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JSE Direct with Simon Brown

Weekly podcast hosted by Simon Brown covering the JSE and listed companies.
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Now displaying: March, 2020
Mar 30, 2020

Moodys junk (negative outlook)
SARB bond buying
Moboweni, world bank & IMF
Motsepe R1bn

US worst US jobless claims - EVER
US $2.2trillion bail out

Edcon CEO, they can’t pay suppliers
TFG wants delay on rent

Dividends being delayed

Mar 25, 2020

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Lockdown T-1 day

Will lockdown hurt the economy?

Yes it absolutely will. Exactly how much we have no idea, but our economy is largely shutting down for three weeks (at a minimum). The impact too GDP, business (small and large but especially small) will be huge and right now is not quantifiable.

How do we pay for it?

We print money and take on state debt. Is this bad? Sure, under normal conditions. This is not normal conditions. This is a global emergency and it requires drastic measure. The extra and more expensive debt and more cash printed is all bad, but right now saving people and the country and its people takes priority over the economy. I know a broken economy is going to hurt, but no country or no people would make an economy moot.

One point is that if we print money and run our debt higher, we're not doing it alone as a country, so the impact may be muted as all countries end up with way worse debt to GDP levels and weaker currencies making it all moot.

Will Moodys downgrade us on Friday?

Probably, maybe? But at this point nobody cares. Really, nobody does. The entire global economy is at risk of junk status. Also the local market and government bonds are way worse off than what a downgrade would have caused.

Will lockdown be only three weeks?

Initially sure. But most health experts say that after the initial lockdown the economy opens again, the virus returns and we go into another lockdown and this process continues for months if not the rest of 2020.

Losers?

Pretty much everybody. Especially those with debt and high fixed costs. Tourism and entertainment industries extra especially.
Winners?

No real winners but food retailers and to a degree food producers will remain operational but likely with higher costs from their implementing COVID-19 restrictions and protective measures. And we'll be shopping less and spending less.

Example; Shoprite to pay shop floor and distribution staff R102 million 'appreciation' bonus. 

Commodity prices are flying as mines move onto care and maintenance. As such miners are also have a great few days. But if they don't get back to mining soon, they're only selling stock piles and that eventually runs out.

Have we hit bottom yet?

I do not think so. Price action is moderately suggesting we have. But I suspect the markets will get solidly spooked when we start seeing the economic data. We'll get data that will be the worst every recorded, it'll take a strong market to not freak about that. Further the market seems to be thinking COVID-19 will be over in the next month or so. I think COVID-19 will potentially remain a problem well into 2021, we'll just be better at managing it.

What's happening to dividends?

We've seen a number of companies delay their dividends by up to six months. They're protecting cash in very uncertain times. At this point it has only been delays in payment, but at some point we may start seeing already declared dividends being cancelled. I have no idea how that process works, I assume the board has the right to reverse a decision they took early about dividend payment? Further we're seeing results coming out and dividends being passed as boards protect their cash. I am happy with this, but I don't need the dividend income, many do.

What am I buying?

ETFs, ASHGEQ. Sure lots is cheap, price wise. But is it offering value? We can not know as we simple do not know how this plays out. I have made two purchases so far in March, doubling my usual monthly spend (excluding tax-free). But I am not going in boots and all.

There will be lots of time for buying stocks. We won't wake up one morning and suddenly everything is back to pre-crash levels. It'll be slow and volatile with a recovery to the peaks maybe as long as 4 years, potentially as short as two. We've got lots of time to buy, don't panic buy.

Is US$2trillion a lot?

Nope, US Federal national deb in 2019 was some US$22trillion. Staggering numbers, but the proposed US 'package', while large is not that seriously big in total terms.

Any good news?

Our government is doing this right. Not all countries are, some are doing a horror job. We're not.

Load shedding is gone for now. With the economy shut down demand for electricity has collapsed and as such Eskom can cope with the reduced demand.

Will local interest rates drop further?

Yes.

Further SARB has announced “As a further measure to add liquidity to the market, the SARB will commence a programme of purchasing government securities in the secondary market.”. The R186 is already 1.5% lower on this news. The SARB is essentially creating liquidity for those who want to exit their government bonds and receive the cash.

How do they pay for this? They print money, that weakens the ZAR, but everybody is printing so that moot. It may spike inflation, but ain't nobody shopping, so maybe that also moot. Perhaps the best time ever to print money?

Crisis of leadership

A number of political leaders being exposed. But also in business. We essentially had eight days of warning about the lockdown, and anybody looking at what was happening in Italy, China and the like should have seen lockdown coming a mile off. But now leaders are stuck in the headlights, no plan, no idea, putting staff at risk.

Should the JSE close down?

No.


JSE – The JSE is a registered trademark of the JSE Limited.

JSE Direct is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited.

