite position and you are now smiling.

I am sorry if you bought your Swiss watch, your holey cheese, your chocolate or your Swiss army knife yesterday. Online that is, you should buy it today. The Rand is 7.8 percent stronger to the Swiss Franc today. Question? I know you have been "winning" in the currency sense if say for instance you work for Nestle and get paid in Swiss Francs, your Rand amount which comes next pay day is going to be a whole lot worse than last month. But since the beginning of 2011, you would have extracted over 25 percent more Rands on a fixed Swiss Franc salary. See, you are still winning!!

Commodities and currencies corner. Dr. Copper last traded at 406 US cents per pound, the gold price is a little lower after having flirted with an all time high again, 1885 Dollars per fine ounce is where the yellow metal is last, the platinum price is lower at 1865 Dollars per fine ounce. The oil price is last at 84.47 Dollars per barrel. The Rand is slightly firmer, 7.08 to the US Dollar, 11.42 to the Pound Sterling, and 10.05 to the Euro. Markets went slightly higher, and then popped on the Swiss news.

Sasha Naryshkine and Byron Lotter
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Jozi, Jozi. It was like the Grand old Duke of York and his ten thousand men, when we were up, we were up, but by the time the session ended we were down. There was no half way up. None whatsoever. We initially found some buying support in the morning after folks decided it was not that bad, and that a solution will eventually be reached in Europe. In fact, the way that I see it is simple, worst case scenario is priced in already. Almost, but close to it is my sense, I am coming across articles like this: Blessing Is 'Cautiously Optimistic' for Banks in Europe. Blessing is a fellow, not a blessing!!

Session end the Jozi all share had closed at 29525, down 362 points, or 1.21 percent off from where we started on the day. Banks were bashed, down nearly three percent, obviously the issues of the European banking system weighing on Europe. The 1.2 percent down move on the Jozi all share kind of masks what was an exceptionally volatile day, the markets were wild, with the gap between the high in the morning and the low in the late afternoon of over 700 points. Wow. Of course don't forget the most important event of the day, something that we discussed yesterday, the German constitutional court might actually ask the country to get the money back. Not too sure of the logistics of that. Who would want to be that set of judges? Not me.

Richemont are out with sales for five months to end 31 August, and I must admit, they look pretty impressive to me. They are better than I would have expected against the noise that we are seeing out there, again this seeming disconnect between what companies are reporting and what the economic "situation" is on the ground. I am going to take a screen grab from their release:

Note, something that we do talk about, the sales in Europe boosted by visiting tourists, which is noted by the company: "sales growth in Europe was robust, reflecting purchases made by local clients as well as travellers." Huh!? Just turn the business channels on and you will hear how completely awful things are in Europe, you would swear that they were almost starving. And not able to afford luxury goods, but there you go, sales in Europe increased on a constant currency basis by 22 percent. 22 percent? Yes, things are so bad.

But it is not all roses. The ever cautious (although optimistic) Johann Rupert had this to say about the Swiss Franc's drag on their business:

    "the impact of the Swiss franc's appreciation against the euro and other major currencies obviously poses a challenge for all Swiss exporters. For Richemont, with a significant production base, our headquarters and many of our Maisons located in Switzerland, the stronger Swiss franc will continue to be negative for our cost of sales and operating expenses, maintaining negative pressure on our margins."

As my favourite crazy currency guy, David Bloom from Joburg, who works for HSBC in London said the easy part for the Swiss National Bank (SNB) was setting the level, the hard part was defending it. Because ultimately they would be owning a whole lot of Euro assets. So perhaps the safe haven tag would be shed once the SNB is holding what nobody else wants. Yes? No?

In wrapping up the Richemont results, the number that will be hung out on the washing line will be the 29 percent increase in sales. That is an awesome number in any business. And the fact that sales are flying in their fastest growing market, Asia Pacific, that grew by 46 percent in actual exchange rates and 59 percent in constant exchange rates!! Wow. The rest of the year looks challenging, but they have always been cautious. I quite liked a comment from Bloomberg's Mark Barton, who said that the average rich Chinese person (not too sure at what level that is) had 4.4 watches. Over four, less than five, you can't own half a watch. But that is the "I have arrived" stamp, check my bling. We continue to buy into recent weakness.

Steinhoff International released results for the year to end June 2011 yesterday afternoon. Marcus Jooste is definitely a smooth operator, and the business has done "great things" over the years. The business itself has lots of moving parts, and the recent acquisition in France and shuffling of their South African businesses, injected them into JD Group. Plus also, Steinhoff acquired the Polish business of JD Group. But that was really small, the acquiring of Conforama is basically business changing. Continental Europe now contributes 60 percent of all sales. Therefore, this is not by a country mile a South African business anymore, in fact Southern Africa contributes 21 percent to group revenue.

Their commentary part about ye olde worlde retail business is quite informative: "In sharp contrast to the economic woes of Europe, the economies and consumer confidence in central continental Europe showed strong resilience which supported our growth in this market." See that, turns out at the top end (see Richemont trading update) and at the bottom end, things are not so bad. Must be a struggling middle class, oh wait, all of Europe is largely middle class, not so?

The UK retail business looks less appealing (boiled versus grilled). Steinhoff say that economic conditions remain uncertain. Equally down under and in the land of the long white cloud, Aussie and New Zealand, the word challenging comes up. An interesting business in terms of their geographical mix, a nice segmental spread, 47 percent of revenues coming from retail, household goods, with a 38 percent contribution from Manufacturing and sourcing, whilst logistics services contribute 13 percent of revenue, whilst 2 percent of revenue is from corporate services. Two thirds of all assets are retail related, 17 percent is manufacturing and sourcing.

They were held back by a firmer currency during the reporting period, with nearly four out of every five Rands in revenue outside of South Africa. Operating margins were crimped to 12.6 percent, down a full 110 basis points from this time last year, but the business is a different one now, so it will be more fair to see how that margin holds up over the next 36 months. Revenue increased 21 percent to 43 billion ZAR, profits increased to 5.3 billion ZAR, whilst HEPS from continuing operations came in at 241 cents per share, the distribution declared was 2 cents better than last time, 65 cents per share payable

Byron's beats takes a look at Impala and their Zim business. Fresh news.

    Lots of news coming out today regarding Impala Platinum and their assets in Zimbabwe. This was spurred by a Reuters article which stated that economic empowerment minister Saviour Kasukuwere had said that Zimbabwe could prosecute or cancel the mining rights held by Zimplats. Impala CEO David Brown has denied these reports saying that negotiations were still underway and they were not aware of any prosecution or cancelation of rights.

    I must admit this is a huge concern for the company. Normally these sort of proposals from the Zimbabwean government have been pushed aside and delayed without too many investors actually taking them seriously. This is because their political systems barely seem functional enough to manage a hotdog stand let alone implement complicated policies. However this one has gone a bit far for comfort and David Brown's lack of transparency on the matter makes me wonder. For the record, Kasukuwere rejected all 175 indigenisation proposals which probably means he (on behalf of the law of the land) wants 51% or nothing.

    We brushed over the details briefly when Impala released their results a couple of weeks back and it became quite clear how important this asset actually is for the company. Remember how comparatively, they managed to keep costs per refined platinum ounce to a very commendable level. R10 867 versus Anglo Platinum's R12 991. The main reason they managed to do this was because the average costs in Zimbabwe are so much lower than SA. Zimplats maintained an average cost per refined platinum ounce of R8200. 25% less than overall average costs and probably around 30% less than South African costs.

    As a percentage of production and of earnings, Zimbabwe is also becoming more and more significant with up to R10bn being invested in that area. In fact, Impala are Zimbabwe's biggest foreign investors. The Zimbabwean assets, which includes the 50/50 joint venture with Aquarius at the Mimosa mine, is now 22% of total production and 25% of total profits. That is extremely significant when you consider that the Zim government want 51% of it. These assets also represent large growth potential for the company. I already mentioned the proposed capex plans.

    Like I mentioned above, the politicking in Zim is unstable. Tapiwa Mashakada the minister of economic planning and investment promotion seems to disagree with Kasukuwere, saying that his statements did not represent governments but rather one man's opinion. What's even more interesting are some Wikileaks reports which seem to reveal waning power of the honourable Robert Mugabe amongst the ranks of the Zanu PF. It seems like members of the party, including economic empowerment minister Saviour Kasukuwere, are planning a graceful exit for the 87 year old leader whose cancer is apparently worse than originally thought.

    It's tough to expose your hard earned money to such a volatile country even if these issues are already factored into the share price. In terms of long term growth, on top of the challenges Impala already faces in SA, this poses a huge concern.

How many F-bomb's do you think that Carol Bartz dropped last evening after getting fired over the phone by Yahoo! chairman. The reason why I say that, is that she is known for her colourful language ---> Yahoo's Bartz and Another F*bombMore depressing for her would have been seeing the stock after the announcement, which in after hours trade jumped over six percent. The fellows around the desk this morning were discussing being fired, over the phone, what is that about? I can imagine that teenagers would break up with each other over the phone, or perhaps more likely sending a text of sorts, or even social media, the shock of it all.

Yahoo! are struggling to make progress and finally the board got impatient. Check out the WSJ story: Yahoo Ousts Bartz as CEO. Eish, the most read article on the WSJ website for the moment. Poor Bartz, but I guess shareholders finally got the board moving on this one. I am guessing that Roy Bostock (the chairman) would have been there in person if Bartz was going to be more accommodating.

I want you to share with the readers a time you might have been let go, and how it was done. Anonymously posted of course, but if you have something amusing to share, feel free to send us a message. If you want to see her original email to all of the Yahoo! employees, check out the article from Mashable: Carol Bartz's Memo to All Employees: I've Just Been Fired. Two things, first, Bartz sent the email from her iPad, and second, you now know the whole global email system. So there you go, bomb the whole Yahoo! employee database with an email on how to sort their business out!

Commodities and currencies corner. Dr. Copper last clocked 406 US cents per pound, the gold price is a whole lot lower at 1836 Dollars per fine ounce, the platinum price is also lower at 1831 Dollars per fine ounce. The oil price is last at 86.71 Dollars per barrel. The Rand is last at 7.14 to the US Dollar, 11.40 to the Pound Sterling and 10.03 to the Euro. We have started at a cracking pace this morning, up two percent plus, the German Constitutional Court decided it was OK for the Germans to participate in the bailout fund, for lack of a better word. That has given us a huge boost here. Up and away!

Sasha Naryshkine and Byron Lotter
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Jozi, Jozi. Boom, markets took off here in Jozi, we really ramped up. A number of factors that I could identify seeing us fly higher, first was the news that the German Constitutional Court dismissed the application brought to declare the participation in the central Euro zone bailout unlawful. Even as the court stressed that parliament should vote on this next time, and that this does not mean that there can be blank checks for additional bailouts. The opposite would have left everyone wondering how Europe will solve their problems and it wall have been all fall tumbling down. Also boosting the markets were decent economic news for the first time in a couple of weeks, German industrial production was much better than anticipated. And perhaps excitement ahead of the Obama jobs plan, which will be revealed a little later today, that should see the right wing types howl again.

There was pretty much a green spread, an across the board strong showing, the Jozi all share index ramped nearly 1000 points, 12 points shy of that, up 3.35 percent on the day. Awesome if you were long. Banks were up a whopping 4.6 percent, Richemont boosted Industrials, the company's stock price ramped seven and a half percent to 3925, still over 6 ZAR to go to the highs of the middle of July. That is not so long ago. Hey there was some data out of the World Economic Forum and the slide in our competitiveness has stopped, we have gained a few spots!! Excellent. More on that a little lower.

Two short bits about Anglo American here quickly, first the Australian news, no thanks, there is going to be no counterbid involving them on Macarthur Coal. Now their (Anglo's) partner in the counter bid, was the Citic Group, who already own nearly a quarter of Macarthur coal. So, unless Citic come back with something more compelling that the Peabody 16 Aussie Dollar a share offer, it will be all Peabody's. I am sure that the Macarthur board want Citic on their own to come back with something, they (Macarthur board) want to see a higher price. But not to be too greedy, and both parties walking away.

And then another piece of news, with both BHP Billiton and Anglo American thought to be interested in the American coal producer, Walter Energy. Walter Energy jumped 21 plus percent in normal trade to nearly 91 Dollars a share, giving it a market cap of 5.68 billion US Dollars. Or, perhaps not, Anglo Not Likely to Bid for U.S. Coal Producer Walter Energy, Liberum Says according to Bloomberg. So in other words, two pieces of news about not very much. Bye-bye Macarthur, perhaps, maybe hello, Walter Energy.

Byron's beats has a look at a business that many like, a grudge purchase for the user, but one of the necessities in life. Insurance. I read a couple of insurance form entries, stupid ones, here are two: "I collided with a stationary tramcar coming the other way" and "I had been driving for 40 years when I fell asleep at the wheel and had an accident." I like the second one.

    This morning we had 6 month results from financial services group Sanlam. The group has a rich history, being formed in 1918 by a group of Afrikaners and a Scot. They felt the South African market needed an insurer. The name actually stands for Suid-Afrikaanse Nasionale Trust en Assuransie Maatskappij which, translated to English, means The South African National Trust and Assurance Company. The company now has a market cap of R56bn and is involved in insurance, personal finance, asset management and administrative services in countries which include South Africa, India, the UK and several African countries.

    The numbers looked good as the company managed to grow earnings by 35%, 109c compared to the first six months of last year (80.5c). This is off a fairly low base however. In the last six months of last year they made 171c just to put things into perspective. This was because equity markets were so strong during this period. So this was a good growth in 6 month earnings but only if equity markets improve in the second half of the year will we see an improvement on last year's earnings. Insurance companies are valued differently however and according to the results group equity value per share equates to R28.18. The stock trades at a slight discount, R27.84. The way the group grows depends on reserves, which are normally invested in equities, bonds or cash, which either grow or shrink depending on the markets and the decisions Sanlam make.

    In terms of expansion, these guys seem to be ticking all the right boxes in terms of developing market investments. Outside of financial services which is the biggest earnings driver, operations in the rest of Africa now bring in more income than the SA division. India is still a minimal contributor to earnings but they are in expansion mode. The financial services business in the UK has slowed down which is to be expected but that is the only market which has shown a slow down. All together a nice mix.

    As an investment we don't like insurance companies because they are very reliant on equity markets as I explained in the second paragraph. It's not that we don't like equities, of course we do, we just feel as equity investors we can beat the market with our stock selections and investing in proxy's for the market will not help us with the cause. Their developing markets exposure does offer something different however and if they can get these operations right and access that growing middle class they should do well going forward.

The World Economic Forum Global Competitiveness Report for 2011-2012 was released and it saw us jump a few spots. Excellent. Download it here ---> The Global Competitiveness Report 2011–2012. In the opening commentary, there was a nice summary of what you know already:

    "Recent developments reinforce the observation that economic growth is unequally distributed and highlight the shift of balance of economic activity. On the one hand, emerging markets and developing economies, particularly in Asia, have seen relatively strong economic growth—estimated at 6.6 and 6.4 percent for 2011 and 2012, respectively, and attracting increasing financial flows. On the other hand, the United States, Japan, and Europe are experiencing slow and decelerating growth with persistent high unemployment and continued financial vulnerability, particularly in some European economies."

In measuring which country is where, the report segregates countries into three stages, and two in-between stages, of development. Stage one is titled factor driven economies, where you find the likes of Zimbabwe, Bangladesh, Lesotho, India, Pakistan and Kenya. Not great company to keep, but India are not bad company, probably means worse things about India than their peers! And then stage two, which is called efficiency driven economies, which is where we find ourselves in the company of the likes of Thailand, China, Indonesia, Colombia, Serbia and Romania.

In-between stage one and stage two there are countries like the Philippines, Egypt, Sri Lanka, Qatar and even Angola. Stage three, innovation driven economies, includes all the developed countries that you would expect, France, Germany, Hong Kong, Japan, Sweden, the UAE, even Portugal was on the list. The transition stage between the stage two and three includes Brazil, Chile, Mexico, Russia and Poland, that is the crowd that we want to be with. Top dog is no surprise I guess, Switzerland, who keep top spot. Singapore jumps Sweden to the silver medal, Sweden have to settle for bronze.

South Africa in 50th place is one ahead of Malta (where the poodles and rich English people live) and one behind Panama (where they have the most awesome canal). First things first, these are the problems identified by the respondents, about doing business in South Africa:

There are 12 pillars, with many sub sectors, but here are the main twelve: 1) Institutions, which includes subsectors like property rights, and organized crime and judicial independence. 2) Infrastructure, which is quite OK compared to the others, we are about in the middle. 3) Macroeconomic environment, again not bad, this includes credit rating, inflation, government debt and the like. 4) Health and primary education, phew, we score VERY poorly overall in this section. 5) Higher education and training was a mixed bag, the quality of the educational system, as well as math and science education is just awful, in the bottom ten whereas other sub sectors like quality of management schools, and extent of staff training, we find ourselves in the top twenty percent. 6) Goods market efficiency, half way through and we score very well in this section, we seem to have a much more sophisticated market than we think.

Next six, 7) Labor market efficiency, some awful, in the bottom ten percent out of 142, like Cooperation in labor-employer relations, Flexibility of wage determination, Hiring and firing practices and Pay and productivity and some not so bad, like reliance on professional management. 8) Financial market development, this is perhaps our best section by a country mile. Out of the 8 sub categories, we got 5 top ten spots, including three podium places. Excellent. 9) Technological readiness, not bad, better than you think, even though bandwidth and internet usage could be a whole lot better, but we score high in terms of technology being available to us. Ah yes, Apple stores. 10) Market size, small again, but we score well, in the top one third. 11) Business sophistication, again, we score really well here, well done business. Err... three cheers. And then last but not least, 12) Innovation, we score really well except in the category of availability of scientists and engineers, but I guess that ties into the poor stats on Education.

The places where we score really highly amongst all the nations are at "Strength of auditing and reporting standards" (we are top, numero uno in the whole world, as per this report), "Efficacy of corporate boards", we are number 2 in the world and "Protection of minority shareholders' interests", we are third in the world. Those are brilliant sub categories, be proud. When looking at these reports, it is often the respondents that form a view and then we are reliant on their answers, over the respondents in other countries. And of course the respondents are thanked for their help. Who are they, in a South African context? Here goes:

    Business Leadership South Africa
    Friede Dowie, Director
    Michael Spicer, Chief Executive Officer

    Business Unity South Africa
    Coenraad Bezuidenhout, Executive Director for Economic Policy
    Jerry Vilakazi, Chief Executive Officer

Make up your own mind about these folks.

