Bank on not stressing

“Across the oceans vast and wide, stocks were better on the session, in particular a large bounce back by technology counters. Apple, Alphabet Facebook and Amazon all led the charge, in the end the nerds of NASDAQ closed 1.43 percent better. The broader market S&P 500 added nearly nine-tenths of a percent, whilst the Dow Industrial Average managed to tack on around two-thirds of a percent by the close. The biggest news of the day was however amongst the financial stocks.”


 

To market to market to buy a fat pig The wireless led with the main story that AngloGold Ashanti was to restructure their South African operations and in particular their loss making operations, and unfortunately that may lead to over 8500 jobs being lost. In South Africa mining jobs feed many mouths. Many. The repercussions are to be felt far and wide. Read -> AngloGold Ashanti to restructure South African Operations to ensure their viability. That is one in four jobs in their South African operations.

When you read the report, it is very easy to see why this is the case, the two operations are operating at costs far above the current gold price – “The cost performance of certain operations, notably TauTona and Kopanang, has been a clear demonstration of these challenges, with all-in sustaining costs in the first-quarter of this year of $1,737/oz and $2,399/oz respectively. This compared with an average gold price over that period of $1,216/oz. Both mines also sustained significant operating losses through 2016.”

Whilst it is a bitter pill to swallow for all and sundry, if there is no action on the part of the company, then it is likely that all of the operations are put at risk. It is the stark truth, mining and energy assets have a timeline to them. Once the assets are mined out and sold onwards, then I am afraid you cannot make any more. The rock and land we sit on, that has produced vast sums of gold, is over three billion years old, according to science. According to science, there were no fish back then, forget dinosaurs! Single cell organisms back then. Back to the point, the mines are out of their productive phase and hold no more extractable profitable ounces. As such, in order to keep the rest of the business around, these mines have to be shut.

AngloGold Ashanti sold off, down 4.29 percent by the close and now at the lowest point (nearly) in the last 12 months. Sadly for shareholders, the Rand return in the last ten years has been minus 50 percent, if you bought in the middle of 2007, you would still have to double your money from here to break even. In Dollar terms, the ADR in New York is down 74 percent. In Dollar terms, the stock needs to go up 284 percent to break even. It really is a sad state of affairs and another reminder that anyone who thinks mining is easy and these businesses are worth “billions” are misguided, if not just plain delusional.

As for the rest of the market, collective the Jozi All share index was up around one-third of a percent by the close, the rest of the resources complex was up nearly a percent by the close. Industrials were off a smidgen, most of the heavy lifting outside of the resources complex was being made in the financial sector, up over four-fifths of a percent by the close. South32, Mediclinic and Bidcorp were all in the winners column, the last two being lifted by some positive commentary by the Bank of England governor, Mark Carney. Rates may go up, he said, giving a slight boost to the Pound, and in return, all the businesses listed here with a UK bias. In the negative column was a mixed bunch, Tiger Brands, Woolies, Amplats and Naspers, along with AngloGold Ashanti.

There were new 12 month lows for the likes of Omnia (poorly received results earlier in the week), Pioneer Foods and Spur Corporation, as well as housing group Balwin and “miner” Pallinghurst. In the positive, and trading at 12 month highs, were the likes of Capitec and a handful of others, go figure there!


 

Across the oceans vast and wide, stocks were better on the session, in particular a large bounce back by technology counters. Apple, Alphabet Facebook and Amazon all led the charge, in the end the nerds of NASDAQ closed 1.43 percent better. The broader market S&P 500 added nearly nine-tenths of a percent, whilst the Dow Industrial Average managed to tack on around two-thirds of a percent by the close. The biggest news of the day was however amongst the financial stocks.

This comes hot on the heels of Janet Yellen suggesting that we wouldn’t have another financial crisis in our lifetime. To which I turned to Bright and asked him, Janet Yellen is 70 and he is 25, does she mean his life or her life? Which one? Check it out – Banks ‘very much stronger’; another financial crisis not likely ‘in our lifetime’. I am not going to agree with her, there is always a crisis beyond your control which is being cooked up right now. Something that is going to take us all by surprise, yet be completely obvious all of the time.

A pass is a pass, and in this case this is hurrah for owners and shareholders of banks and financials. I am talking about the latest stress tests and the results released by the Fed, many banks have increased their payouts (i.e. their dividends) immediately. In fact, this means that the banks in the US are on balance well capitalised and that they can proceed with buying back shares and paying extra capital out to their shareholders. See the release – Federal Reserve releases results of Comprehensive Capital Analysis and Review (CCAR).

This has been a long time coming, as many of the headlines suggest though, the payouts are quite high – Banks Unleash Surprisingly Big Payouts After Fed’s Stress Tests. The upshot of it all is that bank dividends are going to be higher, and buybacks are going to be stoked by shareholders looking for superior returns in a low rate environment. We hold the most conservative of the bunch, Wells Fargo, and as on cue with their nature, the dividend was increased by three percent, hardly a kings ransom.


 

Linkfest! Lap it up

Cash is still king in most parts of the globe. Key to that is the ATM, which turned 50 this year – World’s first ATM machine turns to gold on 50th birthday. Fast forward another 50 years will the ATM be a thing of the past?

TV content providers are still trying to figure out how to set up their business model so that they can give content to people over the internet but not cannibalise their current products – NBC has a new sports streaming service, but it’s kind of a mess for fans. This NBC product offering still seems to miss the mark, who wants to watch delayed sport? Sport needs to be live!

Two numbers here that are too big to get your head around, from Apple. From the post of Asymco – Defining the 21st Century: “1,162,796,000 iPhones sold (to end of March 2017) and $742,912,000,000 in revenues. $1 trillion will be reached in less than 18 months.” Simply mind blowing.


 

Home again, home again, jiggety-jog. It looks like the rest of global markets like the fact that US banks are all “fine”, Europe, not so much. They may plod through it for the next few years, I am not too sure that the political will exists to reform and restructure there. It is the European way! Hopefully we will start a little better here today, as a result of this “good news”.


 

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

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