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Posted: 1 February 2012 - 1 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Market news

 TSINFOOH.

 

That could be the acronym title for this piece - standing for The Sky Is Not Falling On Our Heads.

 

In what seems to be a paucity of market news and of insight, sellers of positions and or subscriptions in the markets are making a meal of recent action in the index of spot contract rates for dry bulk shipping, called the Baltic Dry Index (BDI).

 

Exhibit 1:-

This picture, showing the BDI's latest plunge, is accompanied by text suggesting it is a "key leading economic indicator".

 

alt

 

Before finalising your assets' exit from the economy (to where?) please just consider that if say 20 shiploads of ore, each under obligation to deliver abroad, are bidding for the services of 19 ships, the BDI must rise, and rise sharply. It is an auction wihout balance. But if one extra ship is built, (or for that matter if the ore supply drops by 5%) the bidding will subside steeply or even cross over, giving this kind of extreme response to muted economic shifts. And not a leading response either.

 

And the picture above shows a year. Look here at a longer period:-

 

alt

 

So please ignore the jumps and dives, as you might have done well to ignore the >100% gain in the BDI at the start of the GFC. If you can see a predictive correlation between dips (or spikes) in the spot value of the BDI and an economy or a market, please comment below.

 

And to see yet more history, see 1985 - 2009 here:-

alt

 

So, rather like a popular lager, perhaps one's approach to Baltic Dry headlines should be "Somewhat dry, never bitter."

 

Cheers

Stuart

 


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Posted: 2 February 2012 - 1 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Market news
 

 

I’d like to buy a kilo of foresight.
That being unlikely, this essay http://joshuaparkinson.com/dot-com-bubble.pdf , although it provides more headshakes than recipes, makes for intriguing reading as the Facebook IPO dawns.
I really enjoyed these quotes:-
“…perceptions encourage new, less sophisticated investors to enter the market and bid up prices even further, creating a self‐fulfilling prophecy of price rises. Soon the whole market becomes convinced that the old fundamentals of valuation no longer apply and that the world has entered a “new era.” compares this phenomenon to a Ouija board, where “players are encouraged to interpret the meaning of movements in their hands and to distill forecasts from them” while they themselves move the very Ouija pointer they’re interpreting…”
 
“…They can even put up a website [or Facebook presence - DST] and become a factor in the world economy themselves in previously unimaginable ways… Because of the vivid and immediate personal impression the internet [or Facebook - DST] makes, people find it plausible to assume that it also has great economic importance. …”
“…For example, one “Viceroy” tulip in 1637 sold for the equivalent of $2 billion today:
[During the height of the Tulip Mania,] the 2,500 guilders (currency) paid for a single bulb would have bought twenty‐seven tons of wheat, fifty tons of rye, four fat oxen, eight fat pigs, twelve fat sheep, two hogsheads of wine, four tons of beer, two tons of butter, three tons of cheese, a bed with linen, a wardrobe of clothes, and a silver beaker. …”
“Steve Ballmer of Microsoft in Sept 1999 “there's such an overvaluation of tech stocks, it's absurd,” … “and I'd put our company's stock in that category.” “
and “ “The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money. After a heady experience of that kind, normally sensible people drift into behavior akin to that of Cinderella at the ball. They know that overstaying the festivities_ that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future _will eventually bring on pumpkins and mice. But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight. There’s a problem, though: They are dancing in a room in which the clocks have no hands.” Buffett, W.E.: "Letter to Shareholders (2001).
OK, so one would obviously not choose to get trapped in a bubble, but equally, one would not want to miss out if its going to be a winner. And when last did an IPO have an anthem like this to get some new participation going?
 