So, if this report landed on my desk (which it did) what would I do, after having a look? Well, I would tackle education and health care, both of which look really poor. And labor (labour) relative to the rest of the world, there are some problems there. How do you tackle all these issues though? Well, our health minister is trying hard and seems to be serious, so good for him. How about education though? Because in my mind that is the key to solving most problems. There is nothing as key as education to the well being of a country, and their upliftment, and progress. Night schools, adult education, make it your goal that every capable adult must have a school leavers certificate. Because then we can have more engineers, teachers, scientists, all earning more than in low skilled jobs currently. That would be my one and only focus, because I believe that almost everything else would fall into place. What would you do?

You know this already, or perhaps not, but this is way cool, the rich people in China getting much richer. Every year a crowd by the name of Hurun release their Chinese rich list. What was most interesting to me, was the base, which had increased markedly over the last three years, when everyone in the developed world was treading water. As the FT points out, the bottom end of the 1000 richest in China was just over 100 million Dollars in 2008, 150 odd million Dollars in 2009, to a current 310 million US Dollars today. And billionaires in China now number 271. Dollar billionaires that is. Check out more details: Top 50 of the Hurun Rich List 2011. But not only are the Chinese getting richer, but they donating more of their money to broader society. Excellent.

Bank of America Merrill Lynch just got a serious management shake-up, I am pretty sure that it had nothing to do with the most famous investor of them all Warren Buffett. He writes a letter once a year to his managers of the businesses that he has control over, outlining goals and then tells them how they did in the last year. One of the folks being shipped out was Sallie Crawcheck, who was sent packing. Check (A Sallie Craw one) this Forbes article: Will Sallie Krawcheck's Replacement Send Merrill Lynch Brokers Sprinting? The point in the middle is perhaps the most well made, without Bank of America, there would be no Merrill Lynch. John Thain had little choice. Poor Sallie, she lasted only two years there, but she is young by Wall Street standards and should bounce back. Poor John Thain, or not really, no matter what the controversy, the quality of the individual remains, even if Ken Lewis and him did not get on. And let us be honest, there is no shortage of quality on Wall Street. Will the bank be a better place? Who knows, for the time being anyhow very few folks seem to be buying financials. Perhaps that is a mistake.

Commodities and currencies corner. Dr. Copper is last at 410 US cents per pound, the gold price is higher after a dramatic fall, and is last at 1835 Dollars per fine ounce, higher than the platinum price which last clocked 1832 Dollars per fine ounce. The oil price, possibly the most useful of all quoted commodities, was last at 89.38 Dollars per barrel for WTI as quoted on NYMEX. The Rand is sort of steady at 11.36 to the Pound Sterling, 7.12 to the US Dollar and 10.03 to the Euro. Nice. Markets have opened a bit better, notwithstanding a little bump in Asia, in the form of an unemployment report in Aussie, which was worse than anticipated. Two important speeches today, one by Fed Chairman Ben Bernanke and the other by US president Barack Obama, which will no doubt be keenly watched.

Sasha Naryshkine and Byron Lotter
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Jozi, Jozi. It was a strange sort of a day yesterday, up, down, strongly up, then falling down after a weak weekly jobless claims number. Well, not that weak, just weaker than was anticipated, and I have learnt that is all that counts. But then we railed from there, as US markets turned strongly positive, and it was like, come on guys, one more press for the finish. So, on that note we managed to claw all the way back and closed at nearly the best point of the day, up 1.32 percent on the Jozi all share index to 30918, up 403 points. Led by financials and banks, those two sectors added comfortably over two percent. Nice. Gold miners were strong, platinum miners were not, the Zimplats uncertainty weighing on Implats, down 3.4 percent.

Phew, I have all of the pieces for our monthly puzzle, the Mooi River Index, the Transnet ports data and the Cement statistics for the month of August. Some pleasing trends I must be honest, we should try and index all of these numbers somehow just so that we "get the trend". Sadly the team is small here at Vestact, and there is loads to do all the time. So, until we find a way, we will do them one by one.

First up, the Mooi River Index, and this is a record. An all time record I am thinking. A record number of passes of five axle trucks at the N3 toll gate for the month of August. I guess that there was also an extra working day too, that might have helped. 164,801 passes (through the toll) for the month of August. Here goes the Mooi River Index graph:

I am just thinking, with all this talk of us hitting a soft patch, why did we see a record in August here on the roads? So, the ports data should then tie up with the roads data, not so? We should see a big improvement then. And there is an improvement, the overall number, says that we are 12 percent higher now than we were last year. Which is about the same number as the Mooi River Index, so these numbers are starting to come together nicely here.

And then the last piece of the puzzle, the cement statistics for the month of August. The headline number reads that there was a 4.6 percent improvement versus August 2010. But, sadly there was an extra work day in August 2011,

This graph shows you that we are about flat when measured on a daily basis versus last year, but this is a good thing. We are starting to bottom here. The MAT, or the moving annual total, which measures the last twelve months versus the previous twelve months is 1.6 percent lower. Again, it might be a little too early to get too excited about cement demand, but we are grinding towards that point.

Byron's beats takes a look at a South African favourite. Spur!! Do you know anyone in your family who has not been to Spur? Personally as a non meat eater I visit this chain a whole lot less than say Byron. Not on Monday, that is no meat Monday and Byron follows that well.

    Spur came out with full year results yesterday afternoon. I'm pretty sure I do not need to introduce this company and that you have been subject to, or at least involved in a Happy Birthday song from their very friendly waiters. But in case you didn't know, they also own the brands of Panarotti's and John Dory's Fish and Grill. In fact there are 280 Spurs, 57 Panarotti's and 27 John Dory's. 31 spurs and 5 Panarotti's are international with restaurants in the UK, Australia, various African countries and even a Panarotti's in the UAE.

    The South African restaurant base is growing with 10 new Spurs, 7 Panarotti's and 3 John Dory's. In fact, without the UK impairments the group did well locally. The manufacturing and distribution division also grew nicely with a 16% increase in revenues. Remember this business model is very similar to Famous Brands which I have written about before. Basically they arrange franchise agreements, take a cut of the profits but also manufacture and supply all the products. This means there are two segments to this business. The franchises which rely on positioning and marketing and then the manufacturing and distribution which relies on efficiency and cost cutting.

    So let's look at the numbers. They managed to grow revenues nicely by 15.9% to R403 million. Not a very big company. This was attributable to the new Spur breakfast initiative and gains in market share. However the trading conditions in the UK and Ireland have been tough and assets on that side had to be impaired. This caused the group's profits to decline for the period by 5% to R116.8 million. A very profitable business. These earnings equated to 97c cents per share. The stock trades at R13 so a historical PE of 13.4. Famous brands sits on a PE of around 17 but they have been growing faster and probably deserve that premium. The company have historically been a good dividend payer, paying out a total of 66c per share. A cover of 1.5 with a yield of 5%. Always a plus.

    As an investment I don't see too much growth. The Spur brand is limited and the rest of the mix is not big enough. Nothing like the Famous Brands portfolio. In a world of choices unfortunately it is a no brainer. I like the franchise based business model but not the company. But who knows, maybe they'll be a buyout target for someone bigger.

    On a similar note, Taste holdings came out with a good trading statement. The company is looking to grow 6 month earnings by 20% or more. These guys have a much more diversified mix which includes that NWJ Jewellery business which is becoming more and more dominant in terms of profits. More on this company when the results come out.

New York, New York. A bit of a poor finish for stocks on Wall Street, I guess the Bernanke speech did little other than say that we will act if needs be. Perfect central banker speech, in fact so confusing to me, that when I said that the ECB (they had their rates decision, no change, and conference after that) were "... continuing to monitor developments closely is not breaking news", I had one person disagree with me and another agree with me. See, central banker speak confuses us. But do me and the GOP politicians a favour and read this piece from yesterday ---> The U.S. Economic Outlook.

Are you done? Good, because I am tired of Republican politicians bashing one of the sharpest economic minds that I have ever seen. Turns out that I am not the only one, check this out: The scapegoating of Ben Bernanke.

I have an idea, instead of calling the period of 2008 to 2009 the global financial crisis, perhaps we should call it, the avoidance of the Great Depression 2.0. How does that sound? Because the what-if-they-had-done-nothing scenario is never thought of. I will tell you what would have happened. 25 percent unemployment plus in the US. Half of the banks would have fallen over. GDP would have contracted by 25 percent. Like I often say, thanks for injected confidence when the world was finished back then, because the liquidity was the confidence. Thanks Hank, Ben and Tim for your courage. And I loved this: Overheard: Comedian Ben Bernanke. That is funny.

And then the more important speech of the day, I guess from a mainstream point of view, the President Barack Obama's jobs speech. Full text of Barack Obama's jobs speech is available here on the Guardian (of all places) website. See, the poms are interested. This speech was really moving. Better than the one that Bill Pullman gave before he shot down a few aliens in Independence Day!! I thought that it was a stroke of genius to press for payroll taxes being slashed amongst the middle classes. Yip. And Obama also stressed the fixing of schools, and using veterans to do the job. Yip, because if the Republicans don't like that one, and pass that bill, well then...... they do not like school children and veterans? On the eve of 9/11? Genius.

Commodities and currencies corner. Dr. Copper is last at 408 US cents per pound, the gold price is much better at 1874 Dollars per fine ounce, the platinum price is slightly lower on the session, 1853 Dollars per fine ounce. The oil price is steady at 89.01 Dollars per barrel. The Rand is weaker at 7.20 to the US Dollar, 11.53 to the Pound Sterling, and 10.01 to the Euro. Our market has started and settled at about flat on the day.

I hope you all going to remember two things this weekend. One, the Rugby World Cup starts. This happens only once every four years. You need to watch as many games as possible. Second, it is the ten year anniversary of the attacks on the Twin Towers in New York, back in 2001. The CME have actually said that they would be observing voluntary moments of silence on the floor, that is something to look out for later on the TV screens. I remember the day well, I was standing in the (electronic) dealing room in the old JSE building downtown, fifth floor, and we were watching on the old tube TV. The second plane flew into the second building and we kind of all froze. I turned to the old timer next to me and asked him, what does this mean? He said, bad and then repeated the word five times, obviously too shocked to convey anything else. At the same time our markets started to plunge. It was crazy, I remember it well.

Sasha Naryshkine and Byron Lotter
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Jozi, Jozi. I was as amazed as Jim Cramer on Friday, who said something along the lines: "How can one economist resigning send a market plunging lower, isn't the index made up of companies and determined by company earnings?" He said something like that, and then showed his Mr. Potato cross eyes, or bewildered eyes at the same time. Cramer of course is referring to Juergen Stark, who is on the ECB's executive board. The long and the short of it all is that Stark has probably had enough, he had already dissented to the buying of Spanish and Italian bonds. That sent the Euro plunging, or rather the Dollar surging, and equity markets were crushed. Why is this so important that the chief economist of the ECB resigned for "personal reasons"? Well, it is one thing for politicians to be flip flopping, but economists leading the fight for Euro unity, well, you would hope that the ECB officials were on the same page.

No wonder Jean-Claude Trichet was so peeved last week, he lost his cool with a question around the Germans returning to the Deutsche Mark over the Euro, and he finally went all Mediterranean. Price stability this and that, for a fantastic blog see this piece ---> A few good central bankers. Phew. So, last week we saw some cracks appear, possibly as a result of political wrangling and the lack of power inside of the Euro zone. Markets across the globe sold off, including ourselves, from around three in the afternoon. The Jozi all share ended the session down 477 points or just over one and a half percent to 30440. Banks and financials sank nearly two and a half percent, resource stocks fell a little more than the overall market, the only clear winners were, no surprise, the gold miners. Those stocks closed up 1.86 percent on the session, as the gold price started to find a whole lot of support.

Sasol, the largest company of its kind, anywhere in the world, reported their full numbers to June 2011 this morning. I was quite astonished that the average Rand to the Dollar exchange rate was the strongest seen for five years plus, since 2005. So this is where the notion of the strong Rand comes from. Although 2004 saw a much stronger currency, if I remember right, 5.65 to the US Dollar in latish 2004, around the same time as Hurricane Katrina.

Results, the company reported record turnover, up 17 percent in ZAR to 142.4 billion, profit for the year clocked 20.2 billion ZAR, translating to Headline Earnings per share up 27 percent to 33.85 ZAR, and the dividend a pretty handsome 13 ZAR for the full year (9.9 ZAR in the second half), matching the record set back in 2008. 2008 remember was a record year with much higher oil prices than we see now.

South African Synfuels is still powerful, but I am happy to say that the reliance is being reduced (very slowly) on this specific hugely profitable business. An amazing business with awesome margins, that is just over half of all operating profits. Synfuels international is starting to become a serious contributor. But let a picture tell more than a thousand words, here is a segmental report, comparing last year to this year. Hacked from the report, which you can download here ---> Sasol limited financial results:

This is certainly a South African favourite, over 70 thousand different shareholders tells you that. Lots of interesting snippets of information about the ownership of the company, the ADR shareholders are 5.3 percent, the employees 4.1 percent of the total issued shares. Pension funds, provident funds and unit trusts own nearly half of the company. Wow. The PIC owns 9.4 percent of the company, Allan Gray 7.9 percent, these are the two biggest shareholders. Black Rock, the world's biggest asset management firm owns 2.2 percent of the company and Vanguard (Think Jack Bogle and the ETF people in the USA) 2 percent.

Where is the excitement? Well, I can tell you where there is an immediate disappointment in the news from China, from the project update piece: "Given the delay in the approval from the Chinese government for our CTL project in China, we are developing other investment strategies and growth opportunities, both in South Africa and abroad. We have reallocated planned project funding for the China CTL project and redeployed staff to other projects. We remain committed to growing our other businesses in China." What I read into that is that Sasol will revisit the Chinese project at a later date, but fee dragging means the expertise will be allocated to other projects.

And those other projects are likely to be places like India, where it is still early stages, Uzbekistan, which is more advanced, a bigger focus on natural gas in Canada, Mozambique, Australia as well as Papua New Guinea. More interesting (but less exciting) was that during the financial year, in July 2010, Sasol concluded an agreement with a Norwegian SOE which is currently building a carbon capture facility, expected to come online this time next year. Why is this so important? I suspect for the North American Gas to Liquids plants to get the thumbs up, you will need to tick all the right boxes from an environmental point of view. We all know that Sasol is a huge polluter, but at the same time the company in their South African Synfuels division has probably done more to reduce imported inflation than any other single company. Probably. And they are a massive tax payer. Huge. Check this out:

    "We have paid R25,4 billion direct and indirect taxes to the South African government. This makes Sasol one of the largest corporate taxpayers in South Africa, contributing significantly to the South African economy. We contribute about 5% of South Africa's gross domestic product (GDP), directly and indirectly. We employ approximately 34 000 people globally, of which 80% are in South Africa, and create about 200 000 additional indirect jobs."

Thanks. Please forward that section onto anyone who is calling for nationalisation of the asset, or any other private asset that is. See how many people private companies employ and more importantly, see how much tax they pay and what they contribute to the countries coffers. Thanks Sasol.

So the stock looks really cheap right now. I think the part that most people are concerned with however are the levels at which commodity prices (oil) trades at right now. Suggesting that commodity related stocks are not believing that the commodity prices are sustainable at these levels.

The way that I see it is simple. Oil is the most useful of all commodities. You cannot remake or recycle, once you have used it, it is blasted through your exhaust by way of fumes (cleaner ones) into the atmosphere. It is not like there is going to be more decomposed organic matter forming quickly. You know all of this. The easiest to extract oil and gas has been extracted already. There are more people consuming the refined products now, more than ever before. And less of it. So expect to pay more for oil in future. And again, for the folks who posses this technology, who are making geographical diversification progress across the energy spectrum, it is a keeper. We will continue to accumulate the stock.

British banks. French banks. Looking all so sorry for the stock prices, that is for sure, today is no exception. Let us start with the British banks, who just this morning have seen recommendations to ring fence the retail banks from other banking activities. That is over simplifying the matter. The Vickers commission published their final report on how they would like to see reform in the UK banking sector. If you want to read the 363 page document, download it here: Independent Commission on Banking - Final Report Recommendations.

Or, much better, just read the summary from the FT blogs segment of the website: Live blog: The Vickers report. Much better, you get the idea. The long and the short of it all is that working in a bank perhaps won't be the same as it was in the past, for the employees, I get the sense that is the idea, and not making sure that there is less risky business written. And even less "normal business". File that in a drawer that is marked unintended consequences. I am well aware of the mistakes that banks made in the past, but shareholders of those entities should have been wiser, or more aggressive, but hey, we were all greedy.

Some guy on the box summed it up beautifully this morning, saying that there is no plan for what will replace banking contribution to output, exports and jobs in the UK. And this has been the corner stone of all the arguments that I have put forward on why I think the poms have still got more pain on the horizon than even mainland Europe. Let me explain that quickly by giving you a summary of contributors to their economic output. Financial and business services make a monster contribution as London grew as a preferred financial centre. That is what that fellow stressed, I can use that old English proverb, "Don't bite the hand that feeds you" to explain what he is saying. I guess the issues that they have there are the same as the issues that we have here regarding mineral extraction and beneficiation, it is our primary industry, with lots of activity taking place around it. Overreaching regulations to replace ones that were too lax will not necessarily have the desired outcome for those that were supposed to oversee in the first place.

And now the problems that Europe and their banks are having. These are perhaps more pressing right now, because they are having the biggest impact on equity markets today. The rumours doing the rounds over the weekend is that the All Blacks would choke again Greece would default. But come Monday morning the Greeks are looking to raise short term funding another way, see below. There is dissent amongst the ruling coalition about what Greece should and should not do, and suggesting that Greece will default on some repayments soon. So far nothing. Obviously the resignation of Stark has overflowed from last week to this week, suggesting that dissenting types are growing inside of the central bank in Europe. The new IMF chief Christine Lagarde has backed down on her initial commentary around capital requirements for European banks. This as the G7 finance ministers met over the weekend to discuss more solutions, this time country specific, rather than a one size fits all.

