Drones and moans

“We are down 50 percent to the Dollar in ten years, the Brazilian Real is down nearly 37 percent and they have had their fair share of problems when it comes to politics and their economy. India, being less reliant on commodity exports (in fact as an importer they hope for weaker prices), have weakened by 34 percent to the US Dollar over the last decade. The Russian Rouble? Well, there is one worse than us, down 57 and a half percent over the last ten years. Dollar to the Yen? Flat over ten years.”


 

To market to market to buy a fat pig We closed up shop Thursday with another almighty emerging market sell off, stocks here in Jozi were down over two percent by the time the bell rung time to go home for the long weekend. Concerns about the interest rate differential, money flowing and trying to get the “right” mix between risk and return. In other words, a yield in an emerging market becomes less attractive as rates in the US go higher. With a stronger Dollar, last week the greenback reached a 14 year high to the basket of currencies. Parity to the Euro? Perhaps likely in the coming months as more rate rises in the US become reality and not possibility.

That is also bad for gold, a stronger US Dollar, the price of the shiny metal has been under pressure. I noticed that GoldFields was trading at a 52 week low, down nearly 45 percent from three months ago, the Gold price is down nearly 12 percent in Dollar terms since then. The Gold mining index as a collective is down nearly 42 percent. That is incredible, the pattern is almost exactly the same as last year. Gold stocks were out of the blocks in a hurry and being up over 100 percent for the year at one stage, in early August. Those stocks were the most beaten down Thursday (in Jozi), off over eight and a half percent by the end with nearly ten percent losses for Harmony and GoldFields.

It may be a little more “even” today, the gold price has stopped tumbling as a result of the Dollar giving a little back. As a result of tensions around an underwater drone belonging to the US that was captured by the Chinese late Friday, the Chinese have vowed to return it. The upshot was a Dollar that found itself weaker from before, oil price up, gold price a little firmer is the result there. To end off with, to show that whilst there are ups and downs and extreme volatility, it is just too hard to call. Over the last ten years the gold mining index has returned minus 60 percent. About exactly the same return (minus 60) over the last five years. If you were able to call it twice, you can seemingly make a lot of money in the ups and downs.

So, the Dollar is trading at levels last seen 14 years ago, the Rand to the Greenback has had their fair share of volatility this year, politics and all. A year on from the three roll finance ministers in a week, the Rand is around 7 percent stronger to the US Dollar. Here is an interesting one for you. Over the last ten years, the Jozi All Share index has doubled, up 103 percent. Over the last ten years, the Rand has gone from 7 to 14 to the US Dollar, you do not need to be a genius to work out that the value of your Randelas has halved to the Greenback. Admittedly the US Dollar is trading at the best levels in 14 years and South Africa has much higher inflation, so perhaps it is not too bad over that time.

How do we stack up against some of the others? We are down 50 percent to the Dollar in ten years, the Brazilian Real is down nearly 37 percent and they have had their fair share of problems when it comes to politics and their economy. India, being less reliant on commodity exports (in fact as an importer they hope for weaker prices), have weakened by 34 percent to the US Dollar over the last decade. The Russian Rouble? Well, there is one worse than us, down 57 and a half percent over the last ten years. Dollar to the Yen? Flat over ten years. The Dollar is 25 percent stronger the Euro over that time period, ten years ago the “mark” was 1.30 Dollars to the Euro, in the summer of 2008 we were staring at a number of around 1.60. Today, this morning, the rate is below 1.05. Over 15 years ago, just after the dotcom era, in October of 2000 less than 83 US cents bought a Euro. So you see, currencies do halve and go all the way back, even amongst the majors.


 

Stocks across the oceans and far away have had two trading sessions since we closed up shop, an assault by the Santa rally chaps on Dow 20 thousand has fallen flat twice. I guess it is just a matter of time before we reach those lofty levels. Seeing as the Dow Jones clocked 10 thousand in early 1999, 20 thousand a double in nearly two decades hardly sounds like a compelling return to me, now does it? Nope. So, whilst there are some who get all anxious about levels and stock prices, I don’t. There is always that niggling feeling that history provides us with periods where markets didn’t reach previous records for decades, the S&P 500 took around 25 years to get from the pre Great Depression stock index levels, back to those levels, 1929 to 1954.

At session end energy and utility stocks both gained, as did healthcare and non-cyclical consumer goods (food and the essentials, apparently cigarettes, soda and beer fit the bill too for that index), whilst the laggards were basic materials and technology, Oracle lost over four percent on the session, a wonderful performance from their cloud computing division in results, Mr. Market, as always was looking for more. Hardware sales inline with their peers was lower, as were software sales. Whilst we are on the business of ten year returns, Oracle stock has returned 121 percent to their shareholders over that time. And like some of the more mature types, like Cisco, Oracle have started paying dividends in 2009. It almost became “time”, as a tennis chair umpire would say. Would Djoko still sit in the chair though?

Financials were also amongst the losers, perhaps some tapering off post the Trump rally which has seen Goldman Sachs rally over 20 percent since the Trumpster fell inline to be the next president of the US. Over ten years? Goldman Sachs stock is up just 19 percent. The S&P 500 is up 60 percent. Owning the Street’s smartest minds has delivered a positively mild return, most of that has come in the last 40 days. Again, as is always the case, it depends where you draw the line in the sand.


 

Linkfest, lap it up

Uber certainly has changed the way that we commute in the modern world, on demand transport goes along with on demand streaming services, an app to tell you when to eat, what to eat, the weather and so on. It is hard to believe that Uber would just be of school going age. Yet, as this article points out, they are just getting started. It makes sense, in the end it depends on pricing point, simple economics. What the consumer is willing to pay – Uber wants to take over public transit, one small town at a time.

I made a comment that I had been on Twitter for a number of years now and that I was used to fake news all of the time. People on Facebook are just catching up now. You need to be able to filter, think carefully and then make comments as you see fit. Barry Ritholtz points out that the market has been strewn with fake news – Napoleon Is Dead! Wait. That’s a Stock-Market Scam.

Private equity is misunderstood I think, it is a little more complex than buy with leverage, rip the cash and sweat the assets harder, ramp up debt and then list again on a higher valuation when the market is hungry again. Surely not as simple as that, Edgars is a good example of how that could all go wrong, although you could definitely argue about the timing of the purchase. This New York Times article from a week and a bit back (such old news) shows that the execs over in PE are far richer than their normal run of the mill investment banking friends, of course it is all relative – How the Twinkie Made the Superrich Even Richer


 

Home again, home again, jiggety-jog. Stocks across Asia are lower on account of . The futures market indicates that both Europe and the US are likely to open marginally better, of course there is loads of wriggle room between now and then. Did you see that day/night test match end in a tight for Australia, what an advert for test cricket. Can you imagine a day night match at Newlands as the sun sets. Glorious, bring it on! And the Titans, from just up the drag are the T20 champs, sorry PE.


 

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

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