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Posted: 1 June 2011 - 2 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Market news

In case you thought investing in winning sectors and companies meant you can sleep at the wheel...




Cell hero Nokia has startled many with its recent price action ( see nokia_share_price_tumbles_in_new_york_and_helsinki_article )


And clearly its not all wine & roses in the device space - just look at Blackberry company Research in Motion's torrid year -







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Posted: 2 June 2011 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Research

From James Altucher at


Use it, don't use it. Its your cash!



By James Altucher
NEW YORK (MarketWatch) — The market fell like a brick on Wednesday. People can’t handle any piece of bad news without saying “this is the big one.” We have visceral memories of May through July 2010, just a year ago. We have visceral memories of 2008, when it seemed like no end was in sight. Nobody wants to be caught trying to catch that knife with their mouths like in a circus act. You get cut up that way, and the blood isn’t pretty.
But it’s not going to happen. Even God took one day to rest. The market every now and then needs a day or two to rest. Maybe even more than a day or two. But over the next 12 to 18 months I expect to see Dow 20,000 /quotes/comstock/10w!i:dji/delayed DJIA -2.22%  .
Here are some reasons:
1) QE2 has not started. WHAT? You might say? I thought not only has it started last November, it’s about to end? Not true at all. Federal stimulus takes 6 to 18 months before even one dollar hits the U.S. economy in a meaningful way. So expect that $600 billion or more to start hitting toward the end of 2011.
2) Then why is the market going up? One major reason is because we are in the third administration of George W. Bush. The tax cuts got extended. This signaled that Barack Obama was going to pay lip service to his constituents while still keeping an eye on the stock market. The guy wants to get re-elected, after all.
3) Multiplier effect. Once the stimulus hits the economy, it’s not just $600 billion. It’s probably more like $3 trillion. How come? Because when you buy that coffee with $1 at the local deli, what does that deli guy do with it? He buys a newspaper? And then that guy buys a donut. The multiplier effect is up to 10X. To be honest, I’m more worried about a bubble in 2013 then I am worried about a economic slowdown.
4) Nonfinancial companies are at their highest cash levels ever. Almost $2 trillion dollars. They were hoarding the cash just in case bad times were going to happen again. Guess what? They didn’t. But what good is that? Well…
5) They are spending it. Stock buy-backs are at their highest levels in history. Let me tell you the rule of every market on the planet that we learned in Economics 101: Price is ruled by supply and demand. Demand has been down for the past two years. But that’s OK, supply is now going to start going down right when demand picks up. $2 trillion is a lot of supply of shares to scoop up.
6) What about unemployment? Well, according to the Bureau of Labor Statistics, temp workers are at levels not seen since before 2009. Companies hire temp workers first before they hire full-time workers. That happens in every recession in history.
7) Corporate profits are at their highest levels ever. Did you know this is the first recession in history where cash levels in corporate America increased quarter-over-quarter every single quarter of the recession? And now profits are at their highest ever. Analysts expect S&P 500 earnings to come in at $95 next year. What if (as usual) they are too conservative and the number comes in at $100. Slap in a 20x multiple (could happen when the stimulus kicks in), and we have an S&P 500 at 2,000 and a Dow probably at 20,000.
8) Major stocks are dirt cheap. Apple /quotes/comstock/15*!aapl/quotes/nls/aapl AAPL -0.67%   trades for 12 times forward earnings and has $65 billion in cash and no debt in the bank. Microsoft /quotes/comstock/15*!msft/quotes/nls/msft MSFT -2.32%  trades for around 10 times forward earnings. Intel /quotes/comstock/15*!intc/quotes/nls/intc INTC -2.27%  trades for around 8 times forward earnings. These are high market-cap companies. By the way, all the major indices are market-cap weighted. So if the big guys go up, the indices go up. All of these big guys can easily double or triple.
9) Innovation. Barely a year ago the iPad came out. Now what’s the number of people who have iPads? 20 million? 10 Read 10 Unusual Things I Didn’t Know About Steve Jobs.
10) Major demographic changes are occurring that are going to affect stocks for the next 25 years. What are they? Check my article here next week. Or, perhaps more importantly, follow me on twitter where I engage in ongoing discussions on these things. Follow me!
The fight never stops between the bulls and the bears. Last summer was personally grueling for me. The market was falling on worries of Greece, an economy the size of Rhode Island, and every day it seemed a new blogger was using this as an excuse to write a blog specifically trashing me. It’s usually a bad idea to personally attack someone to get your point across. It’s never really necessary, and it’s lazy and bad writing. And yet, my kids would Google their last name, and there would be post after post insulting me personally for my opinions.  The market is up some 25% since then. My feeling for the next year is similar: BRING IT ON.