And last but not least, notwithstanding putting out fires on capital requirements, worries about Greek debt (surely the bond markets have told us that they are toast anyhow) is the news that Moody's may downgrade French banks during the course of this week. And guess what, the possible downgrade is as a result of the French banks holding Greek debt. Hold on a moment here. I suspect that the fellows from Moody's are way behind the curve, the stock prices of the banks in France have been crushed this year. Credit Agricole year to date has nearly halved. BNP Paribas is down 44 percent year to date. SocGen is down 60 percent year to date. Let me just say that the equity markets have already downgraded their views of the banks, but thanks for that Moody's. And to top it all off, European credit default swaps for Greece, Italy and Portugal are trading at all time highs. Crushed.

Amazing. The problems around tax compliance in Greece are well documented. The system is said to not really work that well for the collection agency. The Greek government have come up with a simple plan. You have an electricity bill. You have to pay that to stay turned on. On that electricity bill, the council will know how big your house or business is. They know what you "look like", just from your electricity bills. So, instead of looking to raise taxes through the normal channels, the Greeks have basically admitted defeat in that department. Instead a property tax is going to be imposed on all property owners, residential and commercial, to raise around 2 billion Euros.

And the collection method? Through your electricity bill. And we all know what the non payment of electricity bills means, getting cut off. The horror of it all I guess. Now, this is where there is a good argument to be made for government SOE's, because Public Power Corporation of Greece (known as PPC) is the biggest electricity supplier in the country. And 51 and a little percent owned by the Greek government. See, collect taxes through something you cannot afford to skip a payment on, electricity. But that does solve the core issue of non compliance but rather represents a shift in the way that government is going to attack.

New York, New York. All the same issues that hurt us on Friday hurt the US, and of course there was a rather emotional opening to the session with a service woman singing quite beautifully just before ex New York Mayor Rudy Giuliani and Secretary of State Hillary Clinton rang the opening bell. She was at the time the US senator from New York, so that is why she was there. Strangely, the very first GOVERNOR of New York State was one of the "Founding Fathers" (no mothers), George Clinton. He, George Clinton was also vice president of the USA, the 4th one back in 1805 to 1812.

OK, that aside, there was some company news, McDonald's released same store sales that fell short of expectations. But, the headline kind of says it all: McDonald's Delivers 100th Consecutive Month of Positive Global Comparable Sales - August up 3.5%. That I guess is no mean feat. Personally I am a big fan of the model, what you see is what you get, the menu is customized for each region (which begs the question, when do we see a biltong and cheese burger here) and is good value for money. Really good value for money. Perhaps one less Sunday had something to do with it, and one extra Wednesday, when comparing to last year August!!

Commodities and currencies corner. Dr. Copper last traded at 400 US cents per pound, the gold price is lower at 1838 Dollars per fine ounce and the platinum price is a whole lot lower at 1818 Dollars per fine ounce. The oil price is last at 86.16 Dollars per barrel. The Rand has weakened to the Dollar, let me rephrase, the Dollar has gained traction, 7.30 to the US Dollar is where we are now, the Rand cross to the Euro is 9.97, whilst the Pound Sterling is last at 11.60. See that? The Euro getting slam dunked, the Euro is over four percent weaker to the US Dollar over the last month. All that in the last ten days. It is looking ugly out there.

Sasha Naryshkine and Byron Lotter
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Jozi, Jozi. A teeny bit of respite from the selling at the end of the local session in Jozi saw us off the worst, but the scoreboard was ugly for the bulls. Although we had closed about 270 points off the worst point of the day, which was just after two in the afternoon. Session end we closed at 29855 on the Jozi all share, down 1.92 percent, 585 points shaved off. There were a few big ticket stocks that were ex div, MTN, Impala Platinum, Massmart, Shoprite, Richemont and even Harmony Gold. That compounded matters. The bears were all cock a hoop, I cannot blame them, it has been one way traffic for them for the last few sessions.

As discussed yesterday it was same old, same old, European and banks in the zones debt related issues. And exposure to Greek sovereign debt, word on the street is that the Greeks only have enough money until October. I am not quite sure if that means they run out on the first or Halloween, I guess it would be more apt if the Greeks ran out on the last day of October. Cracks appearing everywhere, politically and inside of the ECB are not helping to soothe nerves either. The resignation of the ECB chief economist and ructions inside of Angela Merkel's ruling coalition about the Greek debt crisis have again turned attention to what I am guessing is going to be a multiyear problem. Some fellow on the box suggested that a Greek default might actually be met with an equities rally of sorts.

Byron's beats explores a local gem in the "IT" space, a misunderstood sector by many an investor.

    We had some good full year results from a company on a roll. EOH Holdings, the technology guys, managed to grow revenues by 43.5% and earnings by 35.4%. If you are not too sure what these guys do, here is a little extract from their results presentation. "EOH is a leader in technology and business solutions, the largest implementer of applications in South Africa and the top IT service provider in the region. It has an end-to-end solution offering with a strong black economic profile. EOH operates in South Africa, Africa and the United Kingdom."

    So the numbers looked good. Revenue came in at R2.4bn whilst earnings came in at around R150 million. It's a competitive industry and margins are not great. Per share this equated to R1.97 whilst the stock trades at R23.00. To put things into perspective the stock traded at R5.40 in March 2009 so they have come a long way and all credit to management.

    The biggest concern for this company however is the way in which they have grown. Many analysts believe that much of this growth has come from acquisitions instead of actual organic growth. This may mask what to expect in terms of future growth if acquisitions slow down. Inevitably acquisitions will have to slow down long term as businesses which fall into their model become scarce. Investors would also be worried that bad decisions could be made by a company with such an aggressive strategy.

    I saw John King, the financial director on the TV yesterday and he said that 60% of the growth was in fact organic. It is very difficult to tell however and if in the next few years, they don't manage to grow organically we could see a huge collapse. This is why many investors stay away from companies that are serial acquirers.

    I suppose the most important thing with acquisitions is timing and if the economy carries on growing and more businesses are created who require EOH services then we should see organic growth coming from these newly acquired businesses in the years to come. The industry is also a fast moving one with new innovations being made all the time. This will create a constant flow of acquisition targets. And it's not like the company is trading on crazy multiples above 30 as many of the tech stocks did before the bubble.

    To conclude, we like the sector and EOH seems one of the best ways to get exposure. The management team is ambitious and the fact that the share price has done so well over the last few years shows that investors are confident. It does not fall part of our core portfolio because we prefer the tech options offered in New York but from a local perspective, a good one.

Greek short term and medium term government debt yields soared. The cost of insuring Italian, Portuguese and Greek sovereign debt all soared to record levels, highlighting the risks and nervousness of fixed income "investors". I put investors in inverted commas, because I am just guessing that these are probably just bond trader types. Here goes the yields on the one year, on the two year and on the ten year. I hope you had breakfast a while ago, because this is very ugly. In February the Greek ten year was yielding under 11 percent, reflecting a horrible picture, but yesterday it just turned completely ugly.

Awful, the yield spiked to 23.54 percent. Close your eyes if you can't stand the horror (I do not watch those movies, at all), the two year yield spiked to 69.5 percent. And the one year yield soared to 139 percent, closing back at 117 percent. According to CMA, the cost of insuring Greek debt soared yesterday, and now the chance of Greece defaulting in the next five years is 98 percent. But, as Lloyd Christmas would say to Mary (Samsonite) in Dumb and Dumber on the odds of Greece not defaulting, "so you mean there is a chance" with a big fat grin to boot.

Both Germany and France seem to have a reluctant political will to solve the issues once and for all, there is no nuclear option. Bad analogy, because of the explosion and fatality at a French Nuclear facility yesterday, I apologise, but the nuclear option would be to "solve" the core once and for all. As this Bloomberg editorial points out however, there is a reluctance on the part of politicians, time for the ECB to be counted as the heroes. Read: View: Dithering European Leaders Default to the ECB. Perhaps that is not too fair, this from last evening: Merkel Says 'Uncontrolled Greek Insolvency' Must Be Avoided.

So, you can read into that that there will be a controlled Greek default, or none at all. What Merkel means is summed up in this grouping from the same fellows over at the CMA group. This is a table of highest probability of sovereign debt defaults. The photo shopping is all mine, a bit amateurish, but hey, we try hard around here.

The same other usual suspects on that list too, Venezuela, Argentina, Pakistan, the Ukraine and Hungary. Perhaps the acronym for them should be HAVPU. But wait, just when you thought that it was not safe to go outside, the Chinese have indicated that they are ready to buy Italian bonds. Check it out ---> Italy Holds Talks With China on Investments. Don't worry, most market participants are confused too. And in large part not believing the banks, the valuations look amazingly cheap.

But that is half of the problem, as this detailed article points out, the problems in Europe are three fold, well written and worth a read: In An Uncertain Environment For Banks And European Sovereign Debt, Ex-Financials Dividend Strategies Offer Potential Diversification. Nice. So, I am guessing that until all is resolved, or there is a sovereign default, then the banks in Europe will continue to trade below price to book. Comfortably below that. If you did not get a chance to read that article, let me give you the three main points:

    "Concerns over the European debt issues have been impacting the prices of equities-valuation metrics such as price-to-earnings ratios are at low levels; and the relatively low price-to-earnings ratios could signal good entry points for those seeking to manage exposure to the risks of the region.

    The greatest risk that we see in accessing the equities from the region is the exposure of the European banks to the troubled country debts-whether sovereign debt, residential mortgages or other debts-that are on the European bank balance sheets. We believe these risks can be managed through funds that remove exposure to these potential problem areas of the market.

    There may be opportunities to engage in tax loss harvesting trades with other international equity funds. Many have invested in the international equity markets at higher prices, either before the market crash in 2008–2009 or even in 2010, when prices were higher than today. When suitable, investors can book those losses today and reallocate to maintain exposure, but change the risk profile of that exposure by looking at ex-financial funds."

That said, this would be for the brave. Very brave. But these types are not alone, I saw another type, this time a CIO suggests that Investors worry about the wrong assets. Quite. To go long bonds now seems nuts. Brown however is not speaking about banks in Europe, but rather the fact that all equities have been tarred with the same brush. Time to avoid the feathers associated with the tarring. His conclusion is about the best I have seen:

    "To hang together the euro needs two necessary conditions to be met: first, the political will of both debtor and creditor nations needs to stay firm (watch out around election times); and, second, markets must not end up creating their own reality, something they have got perilously close to already. This tragedy (or pantomime) has many more acts to go."

So, sorry for us, until this is "solved", there will be much uncertainty. I said that already.

After a decent enough start this morning catching up to the US markets overnight rally, the French banks are back where they were yesterday, in the toilet, getting crushed all over again. It is time for French politicians to do something. The FT has a simple line at the top of their website which suggests the reasons are about credit ratings in the banking sector specifically. But...... we knew that yesterday. Confused. The all fall down is actually a story about BNP Paribas suffering from liquidity issues spooked all and sundry.

New York, New York. Markets went up and down several times before rallying towards the end of the session. I caught a glimpse of the bond kings, and their relatively new employee Neel Kashkari (who looks strangely like Sylar from Heroes) say that equities are cheap on a longer dated basis. Kashkari is one of those individuals who saw the action of the great financial crisis of 2008 in the very front row. Now wait, he acted in the movie. He was one of Hank Paulson's (the then Treasury Secretary's) right hand man through to the election of the current US president, although he did stay on till July 2009, long after W had left the White House. Before that, Kashkari was a Goldman Sachs man. But now he is a PIMCO man, Bill Gross is his boss I guess. And yesterday Kashkari said in a Bloomberg interview that "investors" should buy equities, because the yields are wildly attractive. This is true, I agree with him.

So things are so bad, is that right? No, that is seemingly not right. I saw this piece from one of my favourites over at the blog Carpe Diem titled: U.S. Manufacturing Profits Set New Record in Q2. I am sure that I have shared this bit of sharing before, that was for Q1, this is for Q2 2011. His conclusion kind of goes against the grain of what we see on many business shows, but you can't dispute the fact. Perhaps Jim O'Neill is right, Wall Street types should get out more often.

Commodities and currencies corner. The copper price is lower, last at 397 US cents per pound, the platinum price is also lower at 1808 Dollars per fine ounce. The gold price is one Dollar per fine ounce lower than that. The Rand is a whole lot weaker at 7.39 to the US Dollar, 11.67 to the Pound Sterling and 10.05 to the Euro. Oh, and the most useful commodity of them all, oil, that price was last 88.62 Dollars per barrel, that is for WTI as per the quote on NYMEX, for Brent the price is a little over 110 US Dollars per barrel. We started well, but French banks and all sorts of rumours are doing the rounds.

Sasha Naryshkine and Byron Lotter
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Jozi, Jozi. Phew, another day at the office where stocks sank and soared, we eventually ended the session with banks leading the charge, the Jozi all share index closed up shop at 30032, up nearly six tenths of a percent, a gain of 176 points. Gold miners slipped, I am not too sure what the stock jockeys think of the next move in the gold price, but I am sensing a pause at this current juncture. Another feature of the last two weeks has been a volatile currency, perhaps less to do with our precious Rand, and rather more to do with the Euro Dollar rate. That has been the key to our currency weakening to the US Dollar. The biggest issue with that is imported inflation through an increasing petrol price. I would like someone over sixty to do me favour. When you first started earning a salary, what did a litre of petrol cost relative to what you earned? And now, relative to your monthly income, as a percentage. Cast your mind back.

Some results to have hit the screens yesterday includes one of our recommended stocks, Aspen. These were the results for the full year to end June. Paul is actually at the results presentation (yes, this is unusual for us) and will come back with some further insight I guess, which we can add to tomorrow. So first up, a look at the numbers. Revenue increased by 29 percent to 12,4 billion ZAR, operating profits increased by 25 percent to 3.1 billion ZAR. There was a significant acquisition in the year, Sigma in Australia, so the numbers given are for normalised earnings, which came in per share at 523.3 cents per share. Up 20 percent and in line with the trading update, so no surprises. After a pause in the distribution in 2009, the company is back with a share premium of 105 cents being declared.

In their primary and original market, South Africa, the going has been really tough, Stephen Saad, the highly regarded chief executive summed it up in the results release: "The South African performance was particularly pleasing given the headwinds in the market, namely a 0% increase in selling prices, but cost increases in salaries, wages and electricity. This vindicates our strategic investment in manufacturing infrastructure."

They managed to increase sales in South Africa by 13 percent to 6.3 billion ZAR, and operating profits by 17 percent, to 1.9 billion ZAR. You can quite quickly see that South Africa is their most profitable region, notwithstanding their expansion. Their international division grew revenues by 56 percent to 5.6 billion ZAR. There was, as we mentioned before the Sigma acquisition, that was 863 million Aussie Dollars, 5.9 billion ZAR.

There is however for the first time a shift, the prospects column tells you that: "During the forthcoming year, revenue and profit contributions from the Group's International businesses are expected to exceed that of the South African business for the first time."

This was interesting, really interesting. "The Group's pipeline for Australia has been further augmented by the conclusion of an agreement with Cipla, the leading Indian generic company, to work together for Aspen to launch Cipla developed products in Australia." That tells me everything I need to know about Cipla Medpro here, it is just a distribution agreement. Wow.

Paul came back from the presentation and took out what he thought was the best page, I took one slide from that page, and that tells you all that you need to know:

The question of course is, can they keep it up? Clearly not at this pace. But their tie up with GSK is key in growing in emerging markets that GSK might not want to operate in. Sigma are going to start contributing heavily, Paul said in fact that the team in Australia were so good, that Stephen Saad has only been there twice since the acquisition. The goal is to use that (Sigma) as the base for Asia Pacific. They have done a fairly good cleanup, they are left with a single manufacturing facility, the others have been cleaned out. They have also sold the old industrial manufacturing facilities and shut down the head office in Melbourne. Only something that you can do if you are ruthless. They are not standing still in their other geographies, expansion plans in Latin America are also on the cards.

They have also started to sell some lines in their consumer business here locally, indicating that they are going to be focusing on the higher margin business. So think, less J&J and more Teva. That sort of thing. We are happy to continue to accumulate the stock, we have great faith in management execution. The stock has sold off a little today, but we think that is an opportunity to start building a bigger position, we are predicting that you will be well rewarded in time.

Byron's beats has a look at one of our big banks here, which reported results yesterday, in the morning.

    Yesterday we had Firstrand, the last of the big four banks to report year end results and yet again we saw some impressive numbers. But remember things are complicated with this one because we had the massive unbundling of the insurance businesses, Outsurance and Momentum. Fortunately we had their auditors doing the hard work and they have calculated the results which separate continued from discontinued operations. This presents the results on a normalised continuing basis as the group feels represents their economic performance most accurately.

    Earnings were increased by 22% to R10.1bn which equated to 179.4c per share.The share trades at 2087c so a historic valuation of 11.6 which is pretty much in line with the rest of the banks. What shareholders will be pleased to see was the announcement of a special dividend. 70c per share is what is being distributed because of the disposal of non-core assets. This, on top of the 81c already being paid. We were definitely pleased with the unbundling of the insurance businesses. It has always created a cloud of uncertainty which came with the insurance businesses volatility. Stick to what you know and focus all your energy and attention on that.

    Let's look at these earnings per division. The FNB bank brought in R5.5bn in earnings. 500 million of that from the African division. The bank equated to over 50% of overall earnings. FNB South Africa grew pre-tax profits by 20%. This was due to a combination of a 29% decline in bad debts, a 3% growth in clients and a 14% increase in transactions. The decline in debts is very commendable but it is also a trend we have seen from most of the banks. I think it is a function of lower interest rates, better efficiency from the banks and the wakeup call that the financial crisis has brought to almost everyone. FNB have also been at the forefront of innovation and this is what is responsible for their increase in clients and transactions. Better services means more clients but it also means more transactions as they get easier and easier to process. I have already used the FNB app on my phone to make transactions and it is a real treat.

    RMB which is their investment banking division brought in R3.6bn, a third of overall earnings. This showed a growth of 9% which is impressive off a fairly high base. In comparison ABSA capital earnings were flat for the year while Investec's operational earnings were down 6% in their last report. Well done to the folks at RMB. Wesbank which is mostly vehicle finance brought in R1.8bn of earnings. This is a growth of 95% from last year. I remember analysing the Imperial numbers and they stated that vehicle sales in SA grew by 21% so that explains the growth. But on top of that, good cost management and better interest margins due to low rates were also an influential factor.

