Good Riddance Third Quarter

“Gazing across at the commodities complex, you can see a train wreck. Since the market highs in April, Anglo American is down 42 percent, Glencore is down 66 percent, both slumping as a result of lower commodity prices and their debt piles, BHP Billiton is “only” down 27 percent, Sasol 20 percent, whilst Lonmin is down an absolutely staggering 86 percent in a mere five months.”

To market to market to buy a fat pig. At least the end of the worst quarter for equity markets globally in a while was better. The ALSI managed to end above 50 thousand points, for what it is worth. Time for a little reflection here, since the ALSI has slid off the highs of late April, just over 55 thousand points back then, there are a few big ticket stocks worth pointing out their relative movements. Just to see how they have done, relative to the ALSI. First SABMiller, which is subject to a takeover bid and currently talking amicably to AB InBev is up 19.4 percent, if it were not for the bid that appeared in the last two weeks, no doubt the stock would be lower, it is what it is. British American Tobacco is up 11.2 percent over the same time. Naspers is down 10.9 percent since the market topped out, they have “market performed” I guess since then. Bidvest is about flat, having outperformed Mr. Market, good results in-between.

Woolies, with their really good results are up 5 percent since the market high in April, they are still however off their early August highs by around four and a half percent. Richemont, like Bidvest are absolutely flat since late April, their recent five month update lifted the stock close to the all time highs. In Rand terms, Richemont stock is at the same levels it was two years ago, it has been tough out there with Hong Kong sales crimped by anti graft measures, I say yeah good! Mediclinic stock is down over 15 percent since back then, I suppose the rights issue has had something to do with that. Discovery, the share price, is up two percent since then, we are close to the all time high reached in early April.

Steinhoff is up over 8 percent since then, in anticipation of the listing in Frankfurt, they of course never sit still, loads of “stuff” always going on in the background. Aspen has been in the dog box however, the stock is down 22 percent since the market highs, currency problems on two fronts were revealed in their results. MTN have actually “done worse”, the stock is down 25 percent since the market highs in April, acting in part as a proxy for the oil price. Nigeria has also been a mess, the president only vowing to appoint a cabinet yesterday, or was it last week? Anyhow, he should try a little faster.

Gazing across at the commodities complex, you can see a train wreck. Since the market highs in April, Anglo American is down 42 percent, Glencore is down 66 percent, both slumping as a result of lower commodity prices and their debt piles, BHP Billiton is “only” down 27 percent, Sasol 20 percent, whilst Lonmin is down an absolutely staggering 86 percent in a mere five months. Priced for destruction I guess. Impala Platinum stock is down nearly 40 percent, Anglo American Platinum has “done better”, down only 26 percent. African Rainbow Minerals is down 50 percent. Wow, that really looks like a complete train wreck, in particular Lonmin and Glencore, those look so beaten up.

The point that I am trying to make is that whilst the market is down 11 odd percent since the highs of late April, not all stocks have performed as badly or as well as others, making sweeping statements about “the market” is not a smart thing to do. Saying the market is over or under valued never reflects the reality going on inside of specific companies. The only question that you should be asking are of the specific stocks that you own, do these represent the best options that I have available to me right now? Are these the finest companies that I can allocate my hard earned capital to? Is this company going to be in better shape in two to three years time, will they have the same positive prospects? I don’t buy the idea of looking at the past and determining that a reversion to the mean suggests the stock is cheap. You get what you pay for in life, and that almost always includes the stock of a company.

Over the seas and far away in New York, New York, stocks closed out the last day of the quarter on a high. The S&P 500 rallied nearly 2 percent, yet for the quarter was still down 7 percent. The nerds of NASDAQ have had a tougher time of it, even with the heroic move last evening, the quarter was a poor one, that tech laden index sank 7.4 percent. Blue Chips, the Dow Industrial Average actually “did worse”, down 7.6 percent on the quarter, year to date however it is worse, down 8.7 percent. It certainly has been a grind this year, with much fixation on the Fed, the Chinese economy slowing to a certain extent and Dollar headwinds putting pressure on the earnings outlook for big multinationals that make up the majority of the markets earnings. As the headline of yesterday’s message indicated, good riddance to the last quarter, we certainly will not miss you.

Stocks across Hong Kong and mainland China are closed for another one of those weekly holidays mandated by the state, from a planning point of view it makes things easier, from a spontaneity point of view it makes things terrible. Tomorrow, and each and every 2nd of October in China is known as National Day Golden Week holiday. This is not to be confused with the weeklong celebrations over Chinese new year, that moves annually, this one is set in stone. About one in ten Chinese people travel during this time, which makes it one of the greatest human migrations, and makes the trek down to the coast from the Highveld look like a country weekend picnic. On the 1st of October 1949, the People’s Republic of China was founded, this is effectively their national day.

Communist China is 66 years old, encouraging business which has led to wealth creation (after the disasters of the great leaps backwards, mass starvation) over the last three and a half decades. That has led to new markets for multinational companies, we can only hope to achieve half of what the Chinese have done across our continent and India, the two next big areas of infrastructural development. If that happens, then all the excesses seen in the commodity markets will undoubtably be unwound in a hurry, mothballed until the prices recover. That could take some time.

Linkfest, lap it up

There is a big shift in China towards consumption with retail growth far outstripping the GDP growth – China’s consumers. From guys on the ground like Apple and Nike they are experiencing massive growth in that region and will probably continue to do so going forward. As people get richer they tend to travel more which is good for retail in other parts of the world too, have a look at the huge increase in travel dollars spent by the Chinese:

I think given our education we tend to automatically look for the complex solution in most things because if the solution is too easy it must be wrong. The worst in exams was when you arrived at your maths answer too quickly, you had that sinking feeling that you missed the trick the examiner had laid out for you – Complexity as a Default. This can also apply to investors, trying to make things simpler is normally better.

Home again, home again, jiggety-jog. Finally we are seeing some sort of consistency in this recovery. By that I mean two days in a row. We have seen a lot of volatility recently. The ECB’s Draghi speaks today, big jobs number tomorrow from the US. Lets see how the market will interpret what is good or bad news.

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

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