2.629 million jobs in a year

“Put differently, US non-farm payrolls gained 2.629 million folks over a year. Sounds OK to me! Why the watch month-to-month? That is the people that we have become unfortunately. I call it the credit card generation, perhaps it should be Twitter or Vine. 140 Characters, 7 seconds, get what you want when you want it.”


 

To market to market to buy a fat pig Friday was a while back, with the day to celebrate mothers around the world in-between. It certainly is a lot more commercial in this neck of the woods than it used to be, perhaps I am only paying closer attention at this point in my life than before. Perhaps that is the case, with young kids the dad is the guardian of the day of the mother, not so? Friday of course was the biggest monthly employment read since the previous one. The headline number, being the number of jobs created in the month of April, as per the data that the US Labor Department has at its disposal, was a miss.

From what I could tell, the labour force participation rate fell, which is not good. Equally, the employment rate was flat. I did notice that there was massive job shedding in mining activity, whilst the services economy looks in pretty nifty shape, along with the broader healthcare sector. Healthcare is becoming an increasingly big employer across the globe, healthcare and social assistance employs a staggering 19 million people across the USA, that is more than we have in the entire workforce here in South Africa. The US government, specifically at a local government level, is one of the biggest employers in all of the country. A lot of that is teachers, education at a government level in the US accounts for 7.81 million jobs. Out of the total civilian workforce of 158.9 million folks.

I think that people look at these numbers in a very focused and narrow way. Population growth in the US is higher than some of their developed market peers across the globe. People tend to focus on this number as the number one litmus test of what the health of the US economy is. Instead of looking at month to month, what about this time last year? The change is massive. In April 2015, the labour department in the US reported that the total non-farm workforce was 141.286 million strong. On Friday, the same department reported that the non-farm workforce was 143.915 million strong.

Put differently, US non-farm payrolls gained 2.629 million folks over a year. Sounds OK to me! Why the watch month-to-month? That is the people that we have become unfortunately. I call it the credit card generation, perhaps it should be Twitter or Vine. 140 Characters, 7 seconds, get what you want when you want it. And then worry about the consequences later. The number itself can be quite volatile and move around, again, I wouldn’t get too excited if it is a blowout number or a disappointment. The trend is still intact. Tell that to the constant worrywarts.

Finally, on that score, as investors in businesses that provide services and produce products for consumers around the world, consumption is something that we need. In the same way that everyone does not have the same savings disciplines, consumers must consume large quantities in order for our businesses to produce higher revenues and higher profits year in and year out. So crass consumption might be frowned at by the (bless them) purists, it is very necessary for societies to advance. The careful use of leverage for fixed asset formation is part of the process. On that score, at least there are many nations across the globe that have a relatively low starting point.

Scoreboard check quickly, whilst the markets in New York, New York started lower and slid through to midday for the lows, as a collective stocks recovered into the finish and all ended with a positive print. The Dow Jones Industrial Average added 0.45 percent, the nerds of NASDAQ four-tenths of a percent and the broader market S&P 500 up just shy of one-third of a percent. Moving the needle were basic materials shares and in the opposite direction, being a short drag on the market were the healthcare stocks.

Across to our market, stocks ended the session a full one percent lower. There was pretty much broad based selling, industrials and financials slightly worse than the rest of the market, resources better, yet still in the red. Today the price of iron ore is getting caned, too much supply in Chinese ports and wild speculative activities on commodity prices might drag us lower here today at the start. That could be offset a little by rising oil prices. A shakeup in the world of oil as the Saudi oil minister is replaced and a massive fire in the Canadian interior (in the Canadian oil sands) may well lead to production cuts that the rest of the industry needs. Other countries, including Saudi I suppose. For now, we do not advocate investing in commodities. An investment in raw commodities is a bet against humanity or said differently human innovation to do more with less.


 

Company Corner

Cerner is a business that focuses on healthcare intelligence. Just the other day, at the beginning of last week, there was a report that suggested Medical errors now third leading cause of death in United States. What? We wrote about their full year results in February, giving some good background to the business – Cerner 4Q and Full year numbers. Back then as we showed you, the stock swooned to a level not seen in a while, the same applies now. Certainly the company is one of the leaders that are looking to reduce medical errors, through their Hospitals & Health Systems business.