    In the end, a good set of results from a company that is making headway in all its divisions. I like the management and I like the innovation shown by the banking division. Unfortunately I just don't like big banks who I believe are going to be regulated to an extent where earnings will always be limited. There was nothing new in the prospects, troubles in Europe but good growth in Africa where they are expanding more and more.

It is not often that I have a look at the dudes from Zero Hedge without a little scepticism, they are always churning out bearish content. Almost always. They must have been spanked hard as children and sent to bed hungry every night. Or, perhaps you can call them realists. This part is quite interesting. So listen in carefully, because this is a piece of research that underscores what the market knows already and the mark down of European banking assets has already taken place. So thanks Moody's this morning for having announced that you have marked down the credit ratings of SocGen and Credit Agricole, but those stocks have either halved or nearly halved year to date. So thanks Moody's, but the market participants have downgraded the assets already.

But read this piece, the original source is Jefferies. After reading this, go and load up on shot gun shells and baked beans because it is going to get extremely ugly if this scenario does actually pan out. Jefferies Describes The Endgame: Europe Is Finished. Oh dear. The suggestion however is that every Euro of assets held by the banks are toxic. That is my take away, clearly that is not the case, there might be a whole lot more pain, but let us just be reminded that the CDS markets are expecting (or suggesting) a 98 percent chance of a Greek default inside of the next five years. So would you be shocked that it happened?

Angela Merkel is jumping around like a cat on a hot tin roof. Or a cat with socks on. Or a cat thrown into a pool. You get the idea. The FT reports this morning that Merkel  bids to quash Greece default talk, this after the conflicting views inside of her own government, where the vice chancellor suggested that there might be an orderly default. Merkel says no, don't panic. What she should have added was that Greece is going to run out of money soon.

Well, at least I can say that the Germans, and the German chancellor recognizes the importance to act. Like the Jefferies piece via Zero Hedge suggests though, there are 17 Nancy Pelosi's and 17 Hank Paulson. I would disagree with that statement, I would say that there are probably only around five important countries that will ultimately decide the fate of the likes of Greece. And hopefully that will not set any sort of precedent. And if you needed to know, the 2 year government note is yielding nearly 85 percent. That sports lovers tells you that the market participants are not necessarily agreeing with Angela Merkel.

I guess the Chinese and the Americans are chewing their fingernails right now. The Chinese response has been I guess the conservative line that you might have expected: Wen Says World Must Get 'Houses in Order,' Not Rely on China. Yes. This is true Mr. Wen, of course it is easy for the Chinese to say.

New York, New York. It is wild out there. The word choppy is used when stocks indices go up and down. Hacksaw describes the graphical representation of how we ended up in last night's trade, there was a heroic come back at the end, again the last half an hour seeing a whole lot of buying. I have no idea what that tells me, if anything. It is just an observation. What do you think about this, as an African, who is concerned about African problems: U.S. poverty totals hit a 50-year high. What? 1 million Americans went without medical insurance last year. Now here is the clincher, the definition of poverty. An income of 11,139 Dollars for a single person constitutes poverty in the USA. So roughly 6,870 ZAR a month is the currency translation. That is for an individual. For a family of four, a household income of 22,314 US Dollars is the threshold of poverty. That translates to 13,760 ZAR a month. That is poverty in America.

That level, just over 11 thousand Dollars is the global average GDP per capita. Average. But yet that constitutes poverty in America. It could be easy to say that these are rich peoples problems, you could easily say that, but that perhaps is the point I am trying to make. At the bottom of the list titled List of countries by GDP (nominal) per capita, you find Burundi and the DRC, where average contribution to GDP is a mere 53 to 54 US cents a day. 50 odd cents a day contribution to GDP? It is completely safe to say that the base is about nothing, zero. What are your thoughts on this issue? I am indifferent, not sure whether to feel completely sorry for the poor in the US, or more sorry for the bottom of the list in Africa. I guess a bit of both.

I did find something that will make your decision easier. Branko Milanovic, a lead economist at the World Bank who released a piece about inequality. These are quotes obtained from this page on Wiki: International inequality:

"The richest 1 percent of people in the world receive as much as the bottom 57 percent, or in other words, less than 50 million richest people receive as much as 2.7 billion poor."

And possibly the clincher: "An American having the average income of the bottom US decile is better-off than 2/3 of world population"

Another example from the same Wiki link:

"The three richest people possess more financial assets than the poorest 10% of the world's population, combined".

But then ask yourself. How did those folks become obscenely rich? Was it because of the economic circumstances afforded to them? Yes. And it probably went hand in hand with democracy.

Mister Softee, also known as Microsoft unveiled Windows 8 last evening. Don't take my analysis of it, rather have a look at the folks who have actually had the device with the operating system in their hands. Check it out ---> Previewing The Future: Hands On With Windows 8. That is from the fellows over at Tech Crunch, this is another good view from PC World: Windows 8 Also Has Tools for Power Users. My sense is that it is a good product. But there are questions as there were when the iPad was first released. I suspect that ultimately it is all about the applications that are available to the users, to customize their tablets for their specific use. Microsoft have a kind of patchy record letting people into the circle. My two cents worth, I hope it works for them and their shareholders.

Commodities and currencies corner. Dr. Copper last clocked 397 US cents per pound. The gold price is lower at 1829 Dollars per fine ounce, the platinum price is also much lower at 1805 Dollars per fine ounce. A barrel of oil is last at 89.06 Dollars, a little lower on the session. The Rand is steady to firmer, 11.65 to the Pound Sterling, 7.39 to the US Dollar and 10.10 to the Euro. We have after an ordinary start shot up. That is pleasing for the bulls, US retail sales ahead, that could be telling a little later on.

Sasha Naryshkine and Byron Lotter
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Jozi, Jozi. A ripper yesterday, stocks rallied strongly. Merkel and Sarkozy (holiday over) are committed to the Euro, or so they say and curious George has reached out to them, check it out at the WSJ: Papandreou to ask Sarkozy, Merkel to squelch criticism, default leaks - sources. Ouch. Greece is working hard, neh? I feel sorry for all the participants, including the man on the street, once used to a certain way of life you just carry on as if that will always be so. Session end, with industrials leading the charge (up over two percent), we managed to close up 427 points on the Jozi all share to 30460, 1.42 percent up.

Byron's beats has a look at retail stocks. One of the easiest sectors to talk about with your mates, your spouse, you kids, hey, even your dog.

    We had trading updates from 2 retailers yesterday, both sell very different goods in very different sectors. We'll look at Holdsport first, the guys who own Sportsmans warehouse, Outdoor warehouse and First Ascent. Then we'll look at the update from Cashbuild, the guys who retail low cost building equipment and materials.

    The one from Holdsport looked good, stating that the company expected earnings to be up over 20% against the last comparable period. Remember these guys only listed a few months ago so we don't actually have a comparable period. Fortunately they gave us the actual expected headline earnings which fall between 137c and 147c for the 6 month period. In terms of valuations this makes Holdsport look very cheap in comparison to some of the other retailers. The stock trades at 3020 giving Holdsport a forward PE of 10 assuming they manage to maintain these earnings. To compare, Mr Price trades on a PE of 17.6, while a diversified retailer like Foschini who own TotalSports trades on a valuation of 15.

    I know Holdsport is different in certain aspect to these comparisons but as we have seen, the entire retail sector, especially in this space is doing well and growing earnings in double digit figures. I guess the market is still "sussing" this one out and waiting for the actual results to be released. It's a very competitive industry as we have spoken about before and there is not much liquidity for the stock. None the less it's a great space to be in and possibly a good buying opportunity.

    Next we had Cashbuild announcing 5 to 10% higher earnings against the comparable 6 month period. For the full year however they are expecting a 25-30% increase in earnings. This is excluding the once off effects of a BEE deal done last year. This is fantastic to see. Although the private sector construction industry is struggling, we can see that private individuals are improving their homes and taking matters into their own hands. It's a sign of tough times but probably also a good indication that things in this industry are getting better.

    There are not anymore details in the update so we will have to take a closer look at the actual company when the results come out. From a macro perspective, both companies are reiterating that the consumer is still strong regardless of the sector.

Remember yesterday when Byron suggested that we did not like the big banks, because there are too many moving parts? We have said this often enough, there is too much hidden away from investors to have a clear view on the inner workings of bank operations. I know they are all smart, work incredibly hard and are often great at what they do, and I know that sometimes (often) the criticism in unwarranted, but it is for reasons (almost on cue) like this today: UBS Hit by $2 Billion in Unauthorized Trades. Yes, you read right, 2 billion Dollars. Like Paul said, you never hear of the unauthorized trades that make the banks money, only the ones that lose heaps of money.

This loss features high on the list of largest trading losses of all time. Check it out: List of trading losses. Bloomberg have reported that there has been an arrest in London associated with the UBS trading loss, a 31 year old man. Rumours suggest that it is a currency related loss, makes sense, the Swiss Franc and "that event" when the SNB decided to peg their currency to the Euro.

The FT have quite quickly explored what it might mean for UBS, suggesting that this loss is manageable. I think I am allowed to post this link (it is the FT's), here goes UBS rogue trade - the wider costs. Oh dear, a confidence thing, what would you be thinking as a client of UBS? If you are one, I would like to know. A Reuters breaking news journalist, Peter Thal Larsen, tweeted something very interesting: "UBS's estimated $2 billion rogue trading loss is 24 times the investment bank's daily value at risk in Q2." Wow. Some manager, and their manager, and their manager (and the respective risk managers) are sweating in fox holes right now. Larsen also tweeted: "$2bn is also the same amount UBS plans to save by axing 3,500 jobs". A few less today no doubt.

The conclusion of all of this is simple for us, this is one of the reasons that we do not like to own banks with trading activities, because like an anchor on the box said, how does that exactly happen? Time for more introspection and cannon fodder thrown the way of politicians calling for more regulation. What do the UBS shareholders think about all of this? The stock is in the toilet, pre market in the US the ADR is down eight and a half percent. That tells you what the market participants think. Can you imagine being Oswald Gruebel this morning. Talk about feeling defeated.

When one talks about investments it is always fun to get another view, be that an outsider, or someone with a different way of thinking to you. We always have a good chuckle when Mark Mobius comes on the box and we launch generic statements like: "Invest in emerging markets to capture higher growth rates and an expanding middle class". Or even better, we ask one way questions (no matter how hard you shout at the TV, nobody ever looks back, remember that when you watch sport, OK, no matter how hard you clap, they don't listen) like, hey Mark, what do you think about Brazil? And then of course we shoot back the Mobius answer: "Brazil....yes, lots of natural resources, a large growing population starting off a low base, high employment, politically stable, yes, I like Brazil". Something like that, Byron says I gave away too much. Byron then said, why don't you go to his twitter stream - Mark Mobius and find a good one, we liked this one:

"Urbanization could influence the demand and prices of commodities."

How useful and insightful. Hey, I love Mobius, we are just kidding around here. But this is a lead into a story that Byron picked up on in the Economist: Long walk to innovation - South Africa has been slow to innovate. That may be changing. That decades behind part does not exactly fill me with a great deal of excitement. What do you think about the economic path we are on? It is too easy to say as middle to upper class South Africans that we should be a low wage labour intensive industrial economy, which could solve unemployment. Very easy for middle to upper class South Africans to say. What would you do, if tasked to tackle unemployment, and how long do you think it will take? Email me your suggestions.

New York, New York. The opposite of the prior session, stocks gave up a lot in the last half an hour, but fear not, another "winning" Charlie Sheen day. Tech stocks rocked, the broader market S&P 500 ended the session up 1.35 percent. Still four years ago (nearly, mid October 2007) the S&P 500 topped 1560, we are down nearly 25 percent since then. Four years on. Yes, we are all feeling the extreme poverty that exists in America, but it exists on a far grander scale all around the world, in particular here on our continent and in Asia.

I think that this is something that you must read, Here Comes Apple's Real TV. That part about TV channels is dead right, not watching 86 percent of your digital bouquet, I like very few channels. And very few magazine programmes. Reality TV is fine where the person has a skill, dancing, singing, cooking, that sort of thing. Although there were multiple football games on last evening and you know what, I watched a bit of each one. But the possibilities I guess of what you can and cannot do are endless, and if Apple are developing such a product, that would be awesome. I do not hold my breath for an event so far out though. But we continue to buy the stock.

Commodities and currencies corner. Dr. Copper is (lower) last at 394 US cents per pound, the gold price is lower at 1805 Dollars per fine ounce, the platinum price is lower, having fallen through 1800 Dollars per fine ounce, last at 1799. The WTI oil price is higher at 89.19 Dollars per barrel on Nymex. The Rand is steady to weaker, 7.41 to the US Dollar, 11.73 to the Pound Sterling and 10.24 to the Euro. We have started advancing like the clappers, up one and a half percent currently.

Sasha Naryshkine and Byron Lotter
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Jozi, Jozi. Dim co-ords, or is that min co-ords? Remember the kid that could not catch the cricket ball, that used to field at long stop? Which ironically was the most important position, because the bowlers direction sucked and the wicketkeeper was just as bad as the bowler. When you were nine, of course. Sorry, I never played netball, I do not have the girl analogy, perhaps a netball score of 2-1 for a full game. Anyhow, the central banks of the world finally coordinated, after looking a little like the long stop, mostly through the politicians doings. Mud-slinging and finger pointing and vacillating has seen confidence sour recently from Bangkok to Buenos Aires, Canberra to Caracas, perhaps not that bad, but in the US and the Euro zone for sure.

But finally some coordination from the ECB, the Federal Reserve, the SNB, the Bank of Japan and the Bank of England on DOLLAR liquidity specifically, meant that folks minds could be put at ease on European banks. French banks, which have been under pressure this week (substitute week with month or year) rallied hard on the news, one got the sense that a short squeeze was on the go. OK, so what does this dollar liquidity and coordination actually mean? Well, start understanding it by reading the statement, which you can find over here from the ECB: 15 September 2011 - ECB announces additional US dollar liquidity-providing operations over year-end.

Basically these central banks will "conduct three US dollar liquidity-providing operations with a maturity of approximately three months covering the end of the year." These operations will "... all take the form of repurchase operations against eligible collateral and will be carried out as fixed rate tender procedures with full allotment. Further information on tender procedures can be found on the ECB's website." Important question, what is eligible collateral? Seems that it might be a lot.

The market participants breathed a sigh of relief, check this WSJ article: Central Banks Boost Dollar Liquidity. I could tell that the bears were bummed. This coordination comes against the Christine Lagarde, IMF chief, warning that the path to recovery in Europe is narrowing. But good thing is, we are still on it (the path), that is what she is thinking!

Pinnacle technology released results for the full year to end June 2011. This company continues to surprise, year after year, after year. I kid you not, I remember when the stock was 15 cents or so, 7 years or so ago. In fact, the lowest the stock price got to in the year end to 2003, was seven cents. At the year-end (June 2003) the stock was 14 cents and reported 4.8 cents per share worth of earnings, the stock was grossly undervalued. NAV per share back then 53 cents per share. It is safe to say that Mr. Market got it completely wrong.

The stock now trades at 855 cents. Earnings per share have rocketed to 121 cents, up 58 percent on last year, on a revenue increase of 57 percent to nearly 5 billion ZAR. The group are paying a 23 cents per share dividend, that is also pleasing, I am guessing that in years to come shareholders can maybe expect more. Costs are rising, that is not great, but the acquisitive nature of the group means that they will always be looking for ways to grow revenue, and with that comes rising costs. As long as they can bring out the long knife afterwards, and cut costs. Which seems to be something that they do work hard at.

The question is, the stock is trading at 860 today, on much higher than normal volumes (we have traded the normal whole days volume already in the first hour or so) but flat on the day. There was a bit of insider buying leading up to these results (a while ago) and I can guess those insiders must be scratching their heads at the non movement of the share price. Here are the simple fundamentals, the stock trades at just over seven years worth of historic earnings, and a dividend yield of 2.6 percent. Perhaps that is the "issue" that market participants have. The growth story of the past, might not be that of the future. Maybe.

The prospects column does talk about controlling costs: "The key for the Group remains growth while continuing to focus on cost containment to reduce pressure on revenue generation. The Group is constantly striving to acquire new product agencies and businesses throughout the continent that will assist in the diversification of the Group's existing markets, products, geography and clientele." Yip, into Africa will be the next best push. Perhaps the lower rating is in part their product mix, if I look at many of their lines, Dell, IBM, Microsoft, Sharp, Samsung, LG, amongst other well known brands. There is a definite shift in market valuations of some of these stocks above, Dell, Microsoft and HP all trade on less than ten times earnings. Perhaps Pinnacle has the same issues to contend with, in terms of market perceptions.

I got a couple of responses on what could be done to solve the jobs problem in South Africa, first Mr. S sent me his thoughts:

    "Not particularly original but what of the major construction firms coming together to improve chosen schools to upgrade them. There is no need for huge sums of money surely the money could be accessed from the 9 Billion which the minister of finance spoke about in July.

    If the construction firms worked through BUSA more brownie points for Busa and big business. It can and does work (for) Sappi (as) did it for Inanda Seminary. The point is not so much the money as the time and expertise of the companies to train the staff; for example in the person at reception being good at that job, the groundsman--the need for a groundsman and maintenance man who must have budget for tools and equipment.

    Schools in many ways resemble businesses in that they have to be solvent. There is no good rebuilding classrooms and toilets and leaving it to the school to get on with it as one rural school I had dealings with, for in the winter holidays one enterprising local fellow kept his cattle in the renovated classrooms!

    The shipping industry successfully developed a course in a Durban school which feeds them with people interested in shipping. With a bit of imagination all sorts of developments could take place. In contrast I could take you to a school which has had a costly state paid revamp and with a short time the doors and windows are in need of repair because the job was done very badly. This is I know small scale but surely it could be replicated with hospitals.

    It would appeal to the left wing and thus perhaps some of our powers that be if these and other teams which were established were said to be copied from Stalin's attempts to improve productivity in the 1930's. There has to be measurable improvement and accountability otherwise it becomes another sink hole."

Thanks Mr. S, good ideas of what you have seen work and what you suggest. Stalin was a crazy though, perhaps his plans and not his methodology!!