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Posted: 9 June 2011 - 7 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Research

What is the role of the Investor Activist  group on tickertalk. What should it be? And how to get there?




I sense that many of the people who expressed a conceptual support for the group by joining it may not have the time , focus, or knowledge to take the notion of activism on to a point where they can add value either to their own, or to the wider public's, investment process  


One person who has shown that he can and is willing to make a difference is Theo Botha


Theo is aware of tickertalk, and says he can offer a short talk to a tickertalk audience on the matter of investor activism.







And on the topic, evergreen market watcher and occasional cynic Michel Pireu probes the wisdom of masking the price discovery which unfettered inside trades could foster.


In his column Street Dogs  in today's Business Day he sets it out as follows:-


"EARLIER this year, after a spat of revelations of insider trading on Wall Street, John Tammy, an economic adviser to HC Wainwright, came out against a practice that he argued, rather than creating a level playing field, was harming the economy and investors. "Ultimately," he said, "to ban insider trading is to block the use of the very information necessary for markets to function properly."
Tammy’s argument goes something like this:
1. What is insider trading? There is no clear definition. Most presume that insider trading is a simple act that involves investing based on nonpublic information, but as University of Chicago professor Daniel Fischel noted in his book Payback, "Neither the SEC, Congress, nor the courts have yet … been able to define what constitutes insider trading."
2. Those who have the most accurate information about companies are company employees and executives, and there are no laws keeping them from buying or selling their shares. In that sense, the notion of insider trading is a misnomer. "... those closest to the businesses are, as shareholders, presumably trading on knowledge not held by the general public."
3. Much as fish need water to survive, and politicians need money, investors can’t exist profitably without information. "Investors, institutional investors in particular, must achieve credible returns in order to stay in business," says Tammy. "Acting in their logical and rational self-interest, they pay for an information edge. Some would view this in a sinister light … but saner minds might acknowledge that the pursuit of quality information is merely a good business practice. It should not be considered scandalous."
4. It’s not clear how a ban on nonpublic information helps the small investor. For one, the sooner good news is priced into shares, the better off they are. Similarly, assuming the existence of unfortunate information that is nonpublic, how is the small investor advantaged by buying shares of a company whose stock price does not reflect the bad news? Better to allow all good and bad information to affect share prices.
5. Arguably the main reason that governments should encourage insider trading has to do with economic growth. To put it simply, we live in a world of limited capital, and insider trading ensures that share prices will reach fully informed levels as quickly as possible. To the extent that market altering information is kept from reaching the marketplace, capital is wasted, diverted, or destroyed. The better policy is to encourage market sleuthing and information edges that ensure the most efficient allocation of investment.
Tammy concludes that, "even assuming the unlikely — that governments and courts could ever successfully define what is vague — insider trading, despite media- driven efforts to demonise it going back to the 1980s, is a good thing. Indeed, to ban insider trading is to block the flow of information, and that ensures poorly priced markets that logic tells us would repel, rather than attract, investors. Investors need quality information to inform their decisions. To criminalise their pursuit of information which leads to better pricing is not just anti-capital formation, it retards growth."


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Posted: 9 June 2011 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Market news

In case you think people are after Obama like a dogpack, allowing him four strikes could also be seen as tolerant!


