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

US debt is "too high", as is their annual deficit. At present, it would take ~50 years to pay away the debt - which is too too long.

 

By moving their tax/gdp trate more in line with  other rich countries, both problems would diminish in a short period - especially if the increases taxes were spent on growth.

 

So its not a debt crisis or a debt ceiling crisis, its a routine bickering over who gets the next tenancy in the White House.

 

Cheers

Stuart

 

see more here...

 

Apparently there are people who say the US has a debt crisis, and that hence you must either slit your wrists or sell any and all US- or $-related assets.Now what are the facts, and can they help you with a decision?

 

Fact one - yes the US has huge debt, around $15trillion. But how unaffordable is that? Well it costs around a fifth of current annual US taxes to service that at 4%. That is tight, but not a catastrophe. And with US taxes at 24% of GDP, can the US nation afford to pay more? Does a little firm like Google need to pay low single digit tax?

 

Here is their level of taxes/gdp against their important fellows, and also showing how it has moved over time:-

 

alt

 

For interest, here is the SA data - maybe we are more like the US than people think...

 

alt

 

And if the US decides to modify their current regine, how would things change? This quick table indicates (over-estimates, actually) the years to pay off ALL the debt, after settling the current $2trn deficit, at various levels of tax/gdp and of interest rates. And remember that their biggest lender is Chinese investors - for whom lower rates mean the value of their stashes of US debt paper increases...just commenting.  So the paydown period is 50 years as things now stand - too long, but the dream outcome for yanks and Chinese lenders of 11.3 years is unlikely - so I guess we will more probably see the paydown period go toward the 31.0 route, or maybe the 19.1 next to that. Lets watch.

 

alt


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

 

With a new listing in the "private schools" space, Curro, it is wise surely to look at the established listed member.

 

That is Advtech - with Varsity College (Unisa degree mills), Vega (advertising schools) and of course Crawford and Trinity House in the schools sector. Established, known margins and occupancies, stable performer - but is there value?

 

Here is a (jpeg snapshot of) my DCF valuation of Advtech, and as you know by now the working sheet is available to paid up members of the TTK1 Model Portfolio Group.

 

Looks quite good to me...

Stuart

 

 

alt

 

 


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

The title here is reminiscent of a famous Shakesprearean soliloquy (replace CAPM with Yorick - or google Hamlet), and there are elements of both farce/comedy and also inevitable almost Aristotelean tragedy in the current frenzies in Washington. It could also be "Who stole my Risk Free Rate?"

 

One spinout is that surely now we can all move away from that old staple of Americo-centric finance, the Capital Asset Pricing Model.

 

How does it read?

 

CAPM equation:-                   E(Ri) = Rf + beta(E(Rm)-Rf)
 where
-          E(Ri) is the expected return on the capital asset
-          Rf is the risk-free rate of interest such as interest arising from government bonds
-          beta is the sensitivity of the expected excess asset returns to the expected excess market returns
-          E(Rm) is the expected return of the market

 

Typically the thinking had always been - start with Rf being the risk free rate, and the "risk-free" security was typically given as that issued by the US government. Then add some country risk for littler, riskier countries, then add some more risk for the share market, with maybe some extra risk added for specific company's shares etc etc.

 

But the CAPM has all come undone from the centre now, because the notion that the US Goverment's paper has absolute dependability seems to have been totally disproved...

 

Cheers

Stuart

 

 

Here is a picture showing the good ole DJIA (circled) with a beta of 1 and the "securities line" in purple.

alt

 

 

 


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Posted: 4 August 2011 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Research

*** Warning - parts of the attachment to this post may contain a widepsread US abbreviation for raccoon, which may concern sensitive people****

 

alt

 

Bill Gross of PIMCO has some robust and colourful views on why he is preferring not to buy US equities or bonds. He still seems to see the world as divided - unlike some forward thinkers like Hans Rosling who regard the convergence of the planet's economy as well progressed. Any way, Gross' pages read quite nicely...

 

"... Favor countries with cleaner “dirty shirts” and higher real interest rates: Canada, Mexico, Brazil and Germany come to mind. Shade equity and fixed income investments away from dollar based indexes towards those of developing nations with stronger growth prospects. Purchase commodity based real assets before reserve surplus nations do. And above all, don't be lulled to sleep by Congressional law makers that promise a change in Washington. The last change I believed in was on Election Day 2008, and that turned out to be more fiction than reality. ..."

