Will they, Won’t they

“Over the last few weeks, I have seen an increase in the number of people saying that September might not be the date for an increase. What happens if they raise rates and there is an economic hiccup? Dropping rates again will probably do very little to smooth over the hiccup, for this reason and the low inflation, I think rates will stay down until there is an overwhelming amount of data to say that the economy is resilient.”


To market to market to buy a fat pig. Ouch! It was another red day on the market yesterday with the All Share down 1.6%, for the year the market is up less than a percent. If our markets follow the trend set by Asian markets this morning we may find that by the close today, our market will be down for the year. Last year our market was only up 7% with most of the gains coming in the last 2 months of the year. If you consider that inflation last year was at the 6% mark, the market only had a real return of 1%. The inflation rate over the last 10 years has ranged between 3% and 11%, with the average being around the 6-7% range.

Market returns have ranged from 45% increase in 2005 and a 25% drop in 2008, with the average over that time period being around 17%. The result being that the average real returns of the market have been 10% a year. It is clear though that almost no year is the average year! Sometimes you get lucky and buy in a year where the market has a flyer. You then pat yourself on the back for your investment prowess. Other years you invest your money and the market goes nowhere or worse it drops! The timing that is involved when buying shares is all luck, the more regularly you are buying the less luck is a factor in your returns. That is the meaning behind the very true saying, “It is time in the market that matters, not timing the market”.

Lonmin dropped a staggering 19.6% yesterday! There are concerns that they won’t be able to refinance debt that comes due next year or if they do the terms will be far more stringent than they currently are. Given that the company is currently running at a loss and that the Platinum price is firmly rooted to $/oz 1000, you can understand why debt will become more expensive. The other idea that was doing the rounds, was to do a rights issue to raise capital. The problem with doing a rights issue to keep the lights on instead of using capital to buy new assets (like Woolworths or Mediclinic) is that current shareholders get diluted without the benefit of new earnings being bolted on. The next problem is that the more the share price drops, the more rights would need to be issued to raise the capital, which means more dilution for current shareholders. If you are going to see less of the future profits your current shares are worth less and so the cycle continues! From one precious metal to another, gold shares had a better day, up 5.2%. It would seem that their safe haven status is attracting funds, which is weird considering that the industry is more than likely going to have a prolonged strike on their hands. That does not sound very safe to me.

The big news out of the US last night was the FED minutes from the last meeting. Surprise surprise, they are not sure if a September rate hike is the correct time. Some of the key data that they monitor in order to make the decision is in the territory to justify a rate raise. The one big number which is a concern is the inflation figure, it is still too low. Increasing interest rates won’t help it rise to the 2% target. Over the last few weeks, I have seen an increase in the number of people saying that September might not be the date for an increase. What happens if they raise rates and there is an economic hiccup? Dropping rates again will probably do very little to smooth over the hiccup, for this reason and the low inflation, I think rates will stay down until there is an overwhelming amount of data to say that the economy is resilient. We have 4 weeks to wait until we find out the answer to one of the most asked questions on Wall Street.


Company corner

Another of the gold producers with their results this morning, Gold Fields Limited – Q2 Ended 30 June 2015 Unaudited Results. Their All-in sustaining costs are in line with the rest of the industry, theirs sitting at $/oz 1029. They have swung to a small profit this quarter after having a small loss last quarter. They have the same problem as all the commodity producers, they don’t control the price of the product that they sell. One separating factor for them compared to their peers is that they already have a wage deal signed.


We had the Interim Financial Results For The Six-month Period Ended 30 June 2015, for Exxaro this morning. As expected their earrings are down along with their dividend. HEPS are down 62% and the interim dividend is down 75%. One of their main assets is their 19.98% stake in Sishen. The market already received a clear view that this was under pressure from the Kumba results a few weeks ago. The stock currently trades on a P/E ratio of 5, which tells you people don’t think the commodity glut is going to resolve itself anytime soon.


Blue Label and Edcon are going to work together to roll out retail technology stores called Edgars Connect – Blue Label, Edgars in retail JV. Selling cellphone services in retail stores has proved to be successful in the past, so this looks like a good deal for both partners. The big thing for Blue label is that they get access to Edcons account holders, they can sell the products on account but don’t have to go through all the leg work of having to open accounts.


Linkfest, lap it up

I found this letter interesting, it is blow back from the Amazon debacle – Dear Jeff Bezos: My husband needed therapy after working for Amazon. The point made at the end, probably sums it up nicely. “Ironic, isn’t it, that we were able to afford such a good therapist because of Amazon?”.

This decision by the UK will have far reaching effects for many people, good or bad effects we do not know yet. The aim is to get people to stop smoking by changing to e-cigarettes and then moving onto stopping. What are the long term side effects of vaping though? We are not sure because the product has not been around long enough – UK approves e-cigarettes as healthier alternative

Now that it is viable to move to solar, more people are. Given the momentum gained, economies of scale will kick in which will drive down the cost of solar even more. The market might move slower than people like but it normally gets it right after an adjustment period – India reveals world’s first 100 percent solar-powered airport


Home again, home again, jiggety-jog. Wow! It’s tough out there at the moment. Our market is currently down 0.8% meaning that we are down for the year. Twitter notified me that the Rand has just broken through the R/$ 13.00 level, which is the first time since 2001. I think people are hoping that there will be a repeat of 2001 and 2008 where the Rand weakened very rapidly to the dollar but then recovered to well below the R/$ 10 level. I don’t think that will be the case this time because it has been a steady depreciation. The previous two times it was a case of “sell now and ask questions later”. Have a look at the graph below, you can clearly see the difference between now and then.

Woolworths, the one retail stock that has been resilient over the last two weeks is down 2.6% and Naspers is down 2.2% .The one bright (or shiny) spot are the gold miners, currently up 12% today. Lonmin has had a huge bounce back today, up 22% at the moment! Stay calm, carry on and add if you have the funds to do so. Don’t let a market pull back go to waste.


Sent to you by the Vestacters, Sasha, Michael, Byron and Paul.

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