Valeant the vanquished


“The one year return is minus 83 percent. I am not too sure if I read the Google Finance statistics right, Valeant apparently traded 138.95 million of the 341 million shares in issue yesterday. I double checked with my Bloomberg app, and indeed the stock traded 138.9 million shares. And indeed, shares outstanding according to my Bloomberg app are 341.19 million shares. Here you have a company that traded 40.7 percent of the shares in issue swapped hands yesterday.”


To market to market to buy a fat pig. Beware the ides of March. Why? Some fellow by the name of Marcus Junius Brutus is associated with the assassination of Julius Caesar, along with the lesser known Gaius Cassius Longinus. In the middle of the month of March, the ides being the middle in the Latin calendar. For more on the subject, read further -> Roman calendar months. It is Brutus who takes the rap for the death of Caesar, not through the historical accounts, rather as a result of the great English playwright, William Shakespeare. I mean, did Caesar actually say, and you Brutus, then fall Caesar? The play was released in 1599, equally a long, long time ago. According to historical accounts, either Caesar said nothing or may have said “You too, child”? In Greek too. Stabbed 23 times. Yowsers, things were ruthless back then, these were how senators solved their problems back in 44 BC.

Nowadays we have political grandstanding where decorum goes out of the window, there is mud slinging. Was it ever civil? Politics may have changed, yet in many respects the tactics still stay the same. Find a way to undermine your opponent without being ruthless. Anyhow, politics is best left to politicians, you can analyse and potentially predict, it will always surprise. For one, I am very surprised by how polarised global politics has become, voters moving to extremes. I guess after a global financial crisis it may have been expected, it certainly wasn’t predicted.

Politics is Greek to me, let us rather stick to something that we have and share a passion for, equity markets. Equity markets locally in Jozi, Jozi were battered a little by sinking Resource stocks, which were better by the end of the session, thanks to a weakening Rand. Stocks closed down 0.42 percent, the Rand “rescuing” stocks in the second half of the session. Which is not really a blessing, I guess. The last few days with the retreat in energy prices and commodity prices have been tough on the producers of the commodities currencies. The headline you will read is that the Rand weakened as a result of political machinations. And I am sure that at some level that is right, before you believe that is the only reason, go and check the performance of the Brazilian Real, the Russian Rouble and the Australian Dollar to the US Dollar yesterday too. They all weakened significantly, all having had a fairly good time of it lately. The Rand is the worst of that bunch over the last 12 months, underscoring that the market is taking a dimmer view on the outlook.

Which bring me to the next point. Many people ask, why should we agonise so much about the ratings agencies and what they think about our ability to meet our obligations? Moody’s are here for a few days and I suspect that there has never been a more high profile trip from a ratings agency in our short history as a democracy. I can’t remember other as much conversation about other trips. One important point to make, the finance minister made it a couple of days ago, these guys are currently rating us two notches above “junk” or non investment grade. The other two major ratings agencies, Fitch and Standard and Poor’s have us a notch lower than Moody’s already. Which means even if they lower their rating, it would be inline with the others.

These folks just come here and go about their business (meet their local team), and then let Mr. Market know what they think. So why do we care? The main reason is that over one-third of our debt is owned by foreigners. If the outlook worsens, then they don’t want our debt, the cost of borrowing goes up as buyers of your debt demand more. And you spend more money servicing debt and less on the places you want to spend; housing, education, healthcare, basic service delivery. As it is, we spend a lot on servicing debt, and those costs are only rising. Michael came up with this table from the last budget, and sent it to me (there is no “i” in team, unless you look very closely):

As you can see, in terms of the rosy outlook for the economy from treasury, the cost of servicing government debt as a percentage of revenues collected is currently 12 percent, set to rise to nearly 13 percent by 2018/2019. Increased tax collections as a result of better economic activities solves everything. One just needs to now encourage economic activity, confidence is key to it all. And currently there may not be a whole lot of that going around. Economic growth, cost cutting, rather than higher tax collection is the way forward, I would of course say that, I am supposed to be a market friendly guy. Encourage and reward the risk takers, they generate new ideas, improve efficiencies and generate more tax Rands. More of that please.