 

Full pdf here :- Gross - Wild Frontier.pdf


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Posted: 5 August 2011 - 1 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Market news

 

At long last our investment markets are being dragged, kicking and screaming, into a place where a wider picture has to get considered.
 
Things like:-
-          The “Triple” bottom line  (Social and environmental as well as financial)
-          “Stakeholders” vs only shareholders
-          King III
 
Why shouldn’t this matter? As written in places such as the Investors Monthly supplement to Business Day, there are people who believe that admitting only the sovereignty of shareholder interests is fine, maybe better. This line of thinking suggests that the pursuit of wealth takes so wise a view that the best outcome for all will be arrived at by prioritizing only the self-interest of shareholders.
 
And this line of thought may be correct – its just that few shareholders today take the sort of view espoused in 1855 by Seathl “….You may think that you own the land. But you cannot…” in his passionate plea to the United States government. After all, if you believe in double entry bookkeeping, and in provenance (only buying things whose ownership in both traceable and just), you will know that land can never be “owned” in the same way as a man-made piece of value.
 
Imagine fostering a culture of decision-making based on what you believe will be best, not for you, not for your children, but for the seventh generation hence!
 
Now the investment industry has for decades been very adroit at accounting, accurately and on  a double-entry basis. So why should it then squeal at adding transactions with the environmental balance sheet. A few book entries, and bingo. All that is needed is to account, fairly, for charges against environmental balance sheets.
 
If this all seems pie in the sky to you, read this book:-
 
 alt  
 
There are some good titbits about the recent market to plant spekboom as an intensive dryland rainforest to capture carbon, and trade that against the output of heavy burners.
 
The book also carries a far-seeing 1877 quote from Peter MacOwan, botanist and first curator of the Albany Museum Herbarium:- to the effect that nature "is inconvertible capital, demanding as much sharpness of observation and skill to devise a remedy, as is requisite in manipulating convertible capital on the money market
 
Perhaps this sort of clarity is required now, to complement the wizards of modern finance.
 
Cheers
Stuart
 

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Posted: 16 August 2011 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]

Note - The Daily Ticker is no relation...

 

Granted, the stock market is a casino analogy is a cliche. But the truth is it's been used in countless investing stories because there's lots of truth to it. And, recent events with markets swinging 400+ plus points make it feel more true than ever. In the accompanying clip The Daily Ticker's guest Lance Roberts CEO and chief economist of Streettalk Advisors says poker, more than most parlor games "provides a great set of rules for the average investor."

So what are the lessons to be learned?

Investors don't need to be "all in."

Roberts says ignore brokers or pundits who advise investors to be fully invested 100% of the time. "In a game of Texas hold'em if you bet yourself all in every hand you will lose. Same goes for being 100% invested at all times." This is especially true for baby boomers headed into retirement. As he notes, being 100% invested during the crash of 2001-02 and 2008-09 did irrevocable harm to portfolios in after the 2-year bull market that followed. "Professional poker players they understand the risk versus the reward for every potential hand that they bet on," says Roberts. "And you know what? when they don't have a good hand they don't bet they fold and walk away."

Bet heavily when the odds are in your favor.

On the other hand, when opportunity does present itself, bet big. In most cases you don't want to bet it all in one hand or put too much of your portfolio in a few stocks but when there's panic in the streets and everyone is selling, that's when it's to bet big. (See: March 2009)

Don't get emotional.

At the poker table it's important to keep your cool under pressure. The same is true in investing. When others are panicking it's important to keep your wits about you. "You want to be a seller when markets are rising and getting extended you want to be a buyer when people think that world is coming to an end," says Roberts.

 

 


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Posted: 17 August 2011 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Market news

 

Big attention was recently afforded to Apple getting a larger Market Cap than oil giant Exxon Mobil.

 

At present, Apple is rated a "strong buy" by 45 analysts, as against Exxon Mobil A "moderate buy" by a mere 19.

 

And the oil firm is a bit more profitable...as shown in table below, so which would you buy right now? (Buying an iPhone doesn't meanyou like the Apple share)

 

 

(and for a real treat on how we could see all local listed firms if data was shared more wisely, see http://www.wolframalpha.com/input/?i=xom+aapl )

 

Cheers

Stuart

 

 

alt


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Posted: 18 August 2011 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Research

With interim results out yesterday for MTN, is there any reason to change one's view?

