Beers and De Beers

“Last thing, according to the reading that I have done, two farmers of Dutch descent who farmed on the land that is now known as the big hole, in Kimberly, had the surname De Beer. Brothers two = De Beers, plural.”


 

To market to market to buy a fat pig On the march again, Heigh-Ho, Heigh-Ho, it’s off to work I go. Did you know that the movie Snow White and the Seven Dwarfs was made in 1937? That movie, in colour (a rarity back then) premiered a few days before Christmas back nearly 79 years ago. In the original German work by the brothers Grimm, the mineworkers and little people that Snow White came to love didn’t actually have names. That is right, they were given names in a 1912 theatre production. And the rest as they say in the classics ….. is history!

The markets were off again, marching to the gold mines deep in the mountains, singing that cheerful song, Heigh-ho hum! Stocks (and some indices) across the seas and far away leaned in on some historic prints, the Dow Industrials (and the S&P 500 and the nerds of NASDAQ) set new intraday and closing records. The Dow came within one quarter of a percent from the 20 thousand mark, before settling back. Still, blue chips were up 0.58 percent by the close of shop, the broader market S&P 500 added just under two-thirds of a percent at 2271, whilst the tech heavy nerds of NASDAQ closed a percent higher, 5463 is the new level. Strangely, as the Dow Jones Industrial is the oldest of the known indices, it is the only level that people talk about. “Where is the Dow?”, is a valid question in the broader markets community.

Energy stocks once again flew off the shelves, up over a percent and three-quarters, the higher crude price is sending the index to higher and higher levels, over the last month the energy index is up nearly 14 percent. Five years? Down 6 percent. Again, if you want to be owning these stocks, the big majors in the energy sector, you must accept that volatility is part and parcel of the investing “stake” and you must be prepared to be a little more active. i.e. time the sales and purchases. That is easier said than done when you look at a historic graph, ah yes, sell there and buy here, should’ve, could’ve, most times really didn’t.

Exxon Mobil is still nearly 400 billion Dollars in size, the other listed stocks in the New York Energy index (ADRs and primary listings) that have market capitalisations in excess of 100 billion Dollars include Royal Dutch Shell ADR (227 billion Dollars), Chevron (224 billion Dollars), PetroChina ADR (207 billion Dollars), Total ADR (128 billion Dollars), Schlumberger (120 billion Dollars) and the BP ADR (117 billion Dollars). Of those, only Schlumberger is not an out and out producer, rather a technology supplier to the industry, rigs, project management, high tech services. In that oil and gas services segment, Schlumberger are bigger than the next four companies combined (which includes Halliburton and Baker Hughes). If one is of the opinion that more fossil fuels technology is going to be used in the short term ….. I would rather time the Schlumberger ups and downs. Then again, perhaps not! Too tough to call most cycles.

Back home in the city founded on gold, the Jozi all share index added nearly two-thirds of a percent on the day. Industrials led the charge, up over a percent, whilst the resource stocks sold off sharply, the broad based ones, the top three, namely Glencore, Anglo American and BHP Billiton. Kumba stock flew up nearly five percent to lead the top 40 stocks gainers. Bidvest, Remgro, Capitec and Steinhoff were amongst the other gainers on the day. Steinhoff have, since their results a week back, rallied over 17 percent. Wow. Too strong on the way up, too far on the way down. Over 12 months the stock is exactly flat, over five years …… up 222 percent. Or double Nelson to the cricket fanatics. Talking of which, damn, the Lions were bested by the team from PE last evening, well done the Warriors.

There were two sets of company news worth noting, firstly that AB InBev was selling their (SABMiller’s) Eastern European beer operations to Japanese beverage company Asahi for 7.8 billion Dollars. These brands include Pilsner Urquell, Kozel, Tyskie and other brands. Wow. Remember that Asahi had bought Peroni and Grolsch from SABMiller before the deal closed with AB InBev, for 2.9 billion Dollars. Whilst we can expect more divestment from AB InBev over time, they are being pretty swift about all of this, and judging from the market reaction (Asahi was down over four and a half percent, AB InBev was up 1.3 percent last night in New York), the Belgian brewer got the best of the deal. What I found brilliant was the press release, the summarised one. Michael says that they are being efficient, I have copied and pasted the whole thing:

“Anheuser-Busch InBev is pleased to announce that it has entered into a binding agreement with Asahi Group Holdings, Ltd. to sell the businesses formerly owned by SABMiller Limited in Poland, the Czech Republic, Slovakia, Hungary and Romania for an agreed enterprise value of EUR 7.3 billion, subject to customary adjustments”

 

Call it 49 words (give or take, with Ltd’s excluded etc.) you get to 161 million Dollars (it is 7.8 billion Dollars = 7.3 billion Euros) a word. Efficient, not so? Part of the process of the hard charging AB InBev team, they will cut assets that they think do not have the growth metrics that they no doubt are looking for.