Next up, Mr. W, both these guys from Durbs, the air must have been good there yesterday!!!

    "....It is common cause that we have high and growing unemployment, and a high base load of unskilled workers. This would suggest that when we look for an appropriate labour policy we should towards freeing up the labour market rather than placing impediments in the way of employment.

    However the excesses of a totally free labour market are not acceptable and must be tempered by a level of regulation. Once you start to intervene in any market there are consequences, and the obvious difficulty is deciding on the extent of the regulation. However as the extremes of free labour market or a totalitarian state are unacceptable a compromise is necessary.

    I have a lot of sympathy for the quest for "decent jobs", but when there are not enough to go around a compromise is needed and everyone should contribute to a solution (not just the unskilled). A nice sounding solution would be to have a largely unregulated labour market, and to create a "safety net" of an unemployment grant (dole). The "fat cat capitalists" would contribute via their taxes, while more flexible labour laws would assist in mopping up some of the unemployed. The trick would be to set at a rate of the unemployment payment at the right level - one that would want to keep people fed and clothed, but not be too comfortable, and of course the administration of the scheme would be fraught with difficulty.

    I am glad I am not a policy maker."

Phew. That last line is quite telling. I can agree with Mr. W from Durban, I am also glad that I am not a policy maker, you have so many "things" to balance. Thanks for your input guys!!

Byron's beats has a look at another handset maker that has fallen behind the curve.

    If you own a Blackberry maybe don't read this. Or maybe do and consider a change when it's time for that contract to be renewed. Research In Motion(RIM) the makers of both the Blackberry hardware and software reported disappointing quarterly earnings as it's phones lose traction while it's tablet battles to gain any traction whatsoever. This was not well received by the market. We know how ruthless investors in New York can be. The stock fell 19 % in after trading hours. Wow.

    RIM shares have now lost more than half their value in the last year and things going forward do not look good. It shipped half the PlayBook tablets it did last period. Tablets represent a new market and huge growth potential. Profits were down 59% from this quarter last year whilst phones shipped dropped from 12.1 million to 10.6 million.

    Why do I emphasis these results? None of our clients hold RIM shares and I have nothing against Blackberry. I like this story because it presents a good investment lesson. You need to pick up on trends which are not necessarily that obvious. RIM's market cap is now 3% of Apple's. At its height in 2008 it was worth $84bn. At that stage Apple was worth $147bn but that was almost entirely based on the iPod. In fact the Apple app store was only opened in mid 2008 when the first iPhone 3G was launched. This was only the second model after the original iPhone which came out in June 2007.

    I suppose it is a difficult trend to pick up on. Especially when we are here in South Africa which, even now seems like Blackberry's final frontier. We did not see the absolute craze for the iPhone and the shift taking place. But one needs to look at the bigger picture. One needs to take note when people queue for days to get hold of a product and when a product launch almost becomes a public holiday in some regions.

    Now I am not saying that Apple can sit comfortably. Far from that. Blackberry users seemed like the most loyal of consumers, to South Africans. But in truth, consumers are fickle and if something better comes up, people will talk with their wallets. This is why you need to pay close attention and put your money where the future products are going to come from. And to be honest Apple still seems to be at the forefront of innovation. They invented the tablet and sold 9.25 million iPads (RIM sold 200 000) and it looks like there is more to come. Not necessarily in quantity of various products but definitely quality. I can't wait to see what their next life changing product will be. Rumour has it the new Apple TV will be awesome.

Commodities and currencies corner. Dr. Copper last clocked 397 US cents per pound, slightly higher, the gold price is heading back up, 1779 Dollars per fine ounce, the platinum price is higher at 1801 Dollars per fine ounce. The oil price last clocked 89.39 Dollars per barrel for WTI. The Rand is steady, 11.70 to the Pound Sterling, 10.24 to the Euro and 7.41 to the US Dollar. We have bounced around between being slightly higher and a little lower, resource stocks leading the charge here today, banks heading in the opposite direction.

Sasha Naryshkine and Byron Lotter
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Jozi, Jozi. Up and down, in and out of the black for much of the day is how we bumbled along. There was a little bit of news flow which saw us catch the raised bid train ride, a Michigan Consumer Sentiment index read above expectations hitched us up to end better on the day. On what essentially was a rip roaring week for the bulls, gains all around. But you might know how I feel about these sentiment indicators, that are supposed to be broad based, but only cover a few thousand people (or few hundred), but on balance does reflect the mood. And there was some sort of split, sentiment gaining amongst the lower income households in the US, and sentiment lower amongst the higher income folk. We will see how that trend will probably stay intact over the coming war, with a class warfare looming in the US. Stay tuned for that.

Anyhow, our market managed to squeak into the green, the Jozi all share index closed up shop at 31051 points, up 53 points on the day. Banks were bashed and dragged on the overall markets, down one and two thirds of a percent. Gold miners were over two percent better. Resources closed better by two thirds of a percent, really leading the market slightly into the green. Some of the smaller platinum mines rallied hard, there seems to be a lot of confusion about what sort of hold the Minister of Youth Development, Indigenisation and Empowerment of Zimbabwe has over the Minister of Mines in Zimbabwe. I must be honest, it still looks murky to me, so until there is some sort of resolution, we will be in a zone of uncertainty. Ja, that sounds silly.

Byron's beats takes a look at Clover. This is a good example of a relatively middle sized company with huge and well known brands.

    We had full year results from consumer goods and products group Clover Industries, coming out first thing this morning. We all know Clover as the milk guys but there are quite a few household brands that fall within their portfolio. These brands include Tropika, Super M, Ultra-Mel, elite and of course the Clover brand. The way I understand the business model is as follows. They receive the goods via contracts with dairy farmers. Then they use their own production facilities to make either the cheese or the yoghurt etc. They do their own distribution and in fact boast one of the best distribution networks in the country with 14 000 delivery points. They also arrange the sales and merchandising of their products.

    Revenue came in at R6.5bn. R5.5bn of that came from the sales of products, R640 mil came from rendering of services which I would imagine is the distribution business, whilst R386 mil from the sale of raw milk. Unfortunately costs for sales and distribution are very high and margins are not great. Headline earnings came in at R175 million which equated to 113c per share. There was a lot of restructuring and once off operations so the 113c number is the one to look at with regards to continuous operations. The share trades at R11 and a historic PE of 9.7. Sounds fair for a company of this nature.

    In the overview, management were happy with these results and said that the listing was not only the highlight of the year but probably the biggest highlight in the company's history. They managed to raise R575 mil in capital which they will use to improve inefficiencies in the supply chain and expand the distribution capacity.

    Investment case for Clover. The company is in a good financial position following the listing. This will give them some nice expansion opportunities. They fall in a similar space to a Tiger Brands or a Pioneer Foods. They are very defensive and expect to grow as this country's economy, population and middle class grows. People will always drink milk and once you have converted to fresh milk from artificial or powdered milk you will not go back. Their good distribution system also puts them in a strong position for future growth, joint agreements and expansion.

    Investment case against Clover. There is nothing there that excites me. It's a sound business model but room for industry changing innovation is limited. They are also extremely sensitive to input costs which we know are increasing. Margins are already low, increasing input costs will put even more pressure on these. I'd also prefer to go with the bigger product mix that Tiger Brands has to offer. To conclude, a decent business but we feel there are better options out there.

OK, what is stinking the joint up this time? Well, the truth is that it is the same old problem of worries about European sovereign debt. This has been ongoing for nearly two years now. In July 2009, Greek two year government bonds were as safe as houses (selective houses), yielding less than two percent, reflecting that the market participants did not think that it was too risky to lend money to the Greek government. So, it is safe to say that the risks were very low at the time. Well, having yielded plus 80 percent last week, the yield has plunged to 55 percent, but basically reflecting that the risks of lending money to the Greeks are on a par with lending to your junkie cousin. Who says that he/she will pay you back? Right....... Strangely I read somewhere that Greece's debt to GDP has been above 100 percent for 18 years. So nothing like a good old fashioned crisis to highlight the problems, because when the going is good, let us just say that nobody cares much.

So what is going to happen today? It is all about Greece again, the Greek finance ministry, led by Evangelos Venizelos will hold one of the toughest (conference) calls of his life, with what is now being called "the troika". This particular troika consists of the EU, the ECB and the IMF. Half banking types, half politicians. Greece needs this next part of the bailout package. In the bigger picture, 8 billion Euros is not a lot of money, bearing in mind that the original package is 109 billion. But Greece needs the money now, because they have basically enough money for about three weeks. This is a fight for sovereign liquidity.

Markets are all mooted to trade lower this morning as many were expecting a coordinated approach from the European Union finance ministers (and Tim Geithner), but alas there was much disappointment from the market hungry bail out junkies. See, junkies of another kind. What the meeting did say was that the Greeks had not done enough to qualify for this next 8 billion Euros. The Greeks are scrambling, an emergency cabinet meeting was held yesterday, and prime minister curious George Papandreou cancelled a trip to the US to essentially deal with this life and death matter.

I was astonished to see a factoid last week, someone tweeted it and then I could not find it for a while, and then Paul found it for me last evening, check it out: "Little known fact: #Italy is richer than #Germany. Net wealth E8.6 trillon vs E6.1 trillion. Italians should bail own government out." That tweet was from Hugo Dixon, who is the Reuters Breaking Views founder and editor. So it is not about the money, that exists, but rather the internal compliance. The citizens need to comply, and as such, this time the European politicians are putting their foot down with Greece. Because I am guessing that the Greeks suffer from the same problem that the Italians do, they are relatively rich, but do not trust government. Since world war two there have been 20 Prime Ministers, roughly one every three years.

All the while the German chancellor continues to lose the popular vote back home. I saw this interesting article in Der Spiegel on Friday, leaving me more confused when I had finished. Check it out: Could the SPD Really Say No to a Grand Coalition? All I know is that her party is losing ground. But word on the street is that it does not matter what actually happens in Germany, all parties are committed to the Euro. Meanwhile the Americans are more than a little worried about the European issues, the WSJ reports: Geithner Warns Europeans.

Washington DC This is the Barack Obama plan to basically tell the super committee how to go about their business. Almost immediately it becomes apparent that this is a plan to score politically rather than score on policy. There will be much gnashing of teeth as rich people curse that fellow Buffett, here is a *nice* mainstream take from the NY Times: Obama Tax Plan Would Ask More of Millionaires. Phew, the upshot of it all will be that the business channels and outlets that we are plugged into will be critical of the plan. Because, you know it hinders the opportunities that rich people would otherwise contribute to employment. Other perhaps left-of-centre rich people would welcome the plan. All will be revealed later, keep calm and carry on, as the article suggests, very little will fly in the meantime, and we are set for deadlock once again.

Commodities and currencies corner. Dr. Copper last clocked 393 US cents per pound, about the lowest I have seen this year, in fact the lowest I have seen since May this year. The gold price is higher, naturally as the Mr. Miyagi risk off trade takes place, last at 1823 Dollars per fine ounce. The platinum price is also better at 1809 Dollars per fine ounce, I saw a genius analyst note say "platinum is a precious metal too". Quite! Excellent and people get (well) paid for this stuff. The oil price (WTI Nymex) last crossed at 86.67 Dollars per barrel. The Rand is weaker (thanks Mr. Miyagi). This is the quote from the movie made back in 1984: "Wax on, right hand. Wax off, left hand. Wax on, wax off. Breathe in through nose, out the mouth. Wax on, wax off. Don't forget to breathe, very important." There goes. The ZAR last crossed at 7.54 to the US Dollar, 11.87 to the Pound Sterling and 10.33 to the Euro.

We remain looking for answers. Not me really, I am not too sure what answers "the market" is looking for. Resolution on Greece's debt problems, not likely anytime soon, some even suggesting that Greece is being set up for a default in December, they will get this package, and not the next one, but that will be telegraphed. Not sure. In the mean time we have hit the skids here and are trading lower. Too bad, I was hoping for green across the screen after the rugby performances this weekend, Ireland showing the Aussies how it is done. Remember, take nothing for granted.

Sasha Naryshkine and Byron Lotter
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Jozi, Jozi. We got a second wind towards the closing bell, resources led the charge on a day where the directionless seemed to be this time waiting for the Fed to reveal their next step. It always floors me that "the market" is looking for something next, be it a bond auction from Greece, or weekly jobless claims, or a German sentiment reading from the ZEW institute, there is always something else. It is almost like standing on the platform not wanting to board the train, because you want to read the newspaper a little bit longer. You have to be in, and make sure what you buy is the right vehicle. When I hear investors are looking for this or that, I turn off, because the investors are exactly the opposite, their time frames are weeks, days, hours, minutes and seconds. That is not the sort of activity that we are in.

Session end the Jozi all share index closed at 31343 points, up a percent and a quarter or 384 points on the day. As we said, resources rocked, the sector adding nearly two percent and leading the charge, banks were marginally better on the day, industrials were up as much as the rest of the market, general retailers were slightly lower, ever so slightly. Fixed line telecom, OK, Telkom the only one, that stock was lower on the day. Perhaps the pricing war is starting to get them and their shareholders down. New, much higher data caps kick in October the first. Perhaps that is starting to weigh on the stock.

PPC released a trading update yesterday. As Forest Gump would then say, and that is all that I have to say about that. But that is not the case, yesterday PPC delivered a rather poor looking trading statement: ".... earnings per share and headline earnings per share for the year ending 30 September 2011 are expected to be between 25% and 30% lower than the previous corresponding period."

Not great, but we are all well aware that we are currently in a deep trough, recent cement statistics suggest we might be starting to bottom, from the release: "cement demand in South Africa improved marginally during the second half of PPC's financial year.". But not everywhere, all my friends and family in the Western Cape, time to start building please: ".... cement demand in the Western Cape Province, where PPC enjoys high exposure, continued to lag the rest of the country."

Another piece of information that you might need: "While a successful price increase during July 2011 will enhance revenues for August and September 2011, the overall pricing environment is expected to remain competitive and this together with ongoing input inflation, continues to present a challenging business environment." That same old word that crops up when talking about the local economy, challenging. Results are on the 8th of November, and but there is a presentation that we can dissect tomorrow or Friday.

Operation twist is not trying to be a contortionist whilst keeping your left hand on the blue dot, and your right leg at a ninety degree angle on another blue dot, but rather the next Fed program nick name. Or just name. This is how I understand it, Operation twist has been done before, back when another young democrat was in the White House, JFK. Originally it was Operation Nudge, but because of a legendary song (yes it is 50 years old) from Chubby Checker (launched July 1960) the market participants at the time called it Operation Twist. Checker said that the Twist ruined his life, because after that nobody took him seriously, because they did not think he had real talent. But like Wiki says, he actually got adults onto the dance floor, who can't ignore a ridiculous dance? Most recently the most ridiculous one I can think of is the Macarena and the Locomotive, the Chicken dance. Hey, at least everyone looks pathetic together.

So what does nudge or twist actually do, because the last thing it is intended to do is to make everyone look nerdy and geeky at the same time? Quite simply, without increasing the size of their balance sheet, the Fed will sell their short term government debt and buy the longer end of the curve, 10 year to 30 year debt. The yield curve will then flatten. The longer dated borrowing costs will then be more attractive to business owners and individuals who were not willing to stick their necks out, to jump at much lower longer dated borrowing costs. Question is, those long dated rates are so low as it is, what would the tipping point be, for most people?

There is already a whole lot of scepticism on the program, and whether it would work. The way I see it, getting out of the short term debt that has rallied hard might actually see the Fed make a sizeable profit, and achieve what they need and want, more risk taking and spending by the consumer and small businesses. Thereby boosting the economy short term. As I said before, it is not about the "cheapness" of money, but rather this is a confidence crisis. Once confidence is restored, then you can imagine that folks will be willing to take on risk. The Operation Twist is expected to be announced a little later today, later in the evening our time, around two fifteen in the afternoon in the US, East Coast time. Rates are expected to remain on hold. I can assure you that "investors" will be watching this event as the main event de jour.

The EFSF law passing (supposedly) next week Thursday in Germany is the other event you must look out for. Or not, if you just care about Ashton Kutchner and Charlie Sheen, that is also fine too. What is the EFSF? The EFSF stands for European Financial Stability Facility, which gives you a great idea of what the company (registered in Luxembourg and owned by the EU states) actually does. Fancy that, registering the company in Luxembourg. Because of the constitutional ruling last week, the right channels are now being taken by the German government. Letting the elected officials decide.

Philipp Roesler (or is it Rosler with a umlaut on the o) was interviewed by one of my favourite market anchors, Sylvia Wadhwa (say it Vad-vaa) in a CNBC exclusive yesterday. Who? Well, Roesler is the vice chancellor of Europe Germany. Amazing guy and story really, read it at Wiki: Philipp Rosler. Amazing! Roesler back pedalled on comments that he had made last week in which he suggested that Greece should default, now he is all for a unified Euro and they will succeed. Quite right, that is the prerogative of politicians, to change their minds. Anyhow, Roesler said that he thought that vote would pass comfortably and then the EFSF could continue doing its work, keeping the periphery countries "afloat".

I quite liked this analysis of the Euro currency and the Euro zone from the Pragmatic Capitalism website: A FISCAL UNION FOR THE EURO - SOME LESSONS FROM HISTORY. It is something that we have been suggesting might actually happen, and strangely be fast tracked by the crisis. Useful insights into a complicated union.

Byron's beats has a look at a company that would have rewarded you handsomely over the years. Once known as Rembrandt. And some amazing engineering of the businesses, well done to the Ruperts of yesteryear and present. Think of Richemont, Remgro, Venfin, British American Tobacco, Reinet Investments, which have come out of the Rembrandt group. Have I missed anything?

    We had results yesterday from investment holding company Remgro. This one is slightly complicated because they have changed their yearend so these results are actually for 15 months. This makes valuations a bit difficult. Firstly and most importantly, let's look at the group structure so we know what we are analysing. Check out this link from the website. See that through Remgro, we get exposure to financial services, diversified industrials, media, mining and technology. In truth however Industrial contributes 47.2% to earnings whilst financials contribute 46.9%. The rest are fairly insignificant.

    Because the periods are not comparable I'll just give you the earnings numbers without percentage comparisons. For the 15 month period headline earnings per share came in at 1082c. They do give us the 12 month results which came in at 788c compared to 690c from the previous period, growth of 14%. In terms of valuing an investment holdings company, the rules are different. Investors look at the intrinsic value of all the companies under management. According to management, this came in at R135.97 a share. The stock trades at R114 a discount of 16.1%. This means that the sum of the parts is worth more than what the market is valuing the company. Is this a buying opportunity?