In the Wall Street Journal, Harvard Professor Marty Feldstein has a go at ole Barack, and hits at 4 areas:-

- misguided fiscal stimulus

- emphasis on increasing tax rates

- no explicit plan to tackle future deficits

- incoherent position on the international value of the dollar




Read all about his view - and see for yourself if he has a point or is he just another apologist trying for anti Obama aircover for the "TeaParty" right



Mr. Feldstein, chairman of the Council of Economic Advisers under President Ronald Reagan, is a professor at Harvard and a member of The Wall Street Journal's board of contributors.
The policies of the Obama administration have led to the weak condition of the American economy. Growth during the coming year will be subpar at best, leaving high or rising levels of unemployment and underemployment.
The drop in GDP growth to just 1.8% in the first quarter of 2011, from 3.1% in the final quarter of last year, understates the extent of the decline. Two-thirds of that 1.8% went into business inventories rather than sales to consumers or other final buyers. This means that final sales growth was at an annual rate of just 0.6% and the actual quarterly increase was just 0.15%—dangerously close to no rise at all. A sustained expansion cannot be built on inventory investment. It takes final sales to induce businesses to hire and to invest.
The picture is even gloomier if we look in more detail. Estimates of monthly GDP indicate that the only growth in the first quarter of 2011 was from February to March. After a temporary rise in March, the economy began sliding again in April, with declines in real wages, in durable-goods orders and manufacturing production, in existing home sales, and in real per-capita disposable incomes. It is not surprising that the index of leading indicators fell in April, only the second decline since it began to rise in the spring of 2009. The data for May are beginning to arrive and are even worse than April's. They are marked by a collapse in payroll-employment gains; a higher unemployment rate; manufacturers' reports of slower orders and production; weak chain-store sales; and a sharp drop in consumer confidence.
How has the Obama administration contributed to this failure to achieve a robust and sustainable recovery?
The administration's most obvious failure was its misguided fiscal policies: the cash-for-clunkers subsidy for car buyers, the tax credit for first-time home buyers, and the $830 billion "stimulus" package. Cash-for-clunkers gave a temporary boost to motor-vehicle production but had no lasting impact on the economy. The home-buyer credit stimulated the demand for homes only temporarily.
As for the "stimulus" package, both its size and structure were inadequate to offset the enormous decline in aggregate demand. The fall in household wealth by the end of 2008 reduced the annual level of consumer spending by more than $500 billion. The drop in home building subtracted another $200 billion from GDP. The total GDP shortfall was therefore more than $700 billion. The Obama stimulus package that started at less than $300 billion in 2009 and reached a maximum of $400 billion in 2010 wouldn't have been big enough to fill the $700 billion annual GDP gap even if every dollar of the stimulus raised GDP by a dollar.
In fact, each dollar of extra deficit added much less than a dollar to GDP. Experience shows that the most cost-effective form of temporary fiscal stimulus is direct government spending. The most obvious way to achieve that in 2009 was to repair and replace the military equipment used in Iraq and Afghanistan that would otherwise have to be done in the future. But the Obama stimulus had nothing for the Defense Department. Instead, President Obama allowed the Democratic leadership in Congress to design a hodgepodge package of transfers to state and local governments, increased transfers to individuals, temporary tax cuts for lower-income taxpayers, etc. So we got a bigger deficit without economic growth.
A second cause of the continued economic weakness is the president's emphasis on increasing tax rates. Although Mr. Obama grudgingly agreed to continue the Bush tax cuts for 2011 and 2012, his budget this year repeated his call for higher tax rates on upper-income individuals and multinational corporations. With that higher-tax cloud hanging over them, it is not surprising that individuals and businesses do not make the entrepreneurial investments and business expansions that would cause a solid recovery.
A third problem stems from the administration's lack of an explicit plan to deal with future budget deficits and with the exploding national debt. This creates uncertainty about future tax increases and interest rates that impedes spending by households and investment by businesses. The national debt has jumped to 69% of GDP this year, from 40% in 2008. It is projected by the Congressional Budget Office to reach more than 85% by the end of the decade, and to keep rising after that. The reality is even worse since ObamaCare alone will cost more than $1 trillion in its first 10 years. The president's boast that his health legislation would not "add a dime" to the national debt was possible only by combining that increased spending with proposed new taxes and with projected cuts in Medicare spending that will never occur.
Finally, there is the administration's incoherent position on the international value of the dollar. The Treasury repeats the slogan that "a strong dollar is good for America" while watching the real value of the dollar fall by 7% over the past year, and while urging the Chinese to allow the dollar to fall more quickly relative to the yuan. The lack of a consistent dollar policy adds to the uncertainty that limits business investment and hiring.
The economy will continue to suffer until there is a coherent and favorable economic policy. That means bringing long-term deficits under control without raising marginal tax rates—by cutting government outlays and by limiting the tax expenditures that substitute for direct government spending. It means lower tax rates on businesses and individuals to spur entrepreneurship and investment. And it means reforming Social Security and Medicare to protect the living standards of future retirees while limiting the cost to future taxpayers.
All of these things are doable. But the Obama administration has not done them and shows no inclination to do them in the future.