The second piece of corporate news that was worth noting was the announcement from Anglo American, with their subsidiary De Beers announcing rough diamond sales. Lower than the last cycle (this is the 10th for the year), much better than the cycle at the comparable period last year. The CEO Bruce Cleaver had the following to say: “While the trade in lower value rough diamonds is experiencing a temporary slowdown as a result of the demonetisation programme in India, demand across the rest of the product mix continued to be healthy and overall sales remained in line with seasonal expectations.”

Diamond trends? What are those likely to be? If you like diamonds and jewellery, then I suspect that you should be investing in companies that manufacture the end product. One would dare to say it out loud, much better margins? Companies like Richemont (Cartier and Van Cleef and Arpels), LVMH (Bulgari and even the front end for De Beers Diamond Jewellers), Tiffany & Co and so on. In our opinion, that is the better end of the market.

Last thing, according to the reading that I have done, two farmers of Dutch descent who farmed on the land that is now known as the big hole, in Kimberly, had the surname De Beer. Brothers two = De Beers, plural. Funny thing that the name stuck, don’t you think? Diederik Arnoldus De Beer and Johannes Nicolaas De Beer on a farm called Vooruitzicht (Outlook in English). The British government forced them to sell (expropriation, a form thereof) for the sum of 6600 Great British Pounds back in 1871. Or was it 6000 guineas? The buyer was a fellow by the name of Alfred Johnson Ebden. Ebden was from 1820 Settler stock, and would have arrived here as a baby (as far as I can tell).

A company belonging in part by Ebden (a PE firm by the name of Dunell, Ebden and Company) sold the land to the government of the Cape colony at the time for 100 thousand Pounds in 1875. 13.6 million carats of diamonds were pulled up from the hole from start to finish, 1871 to 1914. The actual single company as we know it today, DeBeers, amalgamated all the rights into one big business in 1888.

The directors of that business? Alfred Beit (from Germany), as in Beit Bridge. Cecil John Rhodes, as in the fellow who brings about many mixed emotions. And of course a fellow by the name Barney Barnato, nobody will ever know the circumstances of him falling (or being pushed) from that ship in 1897. One of Barnato’s heirs, Woolf Joel was shot downtown Joburg in his offices, a conspiracy theory about overthrowing (or kidnapping) the then Transvaal Republic President, Paul Kruger was somehow involved. Wow. The history!


 

Linkfest, lap it up

The streaming players have spent huge amounts of money to attract eye balls to their services. The huge amount of money spent is paying off when it comes to awards – Netflix, Amazon, and HBO combined for 70% of the best TV show Golden Globe nominations. The key though is to get enough eye balls, for a long enough period to justify the cost of the shows.

Josh Brown points out how psychology plays a roll in market movements. More importantly he points out how important faith or believing is to our current economic system. If you believe that the Trump will spur economic growth which will benefit your income, you start spending more and start spurring economic growth before any policy changes take place – Sugar Pills.

As part of societies push to become fitter and healthier, CrossFit has become a very popular way to get your heart rate up and scalp that body. Reebok have the rights to produce the official CrossFit shoe – Nike Doubles Down in Its Battle for the CrossFit Crowd. Nike can’t create an official CrossFit shoe but they can sponsor the current CrossFit champion and post videos of him training using their shoes.


 

Home again, home again, jiggety-jog. Stocks have started much better here, Santa Claus, rather late than never in terms of your market timing. The origin is not that old, the Santa Claus market effect is something that is known in the electronic era of trading, the first reference being in 1972. Are people more likely to buy stocks at the end of the year? Who knows. As in Santa sticking presents under a tree, reality and the truth are really blurred in this case. Remember, giving is better than receiving ……. except with stock returns.


 

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

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