 
So lets think about what Facebook offers:-
 
Clever code and algorithms, slick interface, smart inventor,  – YES
Ambitious and aggressive? – YES if the tales of his treatment of the rowing twins and Eduardo Saverin have validity.
Mature CEO – NO, but seems well provided with advice, and that from committed (co-invested) advisors.
Scale? – YES, and the URL* model means no one knows the commercial potential yet. (*URL – Ubiquity first, Revenue Later)
Clear business model? – NO. (not yet). Current ad sales into the huge user base are modest at $6 per user per year. This may not be comparable, but the New York Times does around $69 in circulation revenue plus $77 in ad revenue – a total of $146 per user per annum. Depending on which way this difference closes, things could get HUGE for Facebook.
Moat? – This one is a fun question. Social networks can and do pop up all over, but Facebook’s pure size does seem to be its moat at first glance. A tough problem, though, is whether its very size means its robust business models will only truly emerge in manageable subsets of its scale. Tim Berners Lee might have “invented” the internet, but its very scale meant Tim could not really profit from the invention. And I sense that Facebook is a less transforming invention than the internet.
Growth? – This question needs to move from a pure “how many users?” one to business & revenue. Suggestions now are that Africa is home to the largest increments in Facebook user numbers, which may imply a degree of saturation in richer markets. This reinforces the imperative for Facebook to accelerate its transition from user base growth to distributable cash flow.
SO, what would I like to see if I was to seek participation either in the IPO or in a more balanced secondary market in Facebook?
Palatable valuation? Not that relevant, given the novelty and scale of this phenomenon. But I will not be drawn to 2000-level multiples on revenue, profits, or cashflows. For every Nasdaq share sold on the peak PE multiple (could it really have been 264 times earnings?), there was a buyer too! And I am not allergic or anything, I would be perfectly happy to buy in on a 3% cash dividend yield.
Clear statements of positioning and strategy? Imperative. Facebook can either get trapped in businesschoolspeak, and throw the public visions and paradigms, or it can get rapidly into a “don’t tell them, show them” phase. I fear we may not be there yet!
Widespread critical acclaim? Even uniform acclaim? – Irrelevant. When CISCO was the largest company by market cap (25% larger than Apple is today) around 95% of its coverage by investment professionals was positive (buy or strong buy) at the time when its muted remarks about sales into Europe triggered a market cap drop of around $80bn.
 
Any way, good luck as the story comes to market
 
Cheers
Stuart

Disclaimer - I had a Facebook profile.


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Posted: 7 February 2012 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Market news

 

It wouldn’t be fair to minimize the impact of the 2008 ‘crisis’ – and to graphically illustrate the domestic impact felt in the US this picture does rather well:-
alt
 
That is right, after 48 months, US jobs are still only at 96% of what they were pre-crash.
But as for the “double-dip” ? Here in two pictures you can see the world’s burn rate of oil and coal. And yes, there is a dip in the (top) oil chart (the blue data set for western economies), and the other dip is also visible (look closely, again arrowed for your convenience) in North American coal burn.
alt
Quite humbling to see the perspective.

 

Cheers
Stuart
(p.s. energy charts via Adrian Saville http://adriansaville.com/ at Cannon – thanks)
 

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Posted: 8 February 2012 - 1 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Market news

 

The huge Airbus company makes more than half of airliners currently flying. See Wikipedia on Airbus It seems there are around 68 A380s in service.

 

Airbus forms the core of the 22 billion euro market cap company EADS, and that is a name which may ring some bells wrt procurement of armaments here in SA. On  EADS' website you can get a sense of the Airbus orderbook as at January_2012  , and also of the toughness of the business, where financing the sale of planes to airlines (which seem mostly to be "trophy" assets in state hands) is less than easy 9m-2011_Presentation 

 

So now?

 

Please be clear, I am not a pilot, nor a fatigue or aeronautical specialist, but I flew on an A380 back from Frankfurt in early January. The flight's takeoff was delayed by 12 hours due to unspecified technical issues (which could have been anything, no sweat), but I did sweat in the air. My seat, at the very front (downstairs) transmitted a persistent vibration to me. Yes, professors in dynamics have said that the human sphincter is the most sensitive accelerometer yet devised, but I did not enjoy the ongoing nature of what I interpreted as the wings being in some sort of resonant vibration. For hous and hours on end. And that can amount to fatigue - which can then manifest in cracks ... ...

 

My son flew the same route a few nights later, and while awaiting his turn, a news ticker informed the world that "A380 wing cracks are not a concern, and can be dealt with at next scheduled maintenance session". (He sat in the mid section, and was fine.) Also note - this all sounds very different to case of the Quantas A380 whose engine flywheel cracks led to the part 'exploding' and smashing lots of the plane's controls in Nov 2010.