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Posted: 14 June 2011 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Market news

You may be aware of the US authorities' policy of QE (quantitative easing), and you may like it.


If you are unsure of what it is, see Quantitative Easing Explained


And you would be forgiven for thinking that high-end policies like this could not be rolled out without the classy and complex computing and other tools so necessary to modern government and banking.


In which case, this cartoon from a 1934 Chicago Tribune should resonate...




And Noel Sheppard gives some detail on the characters in the cartoon:-



"The man in the mortarboard flogging the Democratic donkey is Rex Tugwell, the leader of FDR’s “Brain Trust”, a character out of academica. The Brain Trust was supposed to come up with new ideas to help America. The two mortarboard-wearing kids in the wagon represent recent Ivy League college graduates hired to staff the New Deal. The cartoonist from the conservative Chicago Tribune, Mr. Orr, is calling them socialist “pinkos” (term that wasn’t then in use, “pinkies’ is what Orr called them). [...]
The most prominently featured man shoveling money off the wagon is Secretary of Agriculture Henry Wallace, who was known for his socialist leanings. Most us are aware that FDR confiscated gold in 1934, but most people are not aware that the gold confiscation was a clause in the Agricultural Adjustment Act of 1934. It is also important to remember that 90% of the American population lived on farms during the Depression.
The man behind Wallace is Harold L. Ickes, Secretary of the Interior and director of the Public Works Administration. As head of the PWA, Ickes had a lot of say on what and where public works projects were built. The biggest of course was the Tennessee Valley Authority. Ickes was well-known for backing many other socialist endeavors. Ickes was also the father of Harold M. Ickes, a key player in the Clinton administration.
The other man behind Wallace was a mystery to me. In fact, I had trouble reading the label on him in the cartoon. That man is Donald Richberg, who was called “assistant president” in the FDR administration. Both he and Ickes came through Chicago politics and were leaders of the Progressive movement there. Both Ickes and Richberg were key players in pushing the National Industrial Recovery Act which imposed fascist codes of conduct on American industry which dictated how key industries in America were to be run. The National Recovery Administration was ultimately struck down by the Supreme Court in 1935, which decision led to FDR’s effort to “pack” the Supreme Court with more cooperative justices.
The significance of this cartoon is that it depicts the visible signs of manipulation by the financial elite that runs America, which was in full control of the country back during the Depression, for decades before that and for the decades leading up to the present."




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Posted: 21 June 2011 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Market news

OK - so Mr Julius malema's (highly skilled) demagoguery* has got lots of "haves" very unsettled. (*demagoguery means whipping up populist sentiment without indulging in rational discourse).


And the JSE is back where it was 3 months ago. And Porsche sales in SA are at a record - so the top is smiling. And the rollout of BIG (basic income grant) and national healthcare are making life better for millions at the bottom.


But middle people are edgy - about their suburban bungalows, about their leisure farms and seaside cottages, about their mines and mineral rights, about their portfolios of Simmer & Jack futures - about their very right to live a life to which they have been accustomed.


So what to do?


I gather that Helen Zille devalues the torrent of tweets bewailing our future, by intimating that Malema's biggest impact will be to catalyse a new order - and may one say that given the failures of the current order this seems needed.


I gather that a Zambian minister decalares that that country cannot afford nationalisation - and boy have they tried it!