    Investment case for Remgro. People who like the stock like the instant diversification. By buying the stock you are putting your faith in management to make the right decisions and the right allocations. Many people also believe in the Rupert factor. Johan Rupert who is the Chair has a knack for making the right decisions at the right time. You also gain access to some assets which are not listed and which you would not normally be able to invest in. You are getting all of this at a discount to NAV.

    Investment case against Remgro. 75% of all their earnings comes from listed companies. If you like their mix why not just buy these companies on the market yourself? Not only do you avoid the Remgro management remuneration but you also have the choice of hand picking which ones of their asset mix you like. For example they have a stakes in Nampak and Distell which are companies we would stay far away from. As asset managers we prefer to make those allocation decisions ourselves. Plus if you are looking for the Rupert magic you can buy Richemont shares where he is CEO. Lastly, if you don't have the funds to get that instant diversification, rather buy into the Alsi 40. Cheaper fees and more diversified mix. Hence we feel they deserve that discount.

    On a different note but concerning the same company, Remgro have offered to buy a 22% stake in Grindrod, the diversified shipping company. The structure of the deal is interesting. Basically Grindrod needs to raise money to fund new projects they are involved in. They are raising this through a rights offer to share holders. But instead of the offer being at a discount, it is at a premium to the current price. Remgro will subscribe for 133.3 million shares and assuming shareholders don't want to buy new Grindrod shares at a premium (which is a given) Remgro should get most of these shares. Grindrod is not a company we particularly like. Although we are optimistic about global growth, the shipping industry is too cyclical and extremely competitive. Again this reiterates why, in a world of choices, we stay away from Remgro.

New York, New York. Yo-yo stocks last evening, not the yo who wants to know type, but rather the kids (and adults) toy that is attached to a string. Why am I telling you, that is dumb. The graph last night actually looked strangely like the most prized of all Cape Town possessions (?) Table Mountain. Sort of, sadly slipping away at the end of trade. Of course every Capetonian owns a piece of the mountain. Session end the Dow Jones managed to squeak into the green, the broader market S&P 500 closed down nearly one fifth of a percent, whilst the tech stocks slid by 0.86 percent.

Oracle results after the bell last evening seemed most pleasing. This is a company that I admire, their software is top class, and it is something that you use more often than you think. Many a website database uses their software, not cheap mind you, but you can't doubt the quality. Enough of that, let us check the results out. These results were for the first quarter of their fiscal year. Revenues were 12 percent higher to 8.4 billion USD, with new software licences growing 17 percent. Basic EPS was 36 US cents a share, the dividend was six cents. After hours the stock is trading three percent plus higher to 29.29 Dollars, around in the middle of their 52 week trading range. Earnings estimates for the current financial year are just over 2 Dollars worth of earnings, and the following year around 240 cents worth of earnings. Pretty decent, so the current valuation is not that bad.

The commentary part suggests the change in strategy (they have been buying businesses over the years) is starting to pay off: "By moving away from low-margin commodity hardware and focusing on high-end servers, we increased our hardware gross margins from 48% to 54%. Our strategy to grow the profitable parts of our hardware business is paying off."

Is this a particularly appealing place to be invested? Part of me says yes and the other half says no. Oracle compete with Microsoft, Intel, SAP, IBM and HP, those are mean competitors. They have an amazing software business, with four different types of licences that are able to for most business pockets. They also have a stunning hardware systems business, with servers running on their SPARC microprocessors. And then there is their services business, which consists of the old, consulting and the new, the cloud. A nice spread of businesses.

Oracle was founded exactly a year to the day after the Soweto uprisings of 1976, by Larry Ellison. Who pays himself too much money, after all he is a huge shareholder, why pay yourself so much? Agree or not? Surely the dividend must be enough for Ellison, he owns 21.8 percent of the company or 1,178,771,328 shares (as at 15 August) with a market value at yesterday's close of 30.786 billion Dollars. That is a quarterly dividend check of 70.7 million Dollars, why would he possibly need to pay himself about that much a year? Ah, he can do what he wants I guess.

There is a load of cash on hand, 13.1 billion Dollars cold hard cash and 18.5 billion Dollars worth of marketable securities (liquid securities convertible to cash immediately) on their balance sheet. Ready for deployment. So that is nearly 635 US cents out of the 2929 US cents price. In the pre market of course. So, I guess they will continue to press hard into new territories (they have just opened a new facility in India) and continue with these smaller acquisitions along the way.

Commodities and currencies corner. Dr. Copper last traded at 377 US cents per pound, the gold price is higher at 1811 Dollars per fine ounce. The platinum price is last at 1788 Dollars per fine ounce. The oil price is 86.58 Dollars per barrel. The Rand continues to weaken, 7.77 to the US Dollar, 12.17 to the Pound Sterling and 10.63 to the Euro. We are being propped up here by the Rand, we are higher again. Hey, I am not complaining. Look out for that FOMC statement later.

Sasha Naryshkine and Byron Lotter
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Jozi, Jozi. We were doing well, until we were not. The Jozi all share closed down one tenth of one percent, or 32 points to end at 31311. It really was a mixed old bag, some good, the banks, some bad general retailers, I thought retail sales were not that bad. But it is not about that, it is rather about the much weaker Rand (see all about that lower), which is going to feed into inflation over the coming months. Any chance of a cut at the MPC announcement later today, I am guessing that it is gone. Expect to be paying around 11 ZAR a litre for Petrol soon, the Rand has weakened by around 12 to 13 percent in the blink of an eye. So perhaps the window is closed.

I have been asked this question a lot over the last few days, what is happening with the Rand, why is it getting so weak, what is the problem here with us? Why is it weakening like that? Well, the short answer is that it is not just us, it is everyone, because we pulled up a few charts of the Indian Rupee and the Brazilian Real and compared them to the US Dollar and overlayed the graph of the ZAR to the USD. And you know what, in the short term, over the last few weeks the graph is identical. Most emerging market currencies have been smashed against the majors, which is strange, because they have their problems, serious problems. A flight back home, that is what it is.

I was relieved to see Beyond Brics, the FT blog people who had written exactly what we were exploring yesterday, the day before, the day before that and so on, over the last few weeks. Check: EM currencies: here we fall again. See, often it has nothing to do with you, or me. And rather everyone in between, the Forex market sloshes around with around 4 trillion Dollars worth of daily trade, that is around ten years of our economic output. So, don't get anxious about the Rand, just tighten your seatbelt.

Byron's beats has a look at the land down under and our connection, which is now stronger. No, Marmite are not buying Vegemite. Rather SABMiller have paid up for Foster's, who have said yes. Well done to the board.

    So the Fosters board have finally accepted SABMiller's offer to buy the company. Remember that in June SAB made a A$4.90 per share offer for the business which the board duly rejected. Then they went hostile and approached the shareholders with that same price. Obviously amongst the boardrooms negotiations were still taking place and today SAB came out with a SENS announcement stating that Fosters had accepted a A$5.10 per share offer. This values the company at A$11.2bn or R88bn, 20% of SAB's market cap. Hopefully they are not paying for this in Rands because with recent weakness that price would have shot up considerably. The funding is said to be through a combination of existing resources and new debt committed by various financial institutions.

    Now let's look at the reasoning behind the transaction. when the first offer was put forward SAB stated the following "The proposal to acquire Foster's is in line with SABMiller's strategy to create an attractive global spread of businesses, with a focus on developing strong and successful brand portfolios. Australia has a strong, wealthy and growing economy with consistent long term population growth in key demographics, and is well positioned to benefit from continued economic growth in Asia. Australia has a profitable beer market in which Foster's is the leading brewer with 7 of the top 10 beer brands, a national distribution platform and scale production." So it looks like they are here to capture the growing Australian market. Remember Australia have been one of the few developed economies to keep on consistently growing thanks to the commodities boom.

    I am sure there is more to it than just Australia. 2 things. SABMiller are a huge company. To grow a company that big organically is difficult so by buying Fosters the deal will definitely be earnings enhancing. Secondly, remember how Aspen bought Sigma, the Australian generics producer, not just for the Australian market but also for their access to Asia. Australia have strong ties with Asia and are often used as a gateway to the continent. I mention this because there has been a growing trend in SAB's results that shows beer consumption in developed markets slowing whilst most of the growth came from Latin America, South Africa and the rest of Africa.

    Asia is also a big developing beer drinking region as the culture there changes to a more western way. In fact China consumes more beer than any other nation. That is no surprise, there are people there. Per capita however they are 41st in the rankings with 30 litres per year compared to number one spot, Czech Republic who consume 158 litres per year per person.

    The consumption in China is growing however at 10% an annum off a low base. Check out this article from The Economist which has some interesting insights. This is where I would imagine they want to take the Fosters brand even though they already have exposure in China through their JV with Snow.

    Do I think this is a good purchase? It may be difficult to grow that brand in Asia and I am not sold if it is just the Aussie market they are after. At this stage Fosters only really has exposure in Singapore with regards to Asia. Even though the Australian economy is growing, trends in developed markets show less beer consumption as populations get older and more educated. I am also worried that they may have over paid due to lack of opportunities and the desire to grow earnings. That said, Fosters have a great brand portfolio and the acquisitions SAB have made in the past have proven to be successful so we will have to wait and see.

New York, New York. Twist. Not Oliver, although I was pretty sure that in the aftermath of the Fed announcement (which was a whole seven minutes late) the selling started. Which led me to believe that market participants did actually want more from the Fed, something more concrete, please tell us that it is all "going to be OK". Perhaps we should call Operation Twist simply Oliver Twist, or O. Twist.

The main reason the markets sold off in the aftermath of the FOMC statement was because the Fed saw a weak looking economy. I mean, has the data not been suggesting that, this is hardly new news. And by the way, not all ten voting members gave their thumbs up to Operation Twist, there were three dissenting members, the other seven said that it was fine. Like we explained yesterday, the Fed are basically shifting their focus from owning short term debt to longer dated debt. Shifting their focus towards the long end of the yield curve, there, try that one this weekend with your mates, they will think you are on top of it all. Drop in a random new conversation starter: "Did you see that the Fed have shifted their focus to the long end of the yield curve?" Points aplenty for you.

I favourited (surely that become a word now) a tweet from a smart fellow called Cullen Roche, who is a bit of cynic, but aren't we all, don't we all have a little cynic in us. He goes under the Twitter handle of Cullen Roche and he lives on the other side of the plant to us, San Diego, California. What he tweeted was so very true: "We've become a bunch of monkeys waiting around for the man behind the curtain to tell us where he'll sprinkle his magic fairy dust!" We are looking for signs that everything is going to be OK. Of course it is going to be OK, it is just going to take time. Be patient.

There was a whole lot of anxiety amongst the minute by minute people who got their knickers in a knot about the Fed being a little late with their statement. I kid you not, but Ryan Ruggiero suggested that "The Fed's Statement Was Late Today Because The Treasury Press Room Copier Was Jammed" Still sending faxes over there at the Fed, that is the way that it works.

If you are looking for the whole FOMC press release, follow the link here: 2011 Monetary Policy Releases.

Some not so encouraging "stuff" that we already knew, like "economic growth remains slow", "continuing weakness in overall labor market conditions, and the unemployment rate remains elevated" AND "Household spending has been increasing at only a modest pace in recent months despite some recovery in sales of motor vehicles as supply-chain disruptions eased" So, it is fair to say that the economy is still weak.

But, on the bright side, the Committee "continues to expect some pickup in the pace of recovery over coming quarters but anticipates that the unemployment rate will decline only gradually" And then the Twist part that everyone was waiting for, and in fact a whole lot bigger (the size of the program) than everyone thought:

"The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate."

And if anyone cared, rates stayed on hold at between 0 to 0.25 percent, and will remain this way through to the end of 2013.

I had a look at an ex Fed member, and one of my favourite bloggers, Bob McTeer, he had this to say: Come on Baby, Let's Do the Twist. I like the personal touches there and I like the comeback of Chubby Checker. Nice.

All that happened with market participants is that stocks sold off hard, in the last two hours of trade there was a whole lot of selling. The Dow closed down 283 points to 11124, the nerds of NASDAQ got crushed (the least), down two percent to 2538, whilst the broader market S&P 500 lost nearly three percent, to close up shop at 1166. Transportation stocks were sent packing, down 4 percent. CSX, the big railway company got carried out, down over eight percent. Starting to look cheap and juicy. Cheap. But cheap sometimes gets cheaper.

Commodities and currencies corner. Dr. Copper is needing a nurofen, a hot toddy, a serious check up and to sleep it off. Last at 364 US cents per pound. Ouch! The gold price in Dollar terms is lower, 1771 Dollars per fine ounce. In Rand terms the gold price is flying, 14522 more or less ZAR per fine ounce. Our gold miners must be making money finally. We shall see in the next two to three quarters. The platinum price in Dollars is lower, last at 1741 Dollars per fine ounce. The Rand is a whole lot weaker, 8.20 to the US Dollar, 12.71 to the Pound Sterling and 11.11 to the Euro. Expect a whole lot worse start this morning, perhaps the Boks can brighten up your day with a clinical performance against our neighbours. According to time and date dot com, Windhoek is 1164 kilometres from Jozi. Lusaka is about the same distance from here. Strangely Cape Town is further away. Can that be right?

Sasha Naryshkine and Byron Lotter
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A heads up sports fans. Vestact is on remote control today. Our power source at the office is out (whole areas of Joburg are powerless) and will only come back during the course of the afternoon. So you know where to get us, by email and most of our clients have our cell phone numbers.

Jozi, Jozi. I am reminded of the answer that Jamie Dimon (the guy who runs JP Morgan) gave his daughter when she asked, what is a banking crisis, he answered, something that happens every 6 to 8 years. Something like that, I searched for an answer, but did not find it, but it goes like that. I think what he meant to say was that one had not happened for a while, and that is why everyone was so bummed this time. Can I say bummed? I guess. Bob McTeer had something similar to say in his note last evening: "Financial Crises will always be just around the corner. There is a positive relationship between risk and reward; so the temptation to incur more risk for more reward will always be with us. You don't usually get rich seeking safety. Regulations may plug the gaps that caused the last crisis, but the next crisis is another matter."

Exactly. He goes on to talk about regulation being another form of taxation. This is an ex central banker. Yesterday's market action was ugly if you were long and long we are, always. But the bears were in complete control yesterday, sending the bulls snorting to the forest with their tails between their legs. Commodity prices were getting hammered, we were buffered a little by the weakening currency so the majors did not fall as much as they did around the rest of the world. But there was still very few places to hide. The All share ended the session down 988 points to 30323, that is a drop of over three percent. Yech. Retailers fell over 4 percent, more on why later. Resource stocks slipped nearly three and a half percent. Banks were down three percent. Phew.

To give you an idea of the carnage, the FTSE fell four and two thirds of a percent, the top 300 stocks in Europe, the Eurofirst 300 benchmark fell about the same as the FTSE. The authorities are taking action it seems, there was a statement from the G20 last evening to say that they would take all the necessary steps to ensure basically that the financial system (hate that word system) is stable. Liquidity folks, that has been the rush back to the Dollar and subsequent jitters about Greece defaulting and the lack of coordination of the European leaders and central bankers alike. Check it out here: G20 pledges bank support, eyes bolder euro fund. All the officials of the world are suggesting that we are in the danger zone. The only danger zone I know is the song from Top Gun, but I get what they are saying, the next few weeks for the banking system will be vital.

At the same time that everyone around was worried about the Fed's outlook for the global economy and a couple of poor PMI reads from the Chinese and the Europeans, we had an MPC meeting. Where the door is ajar for another rate cut. Although, as George Glynos, an economist said, he was not quite sure what sort of difference it would make anyhow, a fifty basis points cut. I think I agree with that, if we really wanted to give it a go, perhaps a full one percent would be in order.

The full Statement of the Monetary Policy Committee is available at the link. Click on it. The main line is really the last line, this time I think that the bank is serious. "The MPC is however concerned at the potential impact of the current global turmoil on domestic economic prospects and stands ready to act appropriately should the need arise."

So what about inflation? The weakening Rand is a serious concern. We saw this back in '08 when all EM currencies were trashed. I follow a WSJ journalist who is in India and she was pulling her hair out as the Indian Rupee had plunged through 50 to the Dollar mark. Over the last three weeks the Indian Rupee has fallen nearly nine percent to the US dollar. So, again this has nothing to do with the Rand, have you got that folks?

This is in part the pot of assets, and the respective allocations from the developed world. Think for a second that you sat in Chicago (OK, Charlotte, better weather) and you had to allocate funds around the world. And you were searching for yield. But check this out, and you will see what I mean: The 11 Wealthiest Countries In The World By Financial Assets: Allianz (PHOTOS). Yes, yes, it is the Huff Post, but loads of people like this. And it is old, there is a new one on the Allianz website: Allianz Global Wealth report.

But wait, there is more: Allianz Global Wealth Report 2011, I managed to find that!! Excellent. Amazingly, according to the report, Eastern European Wealth is growing the quickest. Here it is guys, the table from the most recent report, which shows you that there are two countries, the USA and Japan, who have more assets than the rest of the world combined. So naturally in a time of crisis those currencies are going to strengthen, and almost anything else will weaken. Take time to review this hacked table from the report, these are the ONLY countries that have assets in excess of 1 trillion Euros. Everyone else does not.

Income inequality is clearly a big issue. This graphic illustrates it a whole lot better than I could ever write, even more amazing than the table above. Same thing, just better visually.

We sat here and initially said, see, communism is a terrible thing (for wealth creation, not for full employment I guess) and that is what held the Eastern Europeans back. But wasn't that always the case, the French, British and Italians were always wealthier. Can anyone tell me otherwise? I suspect that I may have answered the flight to the Dollar and Yen in a time of crisis, I hope so.

I really loved this analysis of how banking used to be and how it is now: Arrival of the "Suits". I do think that there are some sour grapes here, perhaps the guy wanted to play golf when he worked at the building society. Or got a bonus, but I guess his points are well made. I in a way like financial engineering, if humans can think of better ways to allocate capital, that would be good for everyone, not so? But some things that we have built like atomic bombs are not good ideas either. All I am saying is that financial engineering will continue to improve. But there must be some sense I guess and that is where the regulators step in. Balance.