 

And now, from Inet news feed:-

 

SYDNEY - Australia's Qantas removed one of its Airbus A380 superjumbos from service Wednesday after discovering "minor cracks" in its wings, but said that there was no risk to flight safety. The Australian airline also stressed that it was not the "type two" cracking found across the global A380 fleet last month which was "now the subject of a European airworthiness directive." "To date, type two cracking has not been found on Qantas aircraft," a Qantas spokeswoman said.

The small cracking, on "some wing rib feet", was discovered during an extra round of precautionary checks requested by Airbus on the Qantas superjumbo after it hit severe turbulence over India in January. Seven passengers were injured and four required hospital treatment in Singapore following the incident.

 

"This cracking is not related to the turbulence, or specific to Qantas, but is traced back to a manufacturing issue," the Qantas spokeswoman said. "Airbus has confirmed that it has no effect on flight safety." Qantas, which has 12 A380s in its fleet, said an "inspection and repair regime has been developed" in conjunction with Airbus and it expected the jet in question to return to service within a week. "We will follow Airbus instructions on any further action that may be required," the spokeswoman said. It is the second Qantas A380 to be found with wing rib cracks, with a superjumbo involved in a dramatic mid-air engine explosion over Indonesia in November 2010 also suffering cracking. The European Aviation Safety Agency last month ordered the inspection of 20 A380s after cracks were found in the wings of Singapore Airlines, Emirates and Air France planes. Toulouse-based Airbus, the main subsidiary of aerospace giant EADS, has said the tiny cracks can be easily fixed and pose no safety risks. The A380 is the world's biggest passenger jet and a key product in Airbus's line-up as it battles its main rival, US giant Boeing, for the top spot in the world civil airliner industry. The double-decker plane entered service in 2007 after years of technical delays. There are now 67 in service around the world and, while they have never had a fatal accident, there have been teething problems.

 

Cheers

Stuart


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Posted: 10 February 2012 - 1 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Research

 

The recent interim result for 2012 from BHPBilliton has been followed by some shareprice weakness - so is the omniscient market getting it right? And if so, is it the recent buyers or the sellers who will undergo the most remorse. They can’t both be wrong (or right).
It’s a huge group, and I can’t claim to know its guts in detail.
It has had a sweet patch in iron, and a sour patch at one copper operation (Escondida), but it seems to be maintaining a curiously healthy profitability (see chart below)  from its group asset mix. And its huge exposure in iron doesn’t distress me, since it sits well below the world median in cost structure for iron, and also offers a cost edge in metallurgical coal, and will in copper too when Escondida gets back on song.
alt
The graph is a little deceptive in omitting negative margins from single divisions in 2002, 9 and 12, but the Group's orange line does fine – averaging over 30. Lets ignore the upwards trend, and use the average.
And as for topline, since 2001 the group has grown sales/share (which accounts for issuance and buybacks) at 15.8% per year. So what can we do with a growing turnover and a sustained profitability?
I have plugged them into a discounted cashflow (dcf),  sheet as follows:-
alt 
 
As may be seen, the plug-ins for growth of 12%, profit margin (pretax) of 28%, tax rate, and working capital and fixed assets as % of turnover are far from bold. And that spits out almost $40 per share, which translates at spot into over R300 per share. I like a substantial diversified (resilient) asset worth R300 with a rising value trajectory which trades at R250.
And to test the context of my valuation thinking, I plot here price (blue) against a steeper value trajectory (taking the steeper growth from before the current commodity “supercycle”, but discounted at 12.5% ) marked A but also against a flatter more recent one ( trajectory B at 11%).
 alt
Owning BHP Billiton at its current price against either imputed value trajectory makes plenty of sense to me. 
Cheers
Stuart

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Posted: 14 February 2012 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Market news

According to the "now you see it, now you don't" document soon to be publicly released by the ANC, South Africa "cannot afford to nationalize the mines" since the state doesn't have the required trillion. And in terms of intercountry agreements with the likes of the UK, we have to pay - we cannot just confiscate. Interesting also that this conclusion is premised on work by Gavin Keeton, an economist at Rhodes University who worked a long time at Anglo American.

 

So perhaps they won't be nationalised, but will be taxed more sharply - and the proceeds put into a sovereign wealth fund (SWF), which could be used for long term investment in building a better life for all. The mooted level for a "supertax" on profits, taking say half the excess at a level of profit greater than 15% (long bond plus seven) is still in gestation - would that apply to profit as a function of assets (ROA), of equity (ROE), or of price (EY). And what would be the focus and process of the SWF - another Industrial Development Corporation (IDC) or Public Investment Commision (PIC) in the making?

