Ang-low

 

‘Moody’s suggests “that the company now faces a higher business risk due to deterioration in commodities market conditions and a longer and more uncertain deleveraging period than previously expected.” The ratings agency notes that the company is working hard to reduce debt, suggesting however that it may be hard to sell certain assets in the current environment:”Pending further announcements by the company, the rating agency believes that divestments of non-core assets would be difficult to execute in the current environment, particularly at valuations to allow deleveraging from the current level.”‘


 

Last reminder for the time being. Watch the Business Blunders on the Vestact TV YouTube channel, and then tell you friends, share the video. Blunders – Episode 1. Sign up so that you never miss a beat: Blunder Alert!


 

To market to market to buy a fat pig Whilst US markets were closed for the day (Presidents’ day), stocks across the rest of the globe were in the words of pitbull (he looks like a certain opening batsman we had once upon a time) a fireball! They were on fire! In a good way of course. Pitbull also talks of coming, seeing and conquering, those are of course famous words attributed to Julius Caesar, the original Latin was Veni, vidi, vici. It was, according to Wikipedia, after a short and sharp battle against a Greek prince, Pharnaces II of Pontus at the battle of Zela. Caesar explained his swift victory to the Senate in a letter. With half the army of Pharnaces II, consisting of crack battle hardened troops, Caesar’s victory was certain. And swift, in five hours the entire army of the Greeks were decimated. And as such, quick. The battle itself took place in central Turkey, in a place called Zile. We all know a little more about history.

In a sense yesterday’s market is ancient history too, it was a rare win of magnitude for the bulls, stocks as a collective in Jozi rallied 2.6 percent, over 1200 points on the day to close near the 50 thousand point mark. Welcome back! Judging by the moves in Asia, and where the futures market is sitting in the US right now, I suspect that we may well see that level today. I had a look, and I think that it would be the first time this year that we would see that print, something more than 50 thousand points on the Jozi all share index. Stocks after three weeks into the year were down at the 46 thousand point level, in recent weeks we have certainly clawed back some of the losses.

Anglo American was at the top of the leaderboards again, the stock was up a stunning 8.27 percent, following on from the nearly 15 percent gain on Friday. Michael told me yesterday (via a tweet) that short interest in the stock had risen to 18 percent. And almost all of that is recent, stunningly recent! Check it out via Markit: Most shorted ahead of earnings. I cannot believe the ruthlessness of the market, having built in an enormous amount of short interest. There is only one other stock in Europe that has a bigger short interest built in than Anglo, and that is a business called Vallourec. I suppose it is no coincidence as the market has returned to confidence mode that this company saw their share price up a whopping 16.67 percent yesterday.

Back to Anglo, I think it is worth having a look at the visual via Markit, of how recent the short interest has built. For those of you struggling with the concept, it is simple, people sell the shares short, borrow the shares in order to sell them, and then hopefully buy them back at a lower level and pocket the difference. You obviously have to have willing lenders of the scrip, in order for people to be able to sell first (they need to borrow the scrip from a long term holder), this earns the long term holder a fee, marginally more. If the short sellers use leverage i.e. use borrowed money to amplify their returns or losses, the swiftness of the moves can catch you off guard. Check it out, courtesy of the folks over at Markit, link above:

The Y axis on the left hand side is percentage of the share outstanding that has been sold short, the Y axis on the right hand side represents the share price in Pound terms. The ten year graph, the blue line, looks like a train wreck. And to rub salt into the wounds, last evening I saw a story via a Bloomberg commodities reporter, Javier Blas, that Moody’s downgrades Anglo American’s ratings to Ba3; negative outlook.

Moody’s suggests “that the company now faces a higher business risk due to deterioration in commodities market conditions and a longer and more uncertain deleveraging period than previously expected.” The ratings agency notes that the company is working hard to reduce debt, suggesting however that it may be hard to sell certain assets in the current environment: “Pending further announcements by the company, the rating agency believes that divestments of non-core assets would be difficult to execute in the current environment, particularly at valuations to allow deleveraging from the current level.”

This is all relevant as the company delivers their plans today, along with results. It may be the unfortunate part of the deleveraging cycle which results in mine closures, job losses and reduced exports. All unfortunately in response to lower demand and cheaper supply from other sources. To paraphrase another Latin saying, Quo vadis? Which means, where are you going? The phrase actually takes on biblical connotations, where Saint Peter was said to have been asked by Jesus where he was going. You can apparently visit the site where a church resides, true story: Church of Domine Quo Vadis. Next time one is in (or near) Rome, OK? When in Rome …..

So what now for Anglo? Once the mighty, now a shadow of its former self, wait for the results today. Until recently the company was far bigger than the likes of Bidvest, Sanlam, Remgro and Aspen. Whilst it may appear a tragedy that the company will have to retrench multiple workers, one must not lose sight of the fact that Bidvest employed nobody when Anglo was at the top of the pile, that company now employs 141 thousand people around the world. Aspen employs fewer people, still, at nearly 10 thousand, most of these jobs are relatively new. Remgro and Sanlam are important parts of the local economy, more so now than 20 years ago. So whilst we can harp on about the loss of a giant, it is important to note that many giants have been created over the time that we have seen slippage in the mining industry. And as we often say here, at least we have a better diversified economy than many other countries in the commodity markets. Think Saudi and Russia, who meet today to discuss output cuts. As such the oil price has rallied hard in recent sessions.


 

Linkfest, lap it up

Could this be considered a milestone for the fledging Virtual Reality (VR) industry – The Sports Illustrated Swimsuit issue is now in virtual reality. As more people buy VR devices, more content will become available on them and then more people will buy them and the cycle continues. I think being able to watch sport using a VR device will be one of the main future revenue streams.

If you look at a map prepared by economists and researchers depicting which parts of the globe are happy and which parts are not, you will notice the “rich” countries are normally the happy ones. A problem with the research is that happiness means different things in different cultures – What do people mean when they say they’re happy? It depends where you live

When last did you open a newspaper? We read many different articles on a daily basis but I don’t think anyone in the office has bought a paper newspaper in a very long time! – How financial media firms are monetizing as readership changes


 

Home again, home again, jiggety-jog. Markets across Europe are on track for another day of huge gains. The Shanghai market is up nearly three percent, the Hong Kong market is up nearly one and one-quarter of a percent, whilst the Japanese markets are up around 0.9 percent. The news in is that Chinese credit extension numbers for the month of January were strong, really strong, better than expectations by quite some margin -> China January new yuan loans climb to record high in seasonal surge. I am guessing those who told us China was slowing and this is bad for the globe, will also say that too much borrowing is a very bad thing. {Grammys spoiler alert} The haters going to hate, never mind Taylor Swift, you collect that Grammy for album of the year.


 

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

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