The Grand Rand

“The Rand currently is being supported by a number of factors, including an improving inflationary environment. Lower oil prices will help. Retailers and financials should benefit from a consumer that has improved their circumstances. Better looking fundamentals, all against the backdrop of what appears to be iffy politics. So how does that stack up? “


 

To market to market to buy a fat pig So what now? The repeal of the healthcare act created by the prior administration failed to materialise, not enough votes to shunt this through, despite the president and his team’s best efforts. And his promises, which most importantly said “we will get this done”. What is most interesting about his style is that he hardly skipped a beat and suggested that they would be moving on to tax reform. They should have started with this first, that is my dumbed down opinion from someone who has very little insight into politics, other than in 2061 years (since Caesar was murdered), the back stabbing still takes place.

There are two ways of viewing this. One, it weakens Trump’s ability to shunt through further reforms. Two, healthcare is hard and now that it is out of the way, Trump and his administration can deal with the tax reforms. Mr. Market reacted negatively, obviously, stocks across Asia are much lower (mostly), Japan down one and a half percent, Hong Kong down around four-tenths of a percent. And US futures are down around half a percent, indicating a much lower open to start with there. This may, or may not mean that US markets sell off for a week or two. Maybe. European markets are all set to sell off around two-thirds of a percent.

Following up from our Friday conversation (Incorrect about Corrections), another piece from Ben Carlson, before we look at the Friday scoreboard – All-Time Highs Are Usually Followed By All-Time Highs. What Ben means is that every all time high is two out of three times inside of all time highs in five years at another all time high. Ultimately it just depends on whether or not the stocks you are buying at going rates are expensive or not. You can buy a great business at a fair price (to borrow a phrase from Buffett), which is far better than buying a fair business at a great price. i.e. just as a stock may seem cheap, it may be “cheap for a reason”. The opposite is often always true too.

Stocks were trading up in the Friday session, at one stage the nerds of NASDAQ were up nearly three quarters of a percent, ending the session up nearly one-fifth of a percent by the end. The Dow Jones Industrial Average closed the session out down nearly 60 points, which these days is around three-tenths of a percent. The broader market S&P 500 gave up nearly 2 points, which is around one-tenth of a percent at these levels.

Some of the recent moves in the equities market has been “interesting”, there have been some big moves by some “big stocks”. Facebook is up over 20 percent year-to-date and we only close out the first quarter by the end of the week. Yet, by some metrics (valuation relative to their growth rate – PEG ratio), the stock looks close to the best value amongst some of the majors. Apple, that stock is up around the same as Facebook, year-to-date, if you subtract the cash pile, the stock trades on a multiple close to 11 times historical. With the cash, the historical multiple is 16.8 times. Cheaper than the index, which in itself is not the most expensive and hardly near wildly overvalued territory.

The S&P traded at 22 times in November 2007, near the last peaks of the stock market (before the period now known as the Great Financial Crisis), and whilst Dr. Ed Yardeni (who does a lot of research on this) has the forward earnings of the collective at nearly 147 Dollars (in 2018), the forward multiple of the index is currently estimated at less than 16 times earnings. This year? Analysts estimates (from the Yardeni data) to see earnings of around 131 Dollars, meaning that the index trades on 2017 earnings at 17.88 times. Hardly in vicious “bubble” territory, you would think, right? We continue to stay long quality stocks, through noise of politics (Greece sovereign debt crisis looming, French elections, setbacks in Washington DC, etc.) and Central Bank interventions, knowing that ultimately earnings are all that matter.


 

The Rand currently is being supported by a number of factors, including an improving inflationary environment. Lower oil prices will help. Retailers and financials should benefit from a consumer that has improved their circumstances. Better looking fundamentals, all against the backdrop of what appears to be iffy politics. So how does that stack up? Whenever the Rand experiences a bout of selling which coincides with political noise, the chattering classes bleat about that, I have seen crickets from the same sources. Friday, stocks as a collective here in Jozi fell around four-tenths of a percent. The resources complex was down around 0.8 percent on the day. Another set of 12 months highs for Adcock and Astral, as well as Pioneer Foods. Meanwhile, some 12 month lows for the JSE (the company itself) and Hammerson and Intu (UK property).

This morning stocks across the board are weaker, resource stocks are weaker as a result of iron ore prices getting weaker (worries around steel demand). With a stronger Rand comes 12 months lows (new ones again) for AB InBev (Rand hedge, listed in Belgium), Steinhoff (Rand hedge, listed in Frankfurt), Sasol (Rand Hedge, geared to oil price), Hammerson, Intu and Capco (Rand hedge, UK property). So there you go. A year ago, the outlook for the Rand was far weaker than now, nobody would have thought we would have arrived at levels not seen since 2015.


 

Linkfest, lap it up

Why didn’t I think of that and then patent it? Sometimes the easiest solutions for solving a problem are right in front of us all of the timePeople won’t stop staring at their phones, so a Dutch town put traffic lights on the ground.

The first glimpse of “it”, and by “it”, I mean the Model 3 Tesla. Want to know why it is called Model 3? Model E was already taken by Ford. Check it out – Elon Musk shows off first ‘release candidate’ Model 3.

Something always needs to be made somewhere, and the trust associated with the label “made in … ” is real. Check out this, Germany tops the list, followed closely by Switzerland – The World’s Most Respected ‘Made in’ Labels.

If you are planning on traveling consider maybe avoiding these cities? – The Most Expensive Cities in the World

Infographic: The Most Expensive Cities in the World | Statista You will find more statistics at Statista


 

Home again, home again, jiggety-jog. Happy birthday to the EU over the weekend, the precursor to the common currency and no borders. Happy birthday. About that Brexit? The market is acting like “Brexit” today, sell first and ask questions later.


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

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