New York, New York. It was a horrible no good session of epic proportions. It could have been a whole lot worse. The silver price, the gold price, the copper price, those all were trashed. The gold price kind of stood up, but was also lower. Basic materials as a sector fell 5.6 percent, on a day that the broader market S&P 500 lost nearly three and a quarter percent. The only thing catching more than a serious bid (people were falling over themselves to buy actually) were US treasuries, the ten year fast approaching the all time lowest yield. And in fact we were last at these levels in 1950, around 60 years ago. When the baby boomers were just out of nappies and learning their way in the world. The two year note actually sold off, the yield shifted up a little, perhaps the Fed have started operation twist already!

Byron's beats talks about one of my most favourite companies. I try and run in their product every morning. This morning myself and the hound (a husky dog) pounded the streets. Getting fit, thanks to this company.

    Last night we had numbers in the US from what has turned out to be a very resilient company in times where the consumer is supposed to be broken. I'm talking about Nike, pretty sure you have heard of them. They came out with Q1 results which comfortably beat expectations, managing to grow sales in all their regions except for Western Europe.

    Earnings per share came in at $1.36 for the quarter whereas the general consensus sat around $1.21. Expectations for the year come in at around $4.92 which values the stock at around 18 times forward earnings. This is using the afterhours price of $88.71 which is up 5.4% on the news. Clearly the market likes what they have seen. The stock still trades about 11% below all time highs reached in July.

    Revenues had grown 12% from last year's first quarter while they saw a 30% increase in the online business. Times are changing. Per region, North America, their biggest market actually showed fantastic growth. I thought in that region the consumer was finished? Revenues were up 15% whilst earnings in the region grew 21%. In Western Europe revenues were flat mainly due to comparisons with last year's Soccer World Cup. Of the Western European teams Portugal, Holland and France were sponsored by Nike. I suppose that's a decent enough excuse. Plus Holland made the final although I doubt they sold many French shirts following their infamous exit. Maybe next quarter will improve if France or England succeeds at the Rugby World Cup. Personally I'll be supporting the green Canterbury jersey thank you. They did manage to grow revenue by 14% in Central and Eastern Europe however.

    In China revenues increased by 9% thanks to good growth of 21% from the footwear division. Earnings only grew by 4% in that region due to slightly lower margins and increases in investments. Surprisingly Japan revenues advanced 17% but only 5% on a currency neutral basis. You see, the yen is stronger so that had a positive impact on a company reposting in dollars.

    Notice a trend? Good growth in developing markets. 24% on a currency neutral basis in fact. Unfortunately Africa is not even mentioned. Come on guys, Paul even buys his work pants from Nikes golf clothing, give him some credit! But again these results reiterate our thesis on developing market aspirational consumerism. Nike have a fantastic brand which very much represents the American athlete. Not only do people aspire to wear such clothing but with more and more people entering the middle class, more people will eat more foods and will need to exercise to burn off those extra calories.

    Prospects look positive. Predictions for the next quarter sales can be reasonably accurately because retailers make orders for delivery in the next quarter. They expect revenues to be up in the mid to high teens. Margins are an issue (down to 44.3% from 47% which is still fantastic) as input costs increase. But they have planned price increases in the second half of the year which should mitigate this somewhat. We continue to add at these levels and look forward to next year's Olympic games and The Euro Championships just as much as Nike.

Commodities and currencies corner. Dr. Copper is last at 333 US cents per pound, yes, you read right. The platinum price is last at 1687 Dollars per fine ounce. No, this is not the price from last year. The gold price is a touch lower (but still holding up well), last at 1729 Dollars per fine ounce. The oil price is 81 Dollars per barrel. Looking iffy. The Rand is last at 12.79 to the Pound Sterling, 8.26 to the US Dollar and 11.16 to the Euro. Having started a little better we are now lower on the day sadly.

Sasha Naryshkine and Byron Lotter
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Jozi, Jozi. Friday we were stranded in my little study at home, it felt like we were in an internet cafe all staring at the wall and all browsing at snore like speeds. But that was a whole lot better than no speeds, at the office the power was out and we had to be mobile, so we picked up and left. Markets were fairly choppy, financials and banks continued to be under pressure as the (pressure) cooker heat intensifies in Europe, everyone is urging them to work together and get the job done. The Greeks are pleading, the rest are squabbling seemingly over austerity measures that are yet to be implemented. After all was said and done the Jozi all share index this side slipped away to the lowest levels of the day at around one, but gradually gained a little bit to close down 261 points to 30061.

The Rand finally caught some sort of bid, commodity prices continued to take some pain, but I think in Friday's message we pretty much summed up why in explaining the pot of money around the world, searching for yield. And making decisions based on how they see the future. And hey, it is not altogether pretty at the moment, but this is just what we are going to have to live with until the world's finances are a little more balanced. We will need the emerging world to catch up, but this is going to take decades, but at least it is happening.

Remember that song, oh no Joe, not again Joe? Maybe. But that is the case with Europe again this morning, we wake up on Monday mornings to the same problems over and over again. This was after a weekend of finance ministers from Europe, the IMF and the US along with the other important finance ministers from around the world thrashing out the problems of Europe again. The Americans of course know too well what dilly dallying can do to confidence and the banking structure as a whole, the Europeans are obviously in a trickier position of not having political unity. Nor a central Treasury, that is probably the core of the problem. So there were some solutions involving the EFSF, remember we chatted about the fund last week in our piece titled: Nudge nudge, wink wink, twist twist!

Angela Merkel is talking of a firewall around the Greeks. But, as Paul said this morning to a client, the Europeans are dealing with this in a particularly slow and bureaucratic way. This is true, coupled with the EU structure, which makes high school romance look easy. It wasn't of course back then, it was the most complicated thing.

Still, I imagine that the alternative is a Euro disaster, making the Lehman Brothers bankruptcy and aftershocks look like a picnic. But that is exactly what the Germans are suggesting, orderly defaults somewhere down the line if sovereigns cannot meet their obligations. But not Greece, and not now. Check out the Bloomberg article: Merkel Says Greece Needs 'Barrier' Erected to Stave Off Default. Poor lady is suffering from high blood pressure and she is on medication.

I do not really understand that notion that it is the markets (or certain elements) attacking the Euro zone, rather than the countries themselves being undisciplined. That is the political perception, or at least the one that is conveyed to us. Sorry, that is not reality, quite simply, not all Europeans are the same. Important dates to pencil in this week, as per the Bloomberg article are tomorrow and then Thursday, tomorrow, curious George Papandreou visits Berlin and Thursday is the German vote on the EFSF.

In closing (for today) on the European issues, I think that this post about central banks and confidence about sums it up for me. It is specific to the United States, but I think that it applies to all markets everywhere: WHAT THE LOSS OF CONFIDENCE COULD MEAN FOR U.S. MARKETS. His conclusion on the short piece is interesting, and I am guessing that the fellows over at the PIMCO will be nodding about the new normal. I am not too upset about that, if you get a gap of efficient companies, that are still good quality, at lower valuations, that might well be the time to continue to accumulate the big names. Just keep going.

Byron's beats is either going to make you very hungry, or the absolute opposite, it will make you skip some meals. Either way, interesting points, and the great imbalances in the world are once again exposed.

    Paul referred me to an article which I think is a good sign of the times we live in although it is a sad tale to tell. The article refers to how more people suffer from obesity than undernourishment as we face a possible food crisis. Populations are increasing while bad weather depletes crops and raises prices. Globally 1.5 billion people suffer from obesity while 925 million are undernourished.

    You can see where the problem lies. In the US, Government policies which subsidize farmers are making the wrong products cheaper. "If these agricultural subsidies went directly to consumers to allow them to purchase food, each of America's 144 million taxpayers would be given $7.36 to spend on junk food and 11 cents with which to buy apples each year - enough to buy 19 Twinkies but less than a quarter of one Red Delicious apple apiece."

    There are three things I take away from this article. Firstly, it shows that we are entering a time in our history where overconsumption is exceeding deprivation. The human race has become so successful and efficient that people are dying because they consume too much. Tell that to any man who lived 100 years ago or more and I am sure he would be dumbstruck.

    This brings me to my second point. When are we going to see stricter regulation? The regulation for cigarettes is making it more and more difficult for smokers. With developed nations struggling with debt issues surely this is one issue that needs to be tackled. Billions of dollars are spent on medical care and unhealthy obese people are sucking up these benefits. It's already happening in Japan. Anyone who has a weight related medical concern and whose waist is bigger than a certain size must lose weight and face compulsory diet advice. And let's not think it is just a developed nation problem either. Here in SA we have one of the fastest growing obesity problems in the world. Again it stems from the cheapness of unhealthy foods. It's a lot cheaper to go to McDonalds or eat lots of maize meal than it is to eat and cook fresh vegetables.

    The third issue that comes to mind is the fact that 15% of our global population sits hungry while 20% overindulge. This is a very sad situation. But it is one I think cannot be solved by taking from the over indulgers and giving to the hungry. It is never that easy. Objectives and goals need to be incentivised. I suspect more regulation going forward. It is a trend we are following very closely seeing that we hold McDonalds in our New York portfolios.

Commodities and currencies corner. Just remind me what the reasons are for owning gold? It is a real currency in a time of crisis. Just remind me where we are now? A Euro crisis. So, the price of gold should be soaring, is that right? But it is not, it is falling with all other commodity prices. The gold price is last at 1596 Dollars per fine ounce. I cannot believe that on Friday the price was 1700 Dollars per fine ounce.

And the silver price? Crumbling. Getting absolutely smashed. Check out this 30 day graph, courtesy Kitco:

The 24 hour spot graph is much uglier, the spot price for silver is currently 27.7 Dollars a fine ounce. Down over 11 percent. Wait for the market to open in New York. All I can say is that the price(s) deflating quickly point to speculation and speculative activities around the price. I do buy the longer term demand picture, more middle class people wanting jewellery, that is what is going to be the trend.

The chaps over at the Business Insider (I think Joe is in Paris) have the usual visual of what is happening in these precious metal markets:WAKE UP: It's A Total Catastrophe For Gold And Silver.

But the reason that I think that there will continue to be a demand for gold and gold products is for that reason that I mentioned two paragraphs above. And this great piece reaffirms that: China launches gold vending machine. It is quite funny, if you step up to the machine and someone can see, where do you go next? To the safe deposit box at the bank? Into the vault at home with the family jewels? Wangfujing Street (the cool place to shop as I understand it) is where the action takes place, in Beijing and not Shanghai.

I am not a "hater" of gold (thanks to Serena Williams outburst at US OPEN final 2011 the word is popular again), but I am more interested in the utility of a specific commodity. From oil, the most useful for now, through to soft commodities that are again, very useful through to silver, which does have many industrial uses, but the price seems to be controlled by a whole lot of speculative trading activity. Like one type said, liquidating the stuff that has done well to cover trading losses is what we might be seeing now. I suspect that the folks are right about the gold price, we are still deep in the crisis and once the selling has abated, the price might trend higher. Trying to pick the point where the prices stock falling is the tricky part. Dodging pianos for now and perhaps a reminder that most of the commodity markets that we are so reliant on involve an enormous amount of speculative activity.

The oil price is last at 78.89 Dollars per barrel, the platinum price is also a lot lower at 1531 Dollars per fine ounce. The copper price is under pressure this morning, down at 320 US cents per pound. The Rand is steady to slightly weaker, 8.15 to the US Dollar, 12.62 to the Pound Sterling and 10.96 to the Euro. The Euro is below 1.35 to the US Dollar, the Euro versus the Yen has hit a ten year low. Money back home, foetal position, think about it later is the participants mantra at the moment.

To end this rather long commodities piece, I came across a decent article from The Economist from last weeks print edition, this weeks free web edition (shhhh, don't tell them) titled Crowded out that talks about the developed worlds commodity demand. And how structurally it seems different this time, but Bill Miller's experience would tell him that this is part of cycles that he has studied. For the time being I think that the industrialisation of the worlds emerging markets will continue to see elevated prices. And yes, act as a tax on developed markets. But hey, they are changing their consumption patterns too. See oil at the bottom there? Nice.

So far our markets have opened lower but trended higher, but there are patches of green on the screen, resources are the laggards here today. Flat now. US futures have pared their losses as European markets have trudged higher, slightly better reads from the IFO institute.

Sasha Naryshkine and Byron Lotter
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Jozi, Jozi. Phew. A ripper here on the local market, one of those rallies that you see not too often, the Jozi all share added 1033 points or nearly three and a half percent to 30752. Huge. Expectations have been set high that the Europeans are going to use the so called Hank Paulson bazooka option, rather than firing off pop guns every now and again. We caught most of the good, although during the day there were suggestions that initial optimism over the EFSF size would not be greatly increased, but "better used". The Greeks pushed through their property tax, which of course in their minds was a much better methodology in terms of collection. In my mind it is an admission of failure of the authorities. The Troika actually heads to Athens to have a look at the progress that the authorities are making in introducing their new taxes and implementing austerity measures. You have to in some way feel sorry for the normal citizens, the folks who are on the receiving end. Change, and austerity, those are always bad.

Company results. What a relief, we were starting to hit the outskirts of the Gobi desert, in terms of the results flow. First up, Capitec results, the darling that continues to impress, and looks great, ball after ball. Cinderella would imply that they used to do the dishes, clean and look after two (ugly) sisters, so perhaps this is a case of better than Cinderella.

The numbers still continue to sparkle like her jewels (I am pretty sure the fairy god mother gave her some), these are interim results to the end of August 2011. The number of active clients increased to 3.2 million, that represents an increase of thirty percent. The branch network increased to 474 outlets, a 12 percent increase on last year. The company grew their employee base by 34 percent to 6351 staffers, awesome, an employer!! Net loans and advances for the period increased by a whopping 85 percent to 13.393 billion ZAR, a bigger first half 2011 than the second half in 2010. Deposits also swelled by 59 percent to 13.6 billion ZAR.

Arrears and provisions seem to be stabilizing, arrears to gross advances and loans stands at 4.5 percent, which is better than this time last year and better than at the full year stage. Provisions might have swelled to 1.1 billion ZAR, but as a percentage of gross loans and advances is 7.6 percent, versus 7.1 percent this time last year and 7.6 percent for the full year.

Capitec are making good progress in their transactional banking income, which grew 54 percent to 361 million ZAR for the first half. Pleasing to see. There were some interesting observations about the unsecured lending market in South Africa from the commentary:

    "The South African unsecured lending market has continued to grow in 2011. Credit disbursed during the first quarter grew by 55% to R28.5 billion. This growth is within our expectations and meets the objective of the National Credit Act to make credit available to consumers that did not have access to credit prior to June 2007.In this growing market Capitec's market share grew to 20% (first quarter 2010: 16%).

    Consumers' appetite for credit is expected to remain high as the demand for formal housing and durable goods in an increasingly urbanised market continues to grow."

Two things, the "theme" which we have liked for so many years continues to gain momentum, and secondly, Capitec are gaining market share. Urbanisation means a greater demand for credit, this is a developing market phenomenon that should stick around for a few more decades. I saw a map of African Rural versus Urban populations and check it out, most of the desert populations understandably have big urban populations. But on balance, most of Africa is still really rural, check this map out: African Urban Population.

Earnings per share for the half increased 53 percent to 520 cents per share, the interim dividend declared was 125 cents, an increase of 47 percent. When you are growing quickly, you would expect costs to rise, banking operating expenses were up 36 percent, so no surprises there. I guess this is a stock that continues to look expensive, but that is because they deliver blowout results every time. Return on equity was one of the only key metrics that were lower than the last time, down at 29 percent versus 34 percent last time, and at the full year stage.

My overwhelming take away is that this is a good company operating in the sweet spot. Well run, good controls. The share price, well that is very lofty, but has always looked that way. Investors have always paid up for Capitec stock. Not quite the time for the big banks to even worry about a company of this size, yet, but just a reminder of which end of the market is growing. And this company is still in growth mode. One earnings stumble though would see folks revaluate their growth forecasts.

Byron's beats is about to disappear for a while, he heads to the land of the long white cloud to watch the Boks. Exciting for him, let us hope that he can lend them our support. And in keeping with the theme, here is a little more about the Holdsport results!!

    About two weeks ago Holdsport came out with a trading update that indicated a 20% increase in earnings against the last comparable period. Yesterday the company that owns Sportsmans Warehouse, Outdoor Warehouse and First Ascent came out with consolidated results for the half year ending 31 August 2011. Core headline earnings came in at R61 million or 159c per share from revenues of R546.9 million which was up 7.2% from last year. There were a few once-off costs and the amortisation of trademarks which brought headline earnings to 141c per share. An interim dividend of 47c was announced. The company is in growth mode so I would definitely expect this cover to increase going forward.

    In terms of the divisions Sportsmans Warehouse is the big revenue driver with 72% from its 33 stores while Outdoor Warehouse brings in 24%. First Ascent brings in just 4% but is growing very quickly, 28% from last year. Like I mentioned in my note when the update came out, the company looks cheap in comparison to its retailer peers. I think a conservative prediction of full year earnings would be around 300c per share. The stock trades at R31 giving it a forward PE of 10.3.

    I say this is conservative because in the prospects they remain optimistic regarding trading conditions in the second half. This is because the period includes Christmas which as you can imagine is vital for the company. I would also imagine that sales now, and throughout the beginning of summer would be increasing because people are more active when the weather is good. In terms of new stores, the company added one Sportsmans and one Outdoor Warehouse for the period while a further 2 new stores will be opened within the financial year. It doesn't sound like a lot but the company only had 49 stores in the previous reporting period. 4 new stores represents an 8% increase.

    Usually I prefer the bigger companies but I feel this company offers a lot of value and potential. That is because I think their brands are fantastic. Agreed, the industry is extremely competitive with Mr Price Sports and potentially Walmart offering the lower end stuff while stores like TotalSports and brand retailers offer the higher end products and services. Still when you think sports retailer in SA you think Sportsmans Warehouse. They offer that shopping experience you just cannot find anywhere else. In a country with good weather, active citizens and a growing middle class, they fall in a good space.

