Hunter slays Impala, Glencore and Anglo

“The five year collective performance is even worse, down 75 percent. So whilst many in the chattering classes may think these companies are worth trillions, they are wrong. By my count and I include around 11 platinum miners and explorers, their collective market capitalisation is 120 billion Rand, I am excluding the likes of ARM in this calculation. At the current exchange rate of (too much, don’t look now), that translates to 8.48 billion Dollars. Sanlam is now bigger than the whole listed platinum complex.”


To market to market to buy a fat pig. Oh dear, it looks a little shaky out there again, US markets overnight were bashed about, resources and biotech companies caned for different reasons. I saw a graph that suggested that whilst earnings growth had slowed in the US as a result of Dollar headwinds and a general slowing environment, all the other key metrics in the US pointed to a far improved outlook. The labour markets were strong, the housing markets were strong, another personal income and spend read yesterday confirmed that the timing in terms of raising rates is here. And of course the commentary from Janet Yellen the Fed chair on Friday, that rates would go up this year, seems to have also spooked the collective. It is going to happen, deal with it.

Biotech stocks again were sold off as we mentioned, some of the big names are starting to look like value territory, Amgen, Gilead, Biogen, and then amongst the majors, JNJ and Merck. When you fly high, you can fall hard, Valeant Pharma. was crushed over 16 percent, the stock still trades on a pretty lofty valuation. Which is why it is so hard to invest in Biotech companies, to find the next blockbuster and with heavy political pressures it is not going to get easier. Feedback on the piece yesterday by one of our favourite people in the Vestact community (is there such a thing?) on healthcare, all the way from Vancouver:

Before you were born, daraprim was the drug of choice for malaria. It cost 50c/tablet. So even $13.50 is outrageous. And all these biotechnology drugs that cost $100,000 – $500,000 per annum to treat one patient. How about some data on how many patients are actually cured by them? Maybe even some data on how long a patient’s life span may be expected to be increased and his/her suffering ameliorated.

Medical care is perhaps one of the most contentious areas of investment, on the one hand there is this need for all ailments to be treated and lives extended, that does come at a cost to someone. And that cost of funding the therapies lies at the door of investors, who would like a return on their initial outlay of real cold hard cash, be that on their own behalf or for their underlying investors, pension and or otherwise. It is hard, there is the humanity of good health for all, morality for broader society (as our reader pointed out above), abuse of power by politicians and companies alike, regulatory hurdles and good old fashioned funding for hoping for longer dated returns. It is always going to be hard to be invested in this sector, it must not stop one from looking for a great investment.

After the bell rang for the close in a session that the shorts had no doubt feasted, we were at the lowest levels in a month, the S&P fell two and a half percent, the nerds of NASDAQ which have the heavy biotech component, fell just over three percent and the blue chip Dow Industrial managed a better looking (on paper) 1.92 percent loss on the day. Like I mentioned earlier, good consumption and pay numbers, as well as a record first weekend for Apple, who sold 13 million units of the two models of the 6S (pronounced success) failed to keep the sellers at bay. There are always too many things to worry about in equity markets, if you can separate the fact that you own companies and not share prices. I hear very often, and it is human nature, that people respond to share price performance and project that onto the company, deciding whether it is a “good one” or a “bad one”.

On the local front the resource complex was taken out the back and beaten like an old horse, if that wasn’t enough they were shipped off to the glue factory. No, that is a bit harsh, don’t you think? It was led by a complete all fall down of the Glencore share price, fingers pointed at an Investec report that suggested that both them and Anglo were going to struggle with their heavy debt burdens. The scoreboard looked more like Blikkiesdorp High competing against Grey College on the rugby field, not pretty. The analyst that suggested that the creaking debt burden of Glencore may well wipe out their shareholders is a fellow by the name of Hunter Hillcoat, a keen cyclist who has worked across the world, now resides in London. He did his honours in geology here in Jozi at Wits, after completing his undergrad in Perth. It is pretty amazing what you can find out from LinkedIn.