 

 

The dividend increase was high, but had been well signalled.

 

 

Here is a snaphot extraced from a wider dataset showing certain key parameters of the investment case:-

 

user_uploads/Company snapshots extract MTN.pdf

 

So far, I haven't seen enouhgh in the result coverage to change my view of a R150 valuation and a solid future.

 

Comments welcome

Stuart


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Posted: 18 August 2011 - 1 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Research

Summary:- Current market "gyrations" are minor and do not require traumatic action. Earnings and dividend trajectories are OK, and suggest a better outcome for buyers than sellers

 

With yet another headline grabbing day here and in off-shore markets, what to do? Here first is a picture showing the JSE's recent action

 

alt

 

I hope this helps illustrate the relatively minor wobbles of today relative to say 1998, 2002/3 or 2008.

 

But when the US sneezes we get pneumonia, right? So how does the US market level come across?

 

alt

 

Also get some context here, compared to the post-millenium drop, or the more recent global financial crisis or GFC which ended in early 2009.

 

But both these picture only show price, what about valuation? Right now, the JSE multiple (how many years of profit are matched off against the price of one share) averages out at around 13X - not a million miles from the 50 year average of 12X. And the US multiple of 14.08X is also a long long way from the deadly days of prior calamities, illustrated in this historic review of the range of PE over time...

 

alt


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Posted: 20 August 2011 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Market news

I for one am surprised at the low (zero) level of grumbles on tickertalk about the service/product/value offerings of the financial institutions.

 

But maybe they are better than the public expects...

 

This complaint http://www.tickertalk.co.za/blog.php?user=stuart&blogentry_id=1683 I posted way back when, after an insurer made it so unpleasant (and costly to a self-employed person) to pay the premium that I let it go, after some sustained but brief correspondence with their 'help' area. No joy.

 

After no result then, I have been gaily offered once more a chance to reinvest in the cover I chose to let lapse. Perhaps either the insurer, or an agent, has decided an investment in one email may pay off by generating some business for them.

 

While this isn't a grumble or hellopeter type community, I will be interested if any others have "service or product improvement suggestions" which the industry could benefit from

 

Stuart


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Posted: 25 August 2011 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Research

Is our national psyche OK?

 

Just asking - after observing how:-

 

a) we get angrily correctivist if a local columnist, his editor and managers allow a tasteless opinion piece into a daily paper's distribution (Miyeni/Sowetan)

b) we get patronisingly chided for our excessive sensitivity when objecting to a once great foreign actor and his film producers/editors/distributors allowing a tasteless (sexist) remark into a film's distribution (Cleese/Spud)

 

We get asked by media houses pushing a "LeadSA" story to wear green for the rugby guys. I suggest in an investment lecture that the "every working day"  competition of our industrial, service and other workers against the best on market from California to China is perhaps as, if not more important than, de Villiers' selections and pronouncements. I then get upbraided in the lecture by a charming local gent called Mpho for even thinking that, never mind saying it could be so. 22 guys on a business trip, practising their profession, in an area with a 50% win/loss ratio - and we cringe if they stumble, and bellow if they get a win? 

 

Do we know, or care, what leading SA into the future might require?

 

Cheers

Stuart


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

Market volatility (changes in quoted prices for shares) seems to get a lot of headlines. Why is that? I mean, did Carlos Slim Helu really lose billions, like Buffett and Gates, or was it just paper gains getting marked back down?

 

Hence my question in the title. I am convinced that it isn't money that makes the world go round, its the world that makes money go round. There is lots of money out there - more than any of us could ever use. Money (aka capital) is far from scarce, it is almost infinite in supply - and it seeks out and follows decent risk-adjusted returns. It is just one medium of exchange by which differences in demand for, and supply of services and goods get traded out. And while money in the bank has potential value, its actual value only comes to light when it moves - when a good or service is sold/bought. Its lack of intrinsic value is startling - you can't eat it or do anything meaningful with it - except spend it! 

 

So - understand money! There are three kinds - your capital (aka your balance sheet, or "store of wealth"), your earned income (your income (less expenses) from supply of goods or services, whether you are in business or fortunate enough to be employed), and your passive income - the delightful sustainable trickle from your capital, sometimes described as "second hand money". It seems there are tickertalkers with a focus on each of these - and the ones wise enough to use some of the second to start building or growing the first, and who can also plough some of the third back in, will get wealthy fastest.

 

Keep it simple.

Stuart


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