So what do you expect - given that the "new" SA system is almost 18 - an age where it can legitimately be demanded to start showing more accountability - and to start "tidying its room" as would any other entity approaching the age of matriculation?


Will we see:-


- A Mugabesque power-grab, with a full pursuit of recent Zimbabwean glories over the next decade?

- A decisive move by the current (Zuma) adminisration to seize back control and the airwaves - offering the youth more than Malema's bluster?

- a new political order where the DA and the Young Lions oppose the current ANC on either side?

- a subtly US-backed new candidate lead us and our mineral-base back to Washington influence, away from the current Asian creep?


What do you really think?






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Posted: 21 June 2011 - 1 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Off-beat

It may be weird, but a mega-successful hedge fund manager, one John Paulson  , has just lost a lot of money in his fund by buying into an over-reported forestry asset Sino Forest . On finding (thanks to someone else's undue diligence) that the plantations and production were less extensive than he had thought, he dumped the shares, and took a fat loss. Well if US$720m is a fat loss - maybe you see it as a small tactical reverse.


( Read more at )


And he isn't the first, or the last.


Remember Leisurenet? The Health and Raquet Club company, with its board dripping with CA(SA) designations? By mechanically following accrual rules of accounting, they telescoped multi-year contract revenues into the year in which the contract was initiated. This meant that the top line of the company's financials was way overstated. And so was the growth. And investors followed the growth story - letting their gullibility steer. Why did so few just ask:- if they have x gyms, and y turnover, then given the subs per month that means people will have to be jogging nine per treadmill 24 hours a day to make the maths work? Something doesn't smell proper here.


I think a reason is that once a few people start talking positively (or negatively for that matter) about an investment proposition, many of us are happy to follow the "group think" - and neglect to do our own work. Surely common sense would have and should have saved Paulson and his clients? And should have limited the scope of the Leisurenet debacle?


But we are all a bit gullible.


To gauge the extent of your gullibility, take this quick test...and then you may like to review some of your your investment rules...

Gullibility Test







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Posted: 22 June 2011 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Market news


"We have video of the ......... police gang kicking, punching, beating the crap out of a guy on the ground that allegedly did petty theft. And then we watch these criminals steal trillions of dollars. These criminal get a slap on the back, told job well done and are given even more money. And to make matters worse, the politicians make the innocent citizens pay for these crimes. What a country."

That quote is from the US of A.


Here in SA, (while we have Ms Obama touring), we also have pahlenty of lawlessness, from police thuggery to absentee firechiefs to police lease sleaze to arms deal shenanigans. But where are we in terms of our biggest bankers. Our reserve bank comes under fire occasionally, but our big banks? For a delightful change activist Theo Botha gave ABSA a pat on the back for the independence of its chairman Garth Griffin recently.


By comparison, see how the yanks talk about their big bankers right here:-



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Posted: 23 June 2011 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Market news