 

If we strip the entire debate to its naked essentials, surely its this -

 

Do we have a mineral inheritance? And can we mobilise its value and deploy it in the national interest?

 

I will answer the first question second, and for the second, will repeat my mantra that we NEED TO INVEST IN EDUCATION. By which I don't mean in university graduates, or in sliding more and more teenagers over a low and slippery matric bar. We need to educate our people in self-reliance and self-belief, and in the capacity to do TASKS and TRADES. We really ought to undo the crazy closures of teachers training colleges. And we NEED TO SET HIRERS FREE - so hiring of willing workers can normailise the job market. (Hint - small entities are better at hiring, and big corporates are better at at firing). Don't invite CEOs of jobless growth corporations, even if they are huge and "important", to jobs thinktanks. Its like inviting crop sprayers to an insect jamboree - the DNA is just plain wrong!

 

As to the second - do we have  a mineral inheritance?

 

Picture time below - see how li'l old SA has about 5% of the planet's mineral wealth. (But we produce about 0.5% of GDP.)

 

We sit at 9th on this chart from BP and the New Scientist (which I sourced via Niall Ferguson) . And we dominate with a select hand - platinum/PGMs, nickel, gold still, coal and chromium. Our diamonds have mostly gone, and gold too is very much over for us, so what can we do while we still have a decent hand in the game?

 

alt

 

Cheers

Stuart

 

 

 

 


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Posted: 15 February 2012 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Market news

Our delegate very nearly won the African Union (AU)  headship outright, and she at least prevented the incumbent from taking a clear win. So, I guess we have influence in Africa.

 

We get time at Davos, can get a slot at (and have even chaired) G20 meetings, and currently hold a seat on the (omnipotent?) security council at the United Nations.

 

We haven't cracked the G7 (or 6 or 8) yet, which is described variously as follows:-

 

The G-Seven:-

 

G6 (1975) was: France, Germany, Italy, Japan, the United Kingdom, and the United States. It then became G7 with Canada, and in 1997, the group added Russia, thus becoming the G8.
Cumulative influence of member nations:-

Together the eight countries making up the G8 represent about 14% of the world population, but they represent about 60% of the Gross World Product as measured by gross domestic product, all eight nations being within the top 12 countries according to the CIA World Factbook. They hold the majority of global military power (seven are in the top 8 nations for military expenditure), and almost all of the world's active nuclear weapons. In 2007, the combined G8 military spending was US$850 billion. This is 72% of the world's total military expenditures. Four of the G8 members, the United Kingdom, United States, France and Russia, together account for 96–99% of the world's nuclear weapons.

 

But we do seem to have some influence in the world as it is now known.

 

But what about the G1? G One?

 

This picture tells a simple tale very clearly:-

alt

 

This is from a fascinating URL - http://publiusonline.com/2012/01/05/ which is well worth a look and some thought.

 

So, for anybody confused about why we turned down the Dalai Lama's party visa, the solution may be clearer now.

 

Cheers

Stuart

 

 


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Posted: 16 February 2012 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Research

 

I found an article last week which posed the demise of the lecture – that rennaisance-era invention by which transfer of learning has been attempted for so long. Read it here Twilight-of-the-lecture article from Harvard Mag
And in the same vein, here now is an incumbent university professor Aswath Damodaran  throwing both a notional and an actual gauntlet down to the business model of today’s universities. Of course, he is beautifully placed to do this, with all the info and enough (paid?) time to do it. Could he be mad? Is he white-anting his own employer? Or could he have sufficient faith in his ability to enter a new world of campus-free learning on the Sinatran basis that if he could make it in New York he can make it anywhere?
So yes, while universities have a splendid and well documented history, possibly dating back to the year 1088 ( Bologna in Italy ) and are quite significant and desirable Mother-killed-in-UJ-registration-stampede players in our society, maybe smart smart people like Aswath can blow the field of play wide open.
Imagine that!
Here is Aswath's blog on the topic:-
Cheers, Stuart
 
 
I am not a great fan of the university business model as a delivery mechanism for learning. The model can be traced back to the middle ages and is built around physical location and arbitrary requirements for graduation (that have less to do with learning and more to do with maximizing university revenues and faculty comfort). I know! I know! I am a beneficiary of the system and I gain from the low teaching loads and a tenure system that is indefensible. With four children, I am also a consumer of the same system and I am flabbergasted at how little accountability is built into it. How many classes have you taken (or your children taken) where you should have received your money back because of the quality of the learning experience? How often have you been able to get your money back?