A quick side note from the latest shareholder letter from Mr Buffett, talking about the increase in wealth (more in taxes) due to efficiencies:

“By 2014, Class I railroads carried 1.85 trillion ton-miles, an increase of 182%, while employing only 187,000 workers, a reduction of 86% since 1947. As a result of this staggering improvement in productivity, the inflation-adjusted price for moving a ton-mile of freight has fallen by 55% since 1947, a drop saving shippers about $90 billion annually in current dollars.

Another startling statistic: If it took as many people now to move freight as it did in 1947, we would need well over three million railroad workers to handle present volumes. (Of course, that level of employment would raise freight charges by a lot; consequently, nothing close to today’s volume would actually move.)”


Last point, if bond investors rely on ratings agencies, perhaps they are doing it all wrong, not so? The Oracle of Omaha, Warren Buffett even defended the ratings agencies back in 2010 for their miss-ratings of mortgage debt in the US. Of course Berkshire was a shareholder of Moody’s back then. Human greed was all to blame for the financial crisis, it is always easier to point fingers than taking a long hard look in the mirror. That is possibly what we need as a nation, a collective long hard look in the mirror. And we desperately need to both encourage baking of newer and bigger pies for more to share, as well as include all in the secrets of pie baking. I am pretty sure that all business people will tell you the same, perspiration, sticking to the story, being cautiously optimistic and above all, be smart. And that includes many hours outside of the ordinary. Unleash. That is the message I want to hear. You are enabled, we won’t fight you, we want you to raise more money for the social programs that we care about deeply. You can’t do that with multiple handbrakes.


Over the seas and far away in New York, New York, stocks paused a touch ahead of the Fed announcement today. As we have mentioned many times, if you live and die by the Fed announcement in your approach to stocks, that may well be your strategy, it certainly is not ours. In our opinion you are then doing it all wrong. The Dow Jones ticked a little higher, the broader market S&P 500 lost around one-fifth of a percent, whilst the nerds of NASDAQ slipped 0.45 percent by the end of the day’s trade. Basic materials stocks were all punished, it has been an incredibly bad volatile ride, more good than bad recently it must be said. Valeant holders needed a little more than bravery, the shorts must have been feasting as the biotech company was decimated, the stock was down 51 percent on the session.

What the … ? The one year return is minus 83 percent. I am not too sure if I read the Google Finance statistics right, Valeant apparently traded 138.95 million of the 341 million shares in issue yesterday. I double checked with my Bloomberg app, and indeed the stock traded 138.9 million shares. And indeed, shares outstanding according to my Bloomberg app are 341.19 million shares. Here you have a companywhere 40.7 percent of the shares in issue swapped hands yesterday.

Pershing Capital could have lost one billion Dollars on paper yesterday, these are some very smart people who have a giant pile of elephant dung to deal with. In total, the stake owned by Pershing has lost three billion Dollars since they have owned it. Bill Ackman is the man associated with Valeant, this is higher profile than his JC Penney stake is my sense. And to add insult to injury, there was apparently a typo on the guidance in the communication issued, picked up on the conference call. Yowsers. It is going to take years to restore confidence. And the Justice Department is investigating their pricing practice, this is the company that directly incurred the wrath of Hillary Rodham Clinton. And more recently, the company warned on a possible default. This is what you call a complete breakdown in investor confidence. Avoid.


Linkfest, lap it up

And so it is official computers are better than us in another sphere of life – Google’s AlphaGo AI beats Lee Se-dol again to win Go series 4-1. The reason that this is a big deal is because the computer was not able to go through every possible move and then decide which would be the best one, there are just too many possible moves to consider. The result is that the computer has to use ‘intuition’ to decide which move will most likely be the best.

Here are the results of a survey recently done in the United Kingdom – Artificial Intelligence: Blessing or Curse?

Infographic: Artificial Intelligence: Blessing or Curse? | Statista
You will find more statistics at Statista

How prevalent do you think robots will be in future society? Do you think your job/you will be replaced by a robot one day? – Most Americans are in denial about the possibility of robots taking their jobs In the investing world there are already ‘Robo-advisers’ so there is a good chance that robots will be doing my job one day.


Home again, home again, jiggety-jog. Stocks are mixed across Asia, all eyes of course will turn to a single event today, the Fed announcement. The most powerful person in the world (our world) for a few hours will capture the markets, Janet Yellen. The press conference begins around eight thirty tonight. The chance of a rate hike according to the market is next to nothing, the guidance and wording is important.

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

Email us

Follow Sasha, Michael, Byron, Bright and Paul on Twitter

078 533 1063

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s