I sometimes do an exercise to arrive at a portfolio design – by asking what would a visitor from Jupiter buy if he had a swift all seeing visit to our market. Full knowledge, no bias or loyalty.
A similar notion arises in the current uptick in inward investment into Africa – and yes the title tells it – perhaps we are seeing another scramble as vigorous as the last (1876 - 1912) one which Thomas Pakenham  described so fully in his eponymous book.
So – What would a non-African buy? And what path would he tread to make his purchase? And does our recent membership of BRISC (a better acronym than BRICS, surely?) get us any preferred status – as either the entrepot of choice or at least as a preferred seat of advisory and banking fees?
It seems perhaps NOT according to this write up by’s Adri van Zyl
What do you think?
"Brazil, Russia, India, China and the Middle Eastern countries all prefer to invest in African countries other than South Africa.
The so-called Brics countries regard investments in other African countries as more viable and sustainable than in South Africa. Countries that the Brics nations favour as investment destinations above South Africa include Kenya, Tanzania, Mozambique and Botswana. The catalogue of problems scaring off potential investors in South Africa includes irresponsible pronouncements on nationalisation.
Robert Appelbaum, head of trade with India at Webber Wentzel, said an Indian strategist hurriedly left for home last week – having been persuaded with difficulty to return later if nationalisation is not on the agenda. For 20 years Appelbaum has been involved in trade relations between South Africa and India, and he said India is increasingly aware of the benefits of investing in Africa.  But South Africa is no longer the preferred gateway to Africa, he said.
The eyes of the world are on South Africa and pronouncements on nationalisation are a big problem. South Africa does not appear to realise that countries south of the Sahara are strong competitors as investment destinations, he added. In what was described as the “second scramble for Africa” at the African Union summit in Ethiopia earlier this month, South Africa was overlooked as an investment destination for several reasons.
Appelbaum said if South Africa wanted to attract more investments from India and its Brics partners it would rapidly have to upgrade its ports and rail lines. Indian companies are descending on the Waterberg coal deposits, and the big question is how to export the coal. Unfortunately for South Africa, the export route will be via Mozambique rather than Richards Bay. Appelbaum said Mozambique is establishing active rail corridors and is making huge investments to attract exports to its ports.
It's critical for South Africa to upgrade its ports and rail systems. They are currently inadequate and hampering export.
Prospective investors from India and other Brics countries are also daunted by the high cost of labour in South Africa relative to costs in their own countries. They find insufficient incentives to establish their companies here and to train the local population in the necessary skills. Foreign investors find it a problem that the requisite skills are not available here and that incentives to train staff are scarce and complicated.  Black economic empowerment also frightens off foreign investors. Appelbaum said companies regard it as a big expense because funding is scarce and empowerment partners do not themselves come with the required finance.
He said the companies are not unwilling to comply with empowerment requirements, but they regard them as an additional expense which handicaps investment.  Safiyya Patel, a partner for mergers and acquisitions at Webber Wentzel, said a pact between South Africa and India was necessary to handle legal decisions. India does not currently accept decisions by South African courts and it can take up to 15 years for legal disputes to be resolved.  Appelbaum said that as a consequence South African companies invest in India through intermediaries in countries that do have legal agreements with South Africa, and the converse. Foreign investment could help to start solving the unemployment problem. Appelbaum said Indian companies had already created thousands of jobs in this country.
The investments by the Mahindra and Tata automobile companies have led to Indian component manufacturers taking an interest in investing here. But the lack of incentives puts them off. "


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Posted: 27 June 2011 - 1 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Research


Could Naspers' Antonie Roux be telling it like it is?
There has been much chatter of late about the possibility that the recent numbers attributed to value for the likes of Facebook may be too steamy. But is it a deadly bubble, waiting to pop your personal NAV with its bloodsucking vampire claws? Or just a sparkle, waiting to cheer up your evening tipple?
There has been some fairly clear debate in The Economist ---- here is a snapshot - follow the link for more...
Link here to the debate at The Economist  
And Goldman Sachs  Business D article on Goldman's buy on Naspers sees Naspers as a buy at current levels (one can expect an unbiased view from a promoter of the Facebook IPO, no doubt), Antonie Roux of Naspers (which owns a big slug of Tencent; and a smudge of Facebook, indirectly) has some thoughts as well – I quote him below his mugshot...
Roux’s view is that “prices are crazy right now”. Roux, who’s been with Naspers for more than 32 years, said he smells 1999 all over again. “We must have looked at 600 businesses and walked through the front door of another 200, but we haven’t been buying because the prices are unrealistic. There is a bubble out there, it is just crazy.” Roux said most of the start ups are radically over-valued and he blames Nasdaq and Facebook. “Part of the problem is the market capitalisation of Facebook, which is unrealistic. The rumour is that last year Facebook turned over $1.4 billion. How do you place a market capitalisation of $60 billion on a company that makes $1.4 billion in turnover?”
(In January Facebook raised $1.5 billion which suggested a total market cap at $50 billion, while in June 2010 Facebook’s market cap estimate was $25 billion).
“Facebook is big, it will get bigger and it has infiltrated our lives in many ways, but the market capitalisation is unrealistic.” Roux said another culprit that’s caused this bubble is the Nasdaq. “I said this in 2000 and I’ll say it again. I think Nasdaq is guilty. Nasdaq allows PowerPoint presentations for IPOs. Nasdaq is just a company that wants to make money, so they don’t give a damn who they allow to put forward an IPO and who fails. I think it is fundamentally wrong. “Here I respect the Hong Kong stock exchange that says you should be allowed an IPO only if you have three years’ of audited profits. I think that all bourses in the world should be allowed to have that,” Roux said. The last guilty party on Roux’s “bubble list” is the recession and what it’s meant for big fund managers. “The recession during the last few years has contributed to this. There is a lot of money, so where are the pension funds and other funds going to put their money? They have to put it somewhere and they are scared of this, and scared of that, so they put it into the unrealistic valuations of Groupons, Zyngas and Facebooks,” Roux said.
And accountants seem to be part of the problem, not of the solution!
Roux laughs and says: “There was a Fortune magazine article a year or so ago that Koos [Bekker - Naspers CEO] cut out and sent to everyone. Fortune did an analysis over the last 10 or 20 years of the successes and failures in Silicon Valley. In the very last paragraph they said what was interesting was that most of the companies that had failed had been run by accountants and most that were successful had engineers as CEOs.” Roux laughs again and adds, “So, of course, Koos latched onto that and would tell you that if he had his life over again he would study engineering.”
More at