Hunter slays Impala, Glencore and Anglo the headline should read (and it does). The FT article (subscription only, sorry) reads: Glencore sails into Bermuda Triangle of its own making, it explains the backdrop to a more dramatic drop in Glencore (down 26 percent, yes, that much), Anglo American (down 9.3 percent), Amplats (down 7), Impala (down 9 percent) and BHP Billiton (down 4.9 percent) meant that we cracked collectively, to add insult to injury the platinum price settled at the lowest level in six and a half years. African Rainbow Minerals stock was down 13.4 percent, Kumba Iron Ore down 14 percent, Exxaro off 10 percent. There is only one platinum miner left in the ALSI 40, only one diversified miner left in the top 10. There are in fact only 5 mining companies left in the entire ALSI 40, 12.5 percent representation.

We (that is all of us who live in this fine country) have done pretty well to diversify, seeing as Joburg, according to Wiki is the world’s largest city not situated on a river, lake, or coastline. Why? The gold of course, the rush to riches, the fame and fortune. The mining town that really made it. Looking down the List of urban areas by population, Joburg and the East Rand fall into 42nd place, and by my count are definitely one of the newest cities in the world.

If the first people really settled here in 1886, that means Jozi turns 130 next year. By contrast, cities around Jozi in the population stakes include Wuhan, which is around 3500 years old, Hyderabad, which is around 2500 years old and Dongguan, which has traces of settlements of 5000 years in age. OK, if we include Mrs. Ples and Homo Naledi, then we have around 2 million years on everyone. For interests sake, the largest City Metro on the planet, Tokyo with 37 million inhabitants, was a sleepy fishing village 900 years ago called Edo. Cape Town is 105th on the list, Durbs is 125th and up the drag from here, Tshwane/Pretoria is in 155th place. Gauteng as a collective has a larger population than greater Rio de Janeiro. In fact, further down the list of urban areas by population, you can see that there are 75 places with more than 5 million souls, and nearly 500 with more than 1 million people.

The broader market sold down one and two third of a percent. Yowsers. Only SABMiller with a pending bid from AB InBev stood out in a sea of red, that stock was up 3 percent. The All share index is now down for the year again. Spare a thought for the collective platinum miners, those shares have halved since the beginning of the year. The five year collective performance is even worse, down 75 percent. So whilst many in the chattering classes may think these companies are worth trillions, they are wrong. By my count and I include around 11 platinum miners and explorers, their collective market capitalisation is 120 billion Rand, I am excluding the likes of ARM in this calculation. At the current exchange rate of (too much, don’t look now), that translates to 8.48 billion Dollars. Sanlam is now bigger than the whole platinum complex. About the same size at a global level as Electrolux who make vacuum cleaners (and many other household products), and PetSmart, who sell fish food, dog collars and cat scratching poles. Sigh.


Linkfest, lap it up

Twitter is one of those applications that either you love or you hate. As it struggles to grow its user base, here are 10 good reasons why you should join – 10 Things I Love About Twitter

Josh Brown chats about his view on inflation, employment and social changes. Given the huge change that has come with technology and a shift happening from Gen X to Millennials as the biggest generation in the work force, society is at an inflection point – The Hardest Button to Button

As the late Yogi Berra said, “It’s tough to make predictions, especially about the future.” – Can You See the Future? Probably Better Than Professional Forecasters. It has been shown that professional forecasters are fairly poor at forecasting the future, it would seem that informed amateurs have a better time of it. Paul was one of the superforecasters mentioned in the post.


Home again, home again, jiggety-jog. Stocks continue to slide across the globe, it is just a matter of time before bargains become real buys. The Fed, China, I think that in six months time people would have forgotten about this period, which is only around 7 weeks in the making. It seems like a long time, in the bigger picture it is not however, keep calm and carry on.


Sent to you by Sasha and Michael on behalf of team Vestact.

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