For hundreds of years, we (as consumers) have had no choice. Universities have operated with little competition and substantial collusion. There is no other way that you can explain how little variation there is in tuition fees across US universities and the rise in these fees over time. Outside the US, the fees may be subsidized by governments, but the quality of the learning experience is often worse, with the rationale being that if you paid little or nothing for your education, you should eat whatever crumbs fall of the table in you direction. But I think that the game is changing, as technology increasingly undercuts the barriers to entry to this business. I am not just talking about online universities (which, for the most part, have gone for the low hanging fruit) or the experiments in online learning from
MIT, Stanford and other universities. These are evolutionary changes that build on the university system and don't challenge it. I am talking about a whole group of young companies that have made their presence felt by offering new tools for delivering class content and learning. I am convinced that the education market is going to be upended in the next decade and that the new model is going to do to universities what Amazon has done to brick and mortar retailers.

To back up my point, I am running an experiment this semester with the classes that I am teaching at the Stern School of Business: Corporate Finance, a first-year MBA class, and Valuation, an elective. I have taught these classes for more than 25 years now and have tried to make the material and the lectures available to the rest of the world, but I have never formally tracked those taking these classes online. In fact, if you were not an MBA student in the class, taking the class online would have required you to forage through my website for materials and keep track of what's going on. And I would have no idea that you even were taking the class... So, I want to change that..

Last semester, I used a company called Coursekit to package and organize my class and was impressed with their clean look and responsiveness to my requests. This semester, which starts in a few days, I have created a coursekit page for each class that is focused on just online students. I will use this page to deliver content (lecture notes, handouts and assignments that those who are in my physical class get), webcasts of lectures (though not in real time, but the links should show up about an hour after the actual class ends ) and even the exams (you can take them and grade them yourself). The site also has a social media component, where you can start or join discussion topics, which I hope will provide the element of interaction that is missing when you do an online course. When you do get to the home page for Coursekit, you will notice my mugshot in the entry way. I promise you that I have zero financial interest in the company but I really want to see it succeed, because I think the education business needs to be shaken up.

The first session for both classes is on Monday, January 30. If you want to take these classes online, here is what you need to do:

a. Corporate finance class
What is it? This is my "big picture" class about how financial principles govern how a business should be run. It looks at everything that a business does, through the lens of finance, and classifies them into investment, financing and dividend decisions.
Who can use it? I am biased but I think that everyone can use a corporate finance class: entrepreneurs starting new businesses, managers at established businesses and investors valuing these businesses.
How do you join? Go to the site (
http://coursekit.com/finance). Enter RWHZYG as your code and you can then register for the class. Once you are registered, you will automatically be put into this page, every time you enter the site.
b. Valuation
What is it? This is a valuation class and it is about valuing any type of business: private or public, large or small and across markets. My focus is on providing the tools that will allow you to create your solution to valuation challenges, since new ones keep popping up.
Who can use it? While investors interested in valuing companies may be the obvious target, I teach the class more generally to be useful (I hope) to managers running the businesses and those who are just curious about value.
How do you join? Go to the site (http://coursekit.com/app#course/b40.3331.damodaran). Enter EH7WZN as your code and you can then register for the class. Once you are registered, you will automatically be put into this page, every time you enter the site.


Just to be clear, my first obligation is to the students in my MBA classes and I will not stint or compromise on that obligation, but I view delivering a great learning experience to those taking the class online as a close second. Note also that you will not get any credit from NYU for taking this class. While I will give you the grading templates to grade your own exams and evaluate your own assignments, I will not be able to give you direct feedback on your work. But then again, the price (at zero) is set right. So, these classes definitely come with a money back guarantee. In fact, the more the merrier... So, pass the message in this post on to any friends who may be interested. See you in cyber space on Monday.