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Posted: 29 June 2011 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Research

Its hard to get your head around Naspers.


Its R150bn market cap is dominated by its slice of Tencent (Chinese internet company) which at its Kong Kong price of 205RMB per share is worth almost 80% of Naspers!


And you can't do the old quick and dirty of trying to impute the PE on the older (Print and PayTV) assets in Naspers, becasue the Napsers group and Tencent are on similar (headline) PE multiples. Tencent's is around 39X, and that multiple doesn't feel too high, buying yoy sales growth of 58%, or profit before tax yoy growth of 64% and growth in operating cashflows of 47%. Older investors may be more attentive to the dividend, which grew at 35%, amounting now to a yield of only 0.26% - still requiring substantial faith. 


So as one watches the saga, one has to make an effort to solve for the intrinsic value of Tencent.


There is plenty to work with, start with the  Tencent 2010 annual report.pdf 


Its financials look coherent enough, so here is a stab, using the tickertalk dcf engine. It seems that if Tencent can hold growth at 30%, and margin (PBT) at 35%, and keep its tax rate at 20%, then its price is fine. For me the central question is what will be needed to hold the attention of their customer base in what is by definition and by evidence a very choice-spoilt market. What is the moat? And what will it cost to install or maintain it?









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Posted: 29 June 2011 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Research

Construction giant Murray and Roberts has pleased the market with its latest update. The price has ticked up to R29.


It will have a new FD, and a new CE soon to replace 11 year incumbent Brian Bruce. It expects flat turnover and a loss for the current (to June) year, but hopes to return to margins in the 5 to 7.5% range now. And what a ride it has been - look at this 15 year chart of share price and margin (with a negative margin now for 2011...)


So its hard to use a figure higher than the mid-cycle margin of say 5% in evaluating this one - after all thay have missed 5% in eight of the most recent 16 years.




And turnover growth has been spectacular in the boom, but regrettably has also been over reported - with the company making what now seem naive assumptions that it could report turnover based on its view of the completion of projects it was busy with! Why can't accountants just tell us what the company was paid, and what its costs were - then the profit is so clear!!


Anyway, the boombust extremes of its sector and the accounting questions make one play safe and use a steeper discount rate - see the dcf outcome here...





So no - the market hasn't gone mad - after all if this company can hold 6% growth, and a margin of 3% its value comes out OK now. BUT, it does need 5% or better to avoid being EVA negative (value destructive) - and if it can do 5% margin, and zero growth, it can afford a 30% tax rate and still yield value of R41 per share! But will it have the guts to turn away low margin work?


Certainly, the forward looking market will peer deep into the compnay to hope that in its report of losses for 2011 it signals better days ahead.


I expect the share price to jump around somewhat, and (cynically) I expect that a new CE who has the personality to deliver the sweet margins spoken of will also have the personality to persuade his board that the cupboard still needs more cleaning out before he accepts it as his performance base.


So while its an interesting play from here, there will surely be further trading gaps up and down still.





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