New York, New York. It was a whole lot better than the scoreboard suggested, even though that looked good after all was said and done. At one stage the gains for the Dow and S&P 500 were threatening three percent on the day, but stocks actually pared the gains and ended with half of those. But that is good anyhow, I guess we would have taken that at the start. The bounce back was largely led by the materials sector, something that we know better as commodities!!

The genius of Meredith Whitney was back at work, she cut her earnings prediction for Goldman Sachs. Who apparently rule the world somehow, Lloyd Blankfein is not really visible for the supreme leader. Forget that, the whisper is that Goldman are actually going to make a modest loss for the last quarter, that does not sound like the Goldman that I know, the share price has been crushed this year, year to date the stock is down 41 percent. Versus the S&P 500 which is down six and a half percent. The best of the bad bunch is JP Morgan, which is down 25 percent for the year. Bank of America Merrill Lynch is the worst of the grouping, down 51 percent YTD. Yech. They (the major banks listed in New York) are all traded below current price to book, except for Wells Fargo. Nobody trusts the book though. And most of them are trading on historical multiples of less than ten times earnings, which leads me to believe that everyone is anxious about future earnings.

On MarketWatch consensus on JP Morgan (which trades at 31.57 Dollars a share) for the next fiscal year is 5.68 Dollars worth of earnings. Seemingly Mr. Market does not believe this, so I am guessing that the estimates are horribly wrong. Morgan Stanley, which trades just shy of 15 Dollars sees analysts pencil in 2.77 cents worth of earnings for the next fiscal year. AND, so the list goes on. I guess if you wanted to use the phrase in response to these stocks looking cheap "it is about the economy dummy", I am guessing that you might well be right.

If you had to ask me to pick three, in order I would say Wells Fargo, JP Morgan and as an outsider, I am going to side with that Buffett guy on Bank of America. But you are not asking me what I think of the sector, not a big fan really, too much stuff going on in the background way underneath the surface. Just to get an idea what we are talking about, think about the recent trading loss from the fellows over at UBS. And Paul once pointed out a picture of the UBS trading floor and asked the question, what number of strategies are these guys all dreaming up in order to maximise their bonuses?

Tell me, Paul certainly has a point, that seems very different from the types of mom and pop banking that we became used to in the past. Thanks, but no thanks, this is not the greatest sector to be invested in. That line that I started with a couple of days ago when Jamie Dimon basically said to his daughter that a banking crisis is something that happens every six to eight years.

Commodities and currencies corner. Dr. Copper is slightly lower at 336 US cents per pound, the gold price is much higher at 1653 Dollars per fine ounce, whilst the platinum price is steady after taking some heavy knocks, last at 1557 Dollars per fine ounce. The oil price is lower at 83.68 Dollars per barrel. The Rand is weaker after a run (after getting crushed), 7.88 to the US Dollar, 12.30 to the Pound Sterling and lastly 10.72 to the Euro. A bit mixed here at the get go, up and down, oscillating between positive and negative. European policy makers are talking about the EFSF and various votes are still happening, Germany tomorrow remember, that is a big vote!!!

Sasha Naryshkine and Byron Lotter
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Jozi, Jozi. The Jozi all share index went up and down Maude street all day long. For those who do not know Sandton (doll), that is one of the streets that runs next to the JSE, or exchange square as it is known. The mighty impressive JSE, beware the impressive corporate headquarters, isn't that what they say? Maybe, Google's building looks nice, the new Apple one looks awesome. Yesterday's market action consisted of being up in the first half and then getting a caning in the second half, as folks worried about the bickering of European politicians again. There were of course ongoing votes around greater participation in the EFSF, today it is the turn of the Germans to decide if they want to continue. The suggestion is that it should not be a problem, the German parliament will OK the German participation. Gosh this is painful, can't everyone just vote on the same day?

The Jozi all share index closed down 413 points to 30339, that is a loss of one and a third of a percent, the resource stocks were the ones feeling the heat, down 2.78 percent as a whole. The copper price this morning has hit a 14 month low on global growth concerns, that is the reason being given. Which I guess is fair enough, some of the recent economic data suggests we are in a holding pattern. Ultimately the commodity consumption story, in the long run, hinges on greater internal consumption in China, and that is starting to happen. Banks and financials eked out a small gain, just a little one really, but hey, against a market that fell, that was a good outcome.

There was a trading update from Telkom this morning. Yech. Let me do a copy paste and then find out who the offenders are. You already know where this is going:

"Basic earnings per share from continuing operations for the six months ended 30 September 2011 are expected to be at least 70% lower than the comparative period in the prior year. The decrease is mainly attributable to the losses incurred by the mobile business and the impairment of iWayAfrica of approximately R450 million."

I am fine with the mobile business still making a loss, that was telegraphed to us, but I beg your pardon, another sizeable impairment on one of their African businesses? I feel like using late night news reader expletives, but I guess we are not in that category, perhaps we should start a 18 L newsletter, any takers? But wait, it does not get much better from there, another copy paste job:

"Multi-Links has been sold to Hip Oils TOPCO Ltd, an affiliate of Helios Towers Nigeria. The sale remains subject to the consent of the Security Exchange Commission (SEC) of Nigeria......" Which is fine, but it continues and gets worse. "The sale of Multi-Links will result in the recognition of a net loss of approximately R650 million."

The company is a walking disaster outside of our borders. Racking up the losses and acting like a drunk would, overpaying and then the consequences come back to haunt them. But wait, locally "things" are not looking so much better. Telkom fixed line revenues fell 14 percent, as a result of a fall off in volumes, you see, we all like to use our mobile phones more. Although fixed to mobile revenue grew 2 percent. More contactable on our handsets. Interconnect fees fell 13 percent. Gee whiz this is a detailed trading update, preparing us for the results in late November, the 22nd to be exact.

Data revenue was lower too, but that was as a result of a comparable period that included the World Cup windfall. Before you slump your shoulders completely lower and get completely down on yourself, wait, for they are making progress in the Telkom Mobile space, or just simply 8ta as we know it.

"Telkom Mobile has incurred a loss of approximately R900 million for the 5 months ended 31 August 2011, but is progressing satisfactorily and is in line with our expectations. The overall subscriber base has grown 86.3% to 882 235 revenue generating customers from the start of the financial year. Post-paid customers grew by 490% while prepaid customers grew by 56%."

A massive jump in the subscriber base, and now you have ARPU's increasing too, it is almost like they made an effort to capture clients first at the bottom end of the ARPU spectrum, and now they are getting higher end clients. Good for them. Check: "The growth in prepaid customers was lower than expected because of sub-optimal distribution channels which have now been expanded. The blended ARPU as at 31 August was R61.97, an increase of 174% compared with 31 March 2011."

In a dirty kind of way we feel vindicated at Vestact here for having always trumpeted MTN over Telkom, we were often told, oh, what about the dividend flow and Telkom looks cheaper. Cheaper for a reason, we often talked about poor management and poor execution at Telkom, whereas MTN have had far greater successes where Telkom have failed. And the dividend flow from MTN is about to trounce Telkom. As Hannibal would say, I love it when a plan comes together. But, never crow, just pay attention. BTW, Telkom are getting crushed this morning, down over four percent.

I was chatting to my six and a half year old daughter last evening about the things that we had when I was her age. And how those "things" are so much different nowadays. We all like music in my family, I have a very old generation iPod and my iPhone also has a whole lot of songs on it, which I play through my docking station. Now when I was her age, we used vinyl LP records to listen to music, that was the obvious one when we discussed music. She said "oh ja, I saw that on TV once". Amazing, and that was cool technology, first invented in 1926, the LP. Prior to that of course was the Gramophone, often you associate the Victor Talking Machine dog listening to the speaker. Remember that iconic logo? "His Masters Voice".

Then came the tape, the Sony Walkman (July 1, 1979 – October 25, 2010), which was relatively short lived, considering that "records" had been around for a long, long time. Then came the compact disc player, first commercial one October 1982. And now there are electronic methods of getting music, the iPod was first launched in late October 2001. It is perhaps fair to say that the iPod is already "old" in the original format.

Where is this leading? Other than trying to show you how quickly technology can change, even whilst you think you are paying attention, it changes quite quickly. And in the future technology is going to be wildly better than it is now. We have gone from the personal computer, the Commodore PET was launched in 1977 as the first PC, we are in an era when we are talking about the post PC era. In less than 35 years. My life time. My daughter also asked me about the internet, I said, that is quite new. The first photo was uploaded to the "internet" in 1992. Nowadays we use the internet for almost everything. There are hundreds and thousands (millions) of peoples livelihoods who are connected to the internet.

The first phone to phone SMS was sent back in 1993. Ringtones were cool a decade ago. The iPhone, which I guess revolutionised smart phones went on sale on the 29th of June 2007. That is 1553 days including today. 221 weeks ago the iPhone was launched. And we are on the lookout for version 5 next week. That is basically one a year. The version two is old already. And so will four be. These slowly (and not so slowly) changing facts were coined mesofacts by one of my favourite online bloggers and twitterati, Samuel Arbesman, I first stumbled across his work in this piece: Warning: Your reality is out of date. Here is his bio: The online home of Samuel Arbesman.

So, get to your point I hear you say. This piece is in part to a response to what I get irritated with, short-termism. The average time of holding stocks across all exchanges has plunged over the last decade and a half. In the sixties typically the average holding period was between 7 to 8 years. By the time the year 2000 rolled in, it had been reduced to just a single year. Average. In 2007 on the FTSE it was less than 8 months.

With High Frequency Trading accounting for an enormous amount of all volumes (according to Barry Ritholtz around 70 percent on the NYSE - No, Average Stock Holding Period Is Not 11 Seconds...), I have seen why Buffett is better than the rest.

A simple method of finding value and then you know what, he actually holds the stocks for a long time, and realises the greatest value through the dividend flow and stock price appreciation. Not by looking for a level, or expecting a stock to break out of a trading range. Quality first, pay attention, you will be rewarded. Berkshire Hathaway (Buffett's company) started buying shares in Coca Cola in 1988. A bit late, bearing in mind that Buffett sold Coke door to door as a youngster to make some pocket money, that is where that comment comes from, a bit late.....

In closing, all I want to say is do not get sucked in by the short term anxieties. Easier said than done, there is a lot of noise around, terms like staring over the precipice, standing on the edge, that sort of thing. Yes, it always seems horrible in the midst of any crisis, but we somehow manage to get through and we keep innovating. Like I pointed out, that is where I want to tie this all together.

Please do send me all of your memories of what used to be big, back when you were a kid, or teenager, or young adult. It would be fun to compare notes. And any mesofacts that you might think are unique to you, get those to me too.

Byron's beats has a look at one of my favourite companies, not the jungle people, but rather and their smartly named new tablet.

    Do we finally have a competitor to the iPad? Ironically Amazon's Kindle was the first (mainstream) tablet on the market. It was purely for reading however and Apple, as usual, took it to a new level with the iPad. Well yesterday Amazon presented its new Kindle Fire and the reviews, for the first time, looked good. From what was originally just a reader the new Kindle has directly taken on the iPad using Android software with access to Amazon's new app store.

    So why is this different to other competitors? It stems from Amazon using their competitive advantage. Amazon does not make its profits from selling hardware. This means that they can make the Kindle Fire extremely cheap. The tablet then acts as a gateway to Amazon's online products. They have managed to cut costs by making the screen slightly smaller, skipping on the camera and by not producing a 3G version. This means that the device can retail for an absolute steal at $200. Many analysts reckon that they could in fact be making a slight loss on the product.

    Once you have the device you have access to Amazon books, video streaming, music, Amazon App store and their clouding service. It also puts a lot of focus on wireless syncing which allows your Fire to sync all your Amazon products from your PC or notebook to your Fire and vice versa. Amazon is also really pushing itself as the ultimate cloud computing company. It already hosts plenty of content on behalf of other companies and by allowing Fire users to store and share content in the Cloud you gain access to a whole world of shared content.

    It all sounds very new but I am pretty sure it will become part of our everyday lives, just like the concept of cell phones 15 years ago. I think it's absolutely fascinating to see these huge technology juggernauts battling it out, all to make our lives better and easier. It is so competitive out there, we are bound to get some amazing products.

    Both Amazon and Apple sit on our recommended list but for very different reasons. Apple makes its profits from selling hardware where as Amazon is setting itself up as the biggest online retailer in the world. The fact that they are competing does not worry us. Amazon is using this hardware to help sell their online content. All in all it sounds like a very compelling piece of technology. Hopefully the Rand will play its part so that by the time it gets to South Africa the clincher in the price won't be ruined.

Commodities and currencies corner. Dr. Copper is also in the business of taking a haircut, down at 323 US cents per pound. The gold price is higher at 1627 Dollars per fine ounce, the platinum price is lower at 1539 Dollars per fine ounce. The oil price last clocked 82.07 Dollars per barrel. The Rand is steady I guess, 7.87 to the US dollar, 12.35 to the Pound Sterling and 10.75 to the Euro.

I guess we wait for the Germans to vote on the EFSF. Nice. Imagine that, a whole day determined on how the Greek economy is thought of. Someone suggested that the Maryland (US State) economy was bigger than that of Greece. Go figure.

Sasha Naryshkine and Byron Lotter
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Jozi, Jozi. Yowsers. We went completely against the trend yesterday, there were a couple of reasons behind it, the first was obvious the second a little more nuanced. The German parliament passed the increase in size of the EFSF, their contribution, by a country mile. There was a competition in the FT online for a caption of a picture where Angela Merkel is casting her vote amongst several smiling parliamentarians, the winner would get a FT beer mug, I kid you not. Here is one that was similar to the FT one. And almost immediately the bear, Roubini and his merry gang suggested that the real fund should be four to five times bigger. Whatever-whatever is what I would hear you so, that is what I say anyhow.

I finally see people giving Meredith Whitney a hard time for suggesting thousands of municipal defaults in the US. Turns out that is not happening, time for the once mighty to be sent to the scrap heap, gosh we live in a tough space. OK, off the point here, in fairness she said we should wait, it is still going to happen. Blah-blah. So the Germans past the vote with 523 yes votes, three abstentions and wait for it....(drum roll)....85 no votes. When I read that the first time I almost fell off my chair. This was teed up as a tight vote. This looks like she won by a country mile, a landslide victory!!

Markets took off across the globe, but we came under pressure here. Why? Well, this is the second more nuanced reason, or at least my attempt to explain it. There is this sense that the Chinese cannot grow at the current pace and in fact there are stresses around, some of the economic data has looked patchy. Some still remarkable, total retail sales for the month of August was 17 percent better than last year. 17 percent? The proverbial holy cow line can be used. But the sense is that the commodities Audrey II (the Little Shop of Horrors giant Venus fly trap) is running into Beijing central's measures to cool inflation. To me it is not about the infrastructural spend (that is important), but the internal consumption continuing to grow, that is more important in the long run.

For the time being, anything that has a Chinese flavour (should we call it the MSG effect, or is that unfair?) or that is geared to the growth machine, is getting a pasting. This morning there is another "sign" I guess that the Chinese growth is moderating. I thought that is what we wanted? This of course is the HSBC China PMI, which came in at 49.9, unchanged in September from August. There is a worry about inflation in the read again. Anxious? Or is it a time to get anxious? I guess with all the uncertainty going on in Europe this is not unexpected. Yes, there is a sense of worry around the globe. I also saw a suggestion from a Bloomberg survey that saw the respondents suggest that the Chinese economy would slow to five percent growth in 2015. How are you supposed to know what is going to happen in 2015?

Byron's beats deals with the issues that I have been talking now, for what feels like months. No wait, years!!!

    Yesterday I came across this interesting article in the Business Insider written by one of my favourite bloggers, Joe Weisenthal. It brings up some really interesting points about the European debt issue and what sort of problems they face. The crux of the article looks at how, in the 90's when Mexico got bailed out they relied on the devaluation of the Peso which lead to more competitive exports. Now the nations in the Euro-zone clearly cannot do this because their currency is the Euro. The natural process would have been for their currencies to naturally start devaluing as the market realised these countries were in trouble which in turn would have helped them get out the mess somewhat.

    After reading this article a few things came to mind. Firstly Sasha pointed me to an article which showed that Greece is not very reliant on exports as a percentage of GDP. In fact it only contributes 5%. Portugal is more significant but still only sits at 18%. Imports are a lot more significant for both countries so a stronger currency suits them. Italy however has a much bigger export market and so has Spain. This then may hold true for the bigger economies which I suppose is more significant to the situation.

    The other thing that comes to mind is the concept of integration, competitive advantage and teamwork which the Eurozone was developed to create. Now that a few states are in trouble this has all fallen away. I understand why Germany and France do not want to pay for other countries issues but they shouldn't forget that when everything was hunky dory and the PIIGS were building up all this debt, Germany was benefitting from the growth. In fact over 40% of all German exports stays within the EU. Not only does this mean that Germany has the EU to thank for its strong economy but it also means that its economy is now extremely reliant on the future of the EU. In my eyes they do not have a choice but to be a huge contributor in the bail out. In the bigger scheme of things the EU has GDP of $16.2 trillion and debt of $13 trillion. This gives them a debt to GDP ratio of 80% which is definitely manageable.

    It is sad how politicking has got in the way of what is best not only for the Eurozone but the entire world. Leaders are worried that they will lose support if they bail out the lazy Greeks. So short term popularity polls are getting in the way of what is best for all of us long term. Yesterday however the Germans did pass a vote to expand the bailout fund, progress is being made. I believe that all though it may not be as quick as we like, a solution will be found in due course. The Germans realise that their own destiny relies on it. In the globalised world we live in, there is no going it alone. For now we will bounce along with this choppy market as one news flow follows the next.

Commodities and currencies corner. Dr. Copper has recovered a little to 327 US cents per pound, the gold price is higher at 1629 Dollars per fine ounce, the platinum price is steady at 1533 Dollars per fine ounce. I came across this interesting tweet from Adrian Saville, the CIO and founder of Cannon asset management, what do you think? "No fundamental reason for gold price > platinum price. Sentiment is in driving seat. Sell gold buy platinum. Fundamentals always triumph" I agree with him, but hey, we are fighting sentiment here. The oil price is 82.24 Dollars per barrel, flat for the time being, the price that is of course.

The Rand is weaker, 8.01 to the US Dollar, 12.54 to the Pound Sterling and 10.88 to the Euro. We have started worse again for the day, after yesterdays drubbing. Lets hope to end at the top of our group!!

Sasha Naryshkine and Byron Lotter
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