Owning a business like this, Cerner, means that you get to participate in the improvement of drug administration to care during and post surgeries. The seven most worrisome emergency surgeries that account for 80 percent of the deaths in the US are closely related to surgery in the abdominal area. I am pretty sure that all parties involved are well aware of the problems and issues associated with these surgeries and are going to work hard to fix them. Department handoffs too are part of the problem, this is no doubt where Cerner can continue to make huge strides in integrating the patients history. Surely information readily available from the consulting doctor through to post op must be available at the click of a button. Knowing everything about the individual, making sure that the correct drugs and care is administered, goes a long way to avoid the medical errors. This is why I think that a business like Cerner still has huge growth potential.

When the company reported their First Quarter 2016 Results, the market was not the least impressed with a 14 percent rise in revenues and an 18 percent rise in earnings. Perhaps it was more likely the guidance given for the quarter and the full year. For the full year the company expects revenues of 4.9 to 5.1 billion Dollars, and earnings per share (before share based compensation expense and acquisition related adjustments) to be 2.35 Dollars at the mid point of the range, a high teens increase in earnings. And that means that the stock trades on a 22.82 times forward. And then further out, less than 20 times earnings on the same growth, implying a 1 PEG ratio. With PEG being price to earnings ratio over the implied growth rate. And by that measure the stock hardly seems expensive for an information technology services company.

The share price performance has been very disappointing. Over the last year the stock is down over one-fifth, nobody likes to see those types of returns. The thesis is still intact, the company is on a firm footing and will continue to find more and more work in the future, as we move towards a greater integration in the internet era. It is a company that I am positive on their long term prospects and whilst there may be very little action in the short to medium term. We maintain our buy recommendation on the stock and are accumulating on weakness.


 

Linkfest, lap it up

You know that you want to look at this linkInside the Gigafactory That Will Decide Tesla’s Fate. It definitely is futuristic, the setting makes it eerily James Bond villain like. Except Elon Musk is like a superhero.

The dream of transcontinental flight in a few hours rather than overnight might sound like a great idea, until you have to pay the price, a big one at that. Getting from Joburg to Europe, or the far East, or North America, or even the northern part of our own continent is a long way away. Don’t expect that to change any time soon, as a result of the economics of flight – Why planes aren’t getting any faster-and won’t any time soon.

India is one of the countries that Naspers has a growing footprint, unfortunately one of the investments isn’t doing as well as it was previously – Is Flipkart turning into the perfect example of what a tech startup must not do?.

If Britain decides that it no longer wants to be part of the EU one of the unintended consequences will be that Premier League Football will loose a big chunk of players and not be able to attract future foreign talent. Foreign players would need to get work visa’s to play in England, not always that easy – If England leaves the EU, it’s the end of the Premier League as we know it

Since the financial crisis, ETF’s numbers have been surging. One of the byproducts of people focusing less on individual stocks and buying indexes is that index trackers are getting more complicated. ETF’s that incorporate factor leveraging like Smart Beta ETF’s are seeing a rise in popularity because a normal index tracker is too boring – The Temptation to Time

Do you doodle whilst on a phone call? Did you doodle in class or a lecture? Or a meeting? It turns out that doodling may well be a very good way of learning something – The scientific case for doodling while taking notes. I am going to try this.

Taking selfies may be more than just vanity. A smartphone may recognise your unique features for password protectionCompanies are betting on a new way to protect your identity: the selfie.


 

Home again, home again, jiggety-jog. Futures markets are marginally higher everywhere. We are drawing to the end of the earnings season in the US, and no doubt there will be excitement with it starting here. Hey, a full week here, who would have thought. Hey, Arsenal fans, Arsene Wenger has a 57.2 percent win percentage. He has lost only 19.48 percent of all of the matches he has been in charge of. If that were an investment managers record, he would probably be the best of the best. Fans want 100 percent in my experience, it is never going to happen.


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

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