Quarter by Quarter

“The end of the first quarter for stocks in New York pointed to a sixth straight quarterly gain for equities. Consumer confidence is at the best levels since late 2000. The housing market seems pretty strong. Economic growth is not exactly tearaway, above two percent is the envy of not only the developed world, some parts of the developing world would love that too. Yes sir. “


 

To market to market to buy a fat pig Friday. Whoa! Equities ended near the worst point of the day, the local currency did strengthen from its worst levels. The Rand is trading, to the US Dollar, at the same point as in late January. That is right now. Depending on what happens next, this is where politics and markets really do collide. Mr. Market is making decisions based on what they think is likely to happen next in politics, and that my friends is harder to predict than the next two years of revenues for any particular business.

Financials and banks were whipped, in the losers columns were the likes of Nedbank (down 7.35 percent), Barclays Africa (down 7.16 percent), Standard Bank (down 6.47 percent), PSG (down 6.21 percent), FirstRand (down 5.62 percent), Investec (down over 5 percent) and RMB Holdings (down 4.86 percent). In the winners column were the obvious ones, Intu up nearly seven percent, Richemont up over five percent, Hammerson up nearly five percent, AB InBev added nearly four percent and BATS up three and three-quarters of a percent. Basically, if you had a listing elsewhere, or if your revenues are boosted by a weaker currency, you were in the “winners” column. British American Tobacco in London actually ended the day weaker, it just goes to show how much the currency had an impact on the day’s trade.

What can you do about all of the political noise? That is clearly worrying many, many people. Many older members of the ruling party are deeply worried. Many are saying nothing. Many are equally excited about the new dispensation. It all depends where you sit in the political spectrum. It is important to remember that not everyone thinks like you, and that is a good thing. In a week, we have seen major changes to the direction of our young democracy. In a weeks time there may be something different. Who knows ….. Should you act on these swiftly moving parts?

The questions of investing are numerous and never ending. In other words, you will never know the answers. Which is what makes investing so very tricky. I saw commentary from Senator McCain (remember the guy that run against Obama?) that this was the most worrying time for the US in like …… ever. It depends where you sit in the world, as to what counts as desperate or not. We continue to watch events unfold, knowing that most of our portfolio holdings are geared for businesses that have much exposure offshore. It is not something we actively push, it is just that in order to own a growing business, you have to be able to have exposure to more than just 55 odd million South Africans. You know what I mean?

Nonetheless, we have and continue to have options, in which investors can send either an allowance or funds offshore via an investment amount. South Africans, as a result of exchange controls, are not as accustomed as those who have lived inside of areas where there are no exchange controls. Exchange controls in South Africa were promulgated in 1961, it is post the break from the commonwealth. It was meant to stop people getting money offshore. It is not the best tool for local investors, who feel like they have few options. At the moment, as the rules are applied to the letter of the law, you can use 1 million Rand for the purposes of “discretion”, which can mean investing too. You can then apply for an extra amount, that is up to 10 million Rand per person. Of course there are fewer people who have that sort of money, the options do exist.


 

School is out! Ooops, sorry, wrong one. The quarter is out, never to be repeated. The end of the first quarter for stocks in New York pointed to a sixth straight quarterly gain for equities. Consumer confidence is at the best levels since late 2000. The housing market seems pretty strong. Economic growth is not exactly tearaway, above two percent is the envy of not only the developed world, some parts of the developing world would love that too. Yes sir.

That said, according to Morgan Stanley, the spread between real hard data and sentiment (drawn from consumers) is at highs not seen in decades. Confused? Read this WSJ article – Sentiment vs. Reality: The Economy Is Telling Two Different Stories. There may of course be a very “real” lead and lag cycle. In other words ….. when your behaviour changes, you will borrow more, spend more, and that will kick into the economy down the line. There are all sorts of graphs, based on real and sentiment.

The metric I was most pleased to see in the favourable column was that quarterly profits, for the S&P 500, rose 22.3 percent year over year in the fourth quarter. That is the strongest growth in over five years. Admittedly, as a result of a weak Q4 2015, where oil prices were low and manufacturing was weaker, it was bound to be “better”. Year to date (and by extension the last quarter), the S&P 500 is up over five and a half percent.

Friday was a day where the markets sold off at the death, The Dow Jones Industrial Average lost around one-third of a percent, the broader market S&P 500 sank just under one-quarter of a percent and the nerds of NASDAQ just dipped into the red by the close, down just under one-twentieth of a percent. Amazon enjoyed yet another day of “success”, the stock rallied over a percent again. Oil and banks were losers, energy stocks and financials as a collective dragged stocks lower on balance. New quarter, filled with political events and the Fed, luckily for us, who are in the business of analyzing stocks and ideas, earnings season will start soon. And that is one of our favourite 4 quarters of the year, earnings season.

News from yesterday – Tesla Q1 2017 Vehicle Production and Deliveries. Around 25 thousand vehicles, which is a quarterly record. That is roughly 279 vehicles a day, or in a 24 hour day, 11.63 vehicles an hour. Which does not really sound like a lot. To reach the 500 thousand target, or 125 thousand a quarter at full tilt, the company would have to produce 57 vehicles an hour, or around one a minute.

Added to that production number is that Tesla plan to start taking orders for their roof shingles, the captain of Tesla (Elon Musk) tweeted as much last week. Cheaper than a normal roof? It is the storage part that is “tricky”, becoming cheaper and cheaper. Tesla is definitely on the move, investors are clearly split on the stock, it attracts an enormous amount of attention. I think the most important thing to remember is that the company is relatively new, and is like nothing you have ever seen before. And as such, it will be very tricky to predict what is likely to transpire from here. We own them at the fringes.


 

Linkfest, lap it up

Moving online makes things more accessible for more shareholders, I do think though that the online functionality should only be part of the unperson meeting. I think there is a different level of accountability when you have to talk to someone face to face, instead of “hiding” behind a computer screen – US companies defy investors with switch to online annual meetings

Huh? “Many famous scientists have something in common – they didn’t work long hours.” Via Barry Ritholtz comes an article titled Darwin Was a Slacker and You Should Be Too. I guess we are not all scientists, that is the big difference, certainly quality trumps quantity.

Sasha found this great link last weekThe Oldest Living Things in the World. Some of the “younger” things on this list were around before the pyramids of Egypt!

If you are reading this, you probably don’t earn minimum wage and already have some form of savings. It puts things into perspective though, if you are willing to cut back on some expensive luxuries your savings rate can increase dramatically – How You Can Build Wealth on Minimum Wage. I suppose the question is how badly do you want to be financially independent?


 

Home again, home again, jiggety-jog. Stocks across Asia are on balance higher across the board. Where we are likely to end up from here, your guess is as good as mine.


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

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