Business of wealth creation


History buffs will tell you that over 100 years ago, Argentina was one of the top ten richest countries in the world, immigrants chose the South American country over the United States, both had equally exciting prospects. Belgium, Switzerland, the United Kingdom, the USA, Australia, New Zealand were richer than Argentina. Argentina was nearly double the size of Japan, one and a half times the size of Italy, in terms of their economy.”


To market to market to buy a fat pig It wasn’t fun here on the markets in the city founded on massive gold deposits. They, the gold deposits, are still there, they are deep and at these prices not quite mineable in the quantity that we used to be able to churn out the ground. Wow, it was actually worse than I had anticipated, gold output according to StatsSA halved in 2015 from 2010 and is one-fifth in 2015 of what it was in 2000. Phew, it is tough out there. And of course as many are telling me out there, the associated service industries around manufacturing and mining are taking strain as a result of lower commodity prices. It is hard.

Stocks in Jozi, Jozi closed at their worst levels of the day, down nearly a percent and a half by the end of the days trade. Glencore and Anglo American were at the top of the losers list, both down over five percent. Some of the heat is coming out of the recent rally, stories circulating around include an FT story about a surge in Iron Ore prices being attributed to a steel production ban in a city close to Beijing ahead of an important international flower show. Some of the steel mills have been forced to shut from April to September, according to the FT article (paywall) China flower show fuels iron ore surge.

At the opposite end of the spectrum, amongst the day gainers was Tiger Brands. The company had announced earlier in the day that they had found a new CEO to replace Noel Doyle who is currently caretaker CEO. After a bit of snooping around, we managed to find that the fellow had been exposed in South African businesses and the rest of the continent food businesses since 1982. He joined Cadbury in 1982, and was in charge of the Southern African business through to 2006. The stock rallied over four and one-third of a percent on the announcement. Lawrence MacDougall, heard of him? He has experience with Cadbury in Nigeria, Kraft and by extension Mondelez, where he ran the Eastern Europe, Africa and Middle Eastern business. He was appointed head of that business in 2012. Noel Doyle stays on until Lawrence joins the business, at a date announced closer to the end of this month.

Over the seas and far away stocks were mixed in the New York, New York trade. The broader market S&P 500 rallied over half a percent, equally so did the nerds of NASDAQ. The Dow Jones Industrial Average lagged, adding one fifth of a percent to close a smidgen over 17 thousand points. Oil prices rising again lent support to energy stocks, I was a bit surprised to see that BP is still lower year to date, by around 3 odd percent, whilst Chevron and Exxon Mobil were in the middle single digit range higher for the year. What gives there? Stock holders not believing the oil market? Or what. This connection between oil and markets, I still don’t get it.

Stocks over in Asia are again (almost always) mixed, in Shanghai stocks are down 0.8 percent, in Hong Kong stocks have rallied over half a percent, in Japan stocks are up sharply, up over a percent and a quarter. There was an inflation read out of China that looked hotter than anticipated, perhaps that is the disconnect with the other Asian markets.


Do you recall yesterday that we were talking about the reliability of the Chinese official data, in relation to the Gundlach presentation warning on riskier assets? Perhaps well timed and a complete coincidence was an essay released by Brookings, co-authored by none other than Ben Bernanke, the fellow with the beard. Who is not a hipster, he once was chair of the Federal Reserve. Here it is, titled China’s transparency challenges.

It is an interesting read, I get the sense that Bernanke questions the data, yet believes it to be a fair reflection of reality. I also saw the Deputy Finance minister of China giving an interview to CNBC after the G20, this is progress in making the data and communication of their various programs available. No transparency will always lead investors to ask questions and by extension not look to invest in your capital markets. There are choices, as our various delegations are discovering as they try and woo investors to our shores. Once the proverbial horse has bolted, catching a galloping stallion and taming it again is harder than you think. In the case of Chinese capital markets, they are immature and are potentially gargantuan, perhaps dwarfing everything we know today in a number of decades.

History buffs will tell you that over 100 years ago, Argentina was one of the top ten richest countries in the world, immigrants chose the South American country over the United States, both had equally exciting prospects. Belgium, Switzerland, the United Kingdom, the USA, Australia, New Zealand were richer than Argentina. Argentina was nearly double the size of Japan, one and a half times the size of Italy, in terms of their economy.

Strange economic policies and inflexibility led to the US leaving Argentina in the dust, and more recently the massive debt issues. Political instability, a lack of property rights (expropriation) and state control of the economy has led to a country that shares a nominal GDP per capita on the ranking tables with Latvia, Poland and neighbour Chile. Greece and Portugal are 50 odd percent higher. On a purchasing power parity basis, Argentina rubs shoulders with another neighbour, the smaller Uruguay.

I think the point and reference to Argentina is that China could stumble in execution, for now all seems good. Projections once upon a time had the Japanese economy bigger than that of the US, and that was around a generation ago. That didn’t and hardly seems likely in the next generation, anything is possible. Tomorrow is the five year anniversary of the 2011 Tohoku earthquake and tsunami. According to the World Bank, the economic cost was estimated at 235 billion Dollars, the costliest natural disaster in history. Again, almost anything could happen!

I think that China will “get it right”. A transition to some normalised democracy will be tricky, I am pretty sure that it must take place for the natural human element to be unleashed. I am glad for one that Ben Bernanke, a really credible source in his book, acknowledges the Chinese secrecy shift to transparency and feels that the figures are “usable and informative”. In of course the quest and search to shift to a industry to services economy, read that piece by Bernanke too.

The numbers are good, even if old Jeff Gundlach, or Hugh Hendry – recently reversing his tune (China Doomsayers Have It Wrong) or Jim Chanos for that matter don’t believe it. The data that is believable to me is the continued company numbers, most specifically from the companies we hold. Those are likely to reveal what is really happening, if you are a sceptic.


Linkfest, lap it up

One of the biggest problems with golf is that it takes a big chunk out of your day to get a round of 18 in. I think this is a good solution, TopGolf where you play at a driving range with microchips in the balls to track them – Topgolf targets expansion beyond the green

A team at the University of Cape Town are looking to Grow plants without water. This research is particularly relevant at the moment given the drought that Africa is going through. Most African countries have a large subsistence farmer base who do not have irrigation, so being able to grow crops that can survive drought will go along way to helping those local economies get stronger.

Josh Brown has a look at the data from recessions, based on his findings stocks are as likely to be up during a recession as they are to be down. Also since WW2 receptions have been shorter and periods of growth have lasted longer, what a time to be alive – Recessions and Stocks: These are the Facts

Have you heard of the Amazon Echo? Perhaps you should familiarise yourself with the product, through the New York Times: The Echo From Amazon Brims With Groundbreaking Promise. Question is, do you want one after reading the article? Amazon users (potentially all of us) certainly do. See the Amazon website for the announcement around a week back: Amazon Introduces Echo Dot and Amazon Tap.

Staying with Amazon, the company has steered itself in the direction of their own network, sending a signal to UPS and their peers. Here is the release: Air Transport Services Group Confirms Deal with Amazon to Operate Air Transport Network. Amazing the speed at which this company moves, the evolution unfolding in front of us is a sight to behold.


Home again, home again, jiggety-jog. We are in a dead part of the earnings calendar, i.e. not much going on here. I was quite interested to see that the ex-president of Brazil, Lula da Silva had been formally accused of money laundering. That is another sign of progress, in my opinion.

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

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