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Posted: 22 February 2012 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Market news

 

We learnt last week that Warren Buffet has been “wrong for 5000 years” in regarding the world’s mined gold as a 68-foot-sided cube of no utility or value. (M Cutifani 2012). This makes one wonder where the gold price has been during the five Cutifani millennia, and why.
Recently, the price of gold has remained remarkably stable for long periods of time. For example, Sir Isaac Newton, as master of the U.K. Mint, set the gold price at L3.17s. 10d. per troy ounce in 1717, and it remained effectively the same for two hundred years until 1914. The only exception was during the Napoleonic wars from 1797 to 1821. The official U.S. Government gold price has changed only four times from 1792 to the present.  It was lifted to $35 in 1934, and in 1972, the price was raised to $38 and then to $42.22 in 1973. A two-tiered pricing system was created in 1968, and the market price for gold has been free to fluctuate since then.
altalt
Graph by me, based on data from NMA - The National Mining Association. NMA is the voice of the American mining industry in Washington, D.C. NMA is the only national trade organization that represents the interests of mining before Congress, the Administration, federal agencies, the judiciary and the media. Our membership includes more than 325 corporations involved in all aspects of the mining industry including coal, metal and industrial mineral producers, mineral processors, equipment manufacturers, state associations, bulk transporters, engineering firms, consultants, financial institutions and other companies that supply goods and services to the mining industry.
Newton, of course may have been quite bright  http://en.wikipedia.org/wiki/Isaac_Newton  , but he also knew he wasn’t infallible (“I can calculate the motion of heavenly bodies, but not the madness of people.”) Buffett quite fancies himself at calculations of the second type. 
Further back, some views on monetary folly and gold may also be gleaned from the work of Joseph Peden, who in a talk in 1984 said (among many other pearls)
“In Diocletian's time, in the year 301, he fixed the price at 50,000 denarii for one pound of gold. Ten years later it had risen to 120,000. In 324, 23 years after it was 50,000, it was now 300,000. In 337, the year of Constantine's death, a pound of gold brought 20,000,000 denarii.
Now one interesting thing with all this inflation should be a great comfort to us: historians of prices in the Roman Empire have come to the conclusion that despite all of this inflation — or perhaps we should say, because of all of this inflation — the price of gold, in terms of its purchasing power, remained stable from the first through the fourth century. In other words, gold remained, in terms of its purchasing power, a stable value whereas all this other coinage just became increasingly worthless
Diocletian's final contribution to this continuing disaster was to issue his famous Edict on Maximum Prices, in 301 AD. This is a very famous instance of a massive effort by the government to limit inflation by price controls. …
… You have to realize that there was a little problem: the Roman Empire was a vast region running from Britain in the West to Iraq in the East; from the Rhine and the Danube to the Sahara.
It included areas of very sophisticated and very primitive economies, and thus the cost of living varied considerably from province to province: Egypt seems to have had the lowest cost of living; Palestine had a cost of living twice that of Egypt, and Roman Italy had a cost of living twice that of Palestine.
 … Now Diocletian's monetary reforms were tentative steps in the right direction; except for the Edict on Prices, which, by the way, simply didn't work and was gradually dropped. But his steps were not radical enough. Because of his inability to create a sufficient supply of gold and silver coinage, combined with his continued reliance on payments in kind for taxes and salaries, and his continued issuance of fiat bronze coinage in endless amounts, he failed to make a significant dent in the problem.
Constantine's reforms were also partial, but of sufficient vigor and radical character to make a difference. Through his willingness to extract by compulsion the gold reserves of the taxpayers, forcing them to disgorge their bullion, he placed an ever-increasing supply of gold in the hands of government officials.
The new gold solidus — circulated widely by its possessors, the government-salaried employees — sold at various market rates to customers who desperately needed it to pay their taxes. Thus the state had found a way to protect itself and its servants from the unwholesome effects of its own earlier inflationary cycle, while slowly withdrawing from the cumbersome and wasteful system of accepting taxes and paying salaries in kind. Meanwhile, the masses suffered from a massive injection of fiat money, which they had to accept in payment for government requisitions of gold, silver, or other commodities.”
Read (or listen to) Peden's whole talk at  Inflation and the Fall of the Roman Empire One can't help thinking that the large systems of today, like the Washington crowd, and especially the local systems like the team working on our budget this afternoon would benefit from a ponder of his work.
And we all. including Buffett, and dare I say it Mark Cutifani, would also benefit from a re-reading of  Edward Gibbon's Decline and Fall
Cheers
Stuart

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Posted: 22 February 2012 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Research

Call me old fashioned if you like, but this extract from the SARS Introduction to Dividends Tax  makes me think our tax mandarins believe foreign investors are either dim or illiterate!

