Author Archives: PDSnet

Mathunjwa Backs Down


On 16th January this year we ran an article in which we suggested that the confrontation between AMCU and Sibanye was a microcosm of the inevitable post-election battle between the government and the union movement. We concluded that article with the following:

“To us it looks as though Mathunjwa is in a very difficult position. He has committed himself and his followers to a battle that he will probably lose. Sibanye is not under any financial pressure, but AMCU members are. And if Mathunjwa loses this battle it will probably destroy his reputation as a fiery populist and it will be a significant victory for sensible economics in South Africa.”

Now Mathunjwa, who became South Africa’s most feared and populist union leader in the platinum strike of 2014, has indeed backed down and accepted a humiliating defeat at the hands of Sibanye and Neal Froneman. Read More

Inflation


One of the outstanding achievements of the ANC since it took office in 1994 has been to maintain the relative integrity of the currency. The currency of a country is like the shares of a listed company. If a listed company is well-managed and expected to be profitable then its shares will rise in the market. If a country is perceived to be well-managed and to have an economy that is growing, its currency will strengthen against the currencies of other countries. So the rand has always been the best barometer of overseas perceptions of how well this country is being run from an economic point of view.

The rand has certainly fallen against first world currencies since 1994, but it has not descended into hyper-inflation. In most of the rest of Africa, once independence and democracy were achieved there followed a period of relative opulence, especially among the ruling class. Government jobs were given out freely and salaries increased above the inflation rate. The size of the government ballooned as private enterprise shrank. This was usually accompanied by a declining in tax collections due to a combination of economic stagnation, corruption and a steady fall in the ability of the government to collect taxes. With burgeoning expenses, the government then inevitably fell into the trap of printing money. In Zimbabwe this ultimately reached record levels leading to the collapse of the currency. Read More

Institutional Blindness


The Business Day reported on 10th April 2019 on the Investment Forum in Sandton where several asset managers talked about the major share collapses of the past three years – most notably Steinhoff, EOH and Tiger Brands. The big institutions and major fund managers (like Alan Grey, PSG and Coronation) lost hundreds of billions of rands when these stock market “darlings” suddenly collapsed.

But in each of these cases, there was clear technical evidence that all was not well long before they collapsed.

STEINHOFF

In the case of Steinhoff, the share made a perfect declining triple top at least 15 months before the Viceroy report came out and caused the share to collapse. Consider the chart:

Steinhoff (SNH) January 2016 to April 2019 – Chart by ShareFriend Pro (Click to Enlarge Image)

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Unbundling


From time to time, listed companies may take the decision to “unbundle” one of their subsidiaries or strategic investments to their existing shareholders. This means that they decide to give their shares in that subsidiary (or strategic investment) to their shareholders in direct proportion to the number of shares which the shareholders are holding on a specific date.

Their reasons for doing this are varied, but usually it comes down to a decision that the board has taken that the subsidiary or strategic investment concerned is no longer part of their “core” business.

For example, if company “A” owns 70m shares in company “B” and company “B” has a total of 100m shares in issue, then company “B” is a 70% subsidiary of company “A”. If the board of directors of company “A” decide that company “B” is not part of their core business, they might decide that, instead of trying to sell their shareholding in that company, they will unbundle it to their existing shareholders. If company “A” has 700m shares in issue at the time, then the shareholders of company “A” will each get 10 company “B” shares for every 100 company “A” shares that they hold – on a specified date. Read More

The Confidential Report – April 2019


Wall Street

On Friday 22nd March 2019, Apple announced their results to the December 2018 quarter. Turnover was down 5% at $84,3bn while quarterly earnings per share (EPS) were up 7,5% at 418c. 62% of the company’s sales came from outside the US. iPhone sales were down 15%, while sales from other products were up 19%. It also warned that the first quarter of the 2020 financial year would be weak because of poor sales in China. The market didn’t like these results and forecasts and the share price fell by 7%. This in turn dragged the entire S&P down by 1,9% as other tech stocks fell in sympathy. Donald Trump’s “trade war” with China was obviously partly to blame. The drop in the S&P500 index took it just below support at 2813 – but this was an over-reaction and the S&P has bounced back closing at 2867 last night. The resistance level has become the support level – which is common in this type of upside breakout. Now, we expect the S&P to move up strongly towards its record high of 2930. It is just over 2,1% below that level now. And, ultimately, we expect it to exceed that high and the great bull market, which has been in progress for ten years, to continue upwards. Consider the chart:

S&P500 Index September 2018 to April 2019 – Chart by ShareFriend Pro (Click to enlarge image)

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