 

 

"The main objectives behind the change to [dividend tax] DT were:

 

- To align South Africa with the international norm where the recipient of the dividend, not the company paying it, is liable for the tax relating to the dividend (South Africa is one of a handful of countries with a corporate level tax on dividends).

 

- To make South Africa a more attractive international investment destination by eliminating the perception of a higher corporate tax rate (STC is an additional corporate tax) coupled with lower accounting profits (STC has to be accounted for in the Income Statement)."

 

And with STC (12.5%) falling away and being replaced by DT at 15%, where shall we go and stand to prepare for the torrent of new investment capital this "elimination of perception" ought to attract?

 

Cheers

Stuart

 

 


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Posted: 29 February 2012 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Research

 

Jeremy Grantham, a Harvard graduate and asset manager at GMO (who look after about $100bn), has come to some deep conclusions about where commodity prices may go next. Just note, his business imprint is all about  reversion to well studied means, so when he calls a move in the mean it’s quite meaningful.
In GMO's April 2010 Quarterly Letter Jeremy Grantham spoke to the tendency for all bubbles to revert to the mean saying: “For the record, I wrote an article for Fortune published in September 2007 that referred to three “near certainties”: profit margins would come down, the housing market would break, and the risk-premium all over the world would widen, each with severe consequences. You can perhaps only have that degree of confidence if you have been to the history books as much as we have and looked at every bubble and every bust. We have found that there are no exceptions. We are up to 34 completed bubbles. Every single one of them has broken all the way back to the trend that existed prior to the bubble forming, which is a very tough standard. So it’s simply illogical to give up the really high probabilities involved at the asset class level. All the data errors that frighten us all at the individual stock level are washed away at these great aggregations. It’s simply more reliable, higher-quality data."[GMO Quarterly Letter,  April 2010]
Here are some key pictures from his treatise on the root cause of exploding commodity prices - telling of the change in ”normal levels” for commodities
“For 100 years, commodities have trended down apart from world war and the oil crisis. I think that has now ended”
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“Oil traded at 16$ for 100 years. Then demand accelerated and it moved to $35. Now supply is falling so our new central value is $75”
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“Iron also seems to be checking out of its 100 year domain.” [Nice for Sacco and Motsepe]
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“Grain and food prices are skyrocketing (arable land is finite, fertilizer (commodity) price is up, and the human irruption continues past 7 billion.”
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Posted: 29 February 2012 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Research

GMO founder Jeremy Grantham

 

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has some sage-type words in the latest GMO quarterly newsletter

 

Here are some gems:-

 

"The market is gloriously inefficient and wanders far from fair price but eventually, after breaking your heart and your patience (and, for professionals, those of their clients too), it will go back to fair value.
... Leverage reduces the investor’s critical asset: patience.
 
... give your portfolio resilience, the ability to withstand shocks
... the biggest problem for professionals in investing is dealing with career and business risk: protecting your own job as an agent. The second curse of professional investing is over-management caused by the need to be seen to be busy,
... hero-worship the numbers and try to ignore everything else. Ignore especially short-term news
... If you cannot resist temptation, you absolutely MUST NOT manage your own money."
 
"Hero-worship the numbers" - do you think he was involved in the movie Moneyball
Born in 1938, Mr Grantham also has reached a point where he sees cpapitalism a little differently, maybe, than he did when going to Harvard:-
Capitalism, by ignoring the finite nature of resources and by neglecting the long-term well-being of the planet and its potentially crucial biodiversity, threatens our existence. … … My conclusion is that capitalism does admittedly do a thousand things better than other systems: it only currently fails in two or three. Unfortunately for us all, even a single one of these failings may bring capitalism down and us with it."
 
And an unusual insight, as we watch the Karoo being stalked, is on gas:-
Natural gas is, for most purposes like home heating and electric utility plants, a better and cleaner fuel than oil or coal, but is for technical reasons in distress: … … But now it is at just 14% of BTU equivalency, the lowest in almost 50 years

 

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Cheers

Stuart

 


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