Mar 18, 2020

Simon Shares

  • Sasol (JSE code: SOL) is now talking a rights issue of some US$2billion, more than the current market cap. They hope to be able to avoid this by selling assets, finding a partner for Lake Charles and cutting costs. But the first two will be near impossible in the current climate, so expect the rights issue with a +50% dilution. In other words, a horror rights issue. Price will be weaker until those details and issuing of the rights. I am NOT buying, that may change when the rights issue hits. But not before.
  • Brent oil is under US$27.00 a barrel. Big ouch for Sasol. Good news for petrol prices.
  • I am seeing a flood of people wanting to get into the market, because it has fallen. On the one side, this is commendable. Yes cheap is best tine to get in. But this volatility is the worst time to try and start trading. If you want to start trading we have two series for traders, Boot Camp and Master Class. But frankly as always, ETFs the best place to start, especially in troubled times.
  • Everybody asking about gold, yes it is going down. When crisis hits everything goes down. Gold is great when one is worried about the future, but when that worrisome future arrives people want cash so gold gets sold like everything else.
  • MPC rate cut announcement this afternoon. No more 0.25%, surely? I think 2% - 2.5% is possible and the best response. Certainly nothing less than 1%.
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COVID-19, my presentation of just two weeks ago warning on the virus and resulting market melt down, is already totally over taken by the reality on the ground. Read this take from the Imperial College COVID-19 Response Team. It has flaws, but also has golden nuggets. If we manage this crisis well I still think the worst will be behind us by Q1 2021. But the worst is going to be worse than I had thought, and if we do this well, well then it is a horror show of epic scale.

It has solidly landed in South Arica and while still early days the confirmed case numbers are growing at the expected 33%, every day. So far government is doing a decent job lead by the NICD, President Ramaphosa the cabinet and especially the health department. But what matters more than anything is to #flattenthecurve. No large events, social distancing, washing hands, working from home if possible and limiting trips outside.

All of this will eventually slow the growth, but we'll still end up with hundreds of thousands sick and many thousands dead ~ as a best case scenario. Yip it sounds wild, but that is the only way to slow the spread and stop it completely overwhelming our health services.

This of course means a massive hit to our economy and individual peoples financial well being, find our series on managing debt here. If you have debt and are worried about repaying, or if you're in default already - this is a must read.

Our market, and in fact all global markets, remain under severe pressure and extreme volatility not seen since 1929. I's not getting better any time soon. The global economy is grinding to a halt and there is no quick fix. Best estimates suggest twelve months of COBID-19 before as a planet we're truly on top of it. So Q1 2021, at best.

For investors, we continue to tread cautiously and I continue to buy my monthly ETF allocation and will double the monthly purchase amount. But I am not whole sale buying stocks, because cheaper is very likely.

Traders, as I have said before. Reduce position size, widen stops and be disciplined. And of course, obey your stops 100%.

From a personal perspective, start planing for the long haul, I don't expect this to all be resolved in a month when schools are due to go back. As example, I've downloaded online monopoly to play with my niece and nephew in Durban and have proposed every few days or so one of us will present (via zoom.us) on a topic that interests us. It's going to be a very long school break house bound.

Lastly, let me know if we can help. I have no idea what or how, not money or food or handshakes. But if you got ideas how Just One Lap or I can help you or the broader community, let me know. Maybe it just something as simple as helping to set up Zoom.us or a weekly bookclub session on Zoom. Send ideas.

And very lastly, stay safe. Social distance and wash your hands.


JSE – The JSE is a registered trademark of the JSE Limited.

JSE Direct is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited.


 

Mar 11, 2020

Simon Shares

The Sasol (JSE code: SOL) share price has collapsed this week for three key reasons.

  • Saudi Arabia has declared oil price war on Russia and sent Brent down to the low $30's as they try and get Russia to agree to production cuts.
    Sasol has not hedge the oil price. They usually hedge about a third pf production, but currently they only have ethane and ZAR hedges in place.
  • Massive debt burden of some R150billion, now some 3x more than their market cap. This is spooking the market worried about a potential rights issue at current levels.
  • I'd add that a right down on Lake Charles is surely a given and in time Sasolburg as well.

All in this is a total mess and coupled with poor management the market is not happy. I fully expect Sasol to survive, but in what form or price have no idea and I would NOT be buying.


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COVID-19 continues to create havoc with Italy shutting down the entire country of 60million people as deaths exceed 600 and confirmed cases over 10k. But that still means some 20k cases they do not as yet know about. (Watch: COVID-9, markets in trouble)

Recession is fast becoming a certainty as regions (and entire countries) shut down, people stop going to work or out at all so no spending and no production. A huge concern is the USA who are not testing very well as South Korea did and may have tens of thousands of cases they don't know about.

South Africa has 13 confirmed cases and so far it is being handled very well. Identify the confirmed case and works backwards with who they contacted putting people into isolation. Testing is key as South Korea shows. But while we're very good at this sort of thing (remember listeriosis) it can very quickly overwhelm a struggling medical establishment. Global there are simple not enough ICU beds and we're likely far behind the global average.

Bottom line is that this is getting worse and will continue to do so for a while (no idea how long that while is). No surprise markets are panicking and extremely volatile and my view is they'll go still lower.

  • Some quick good news; yellow and white maize levels in South Africa are looking very good which is good news for food inflation and producers, especially Astral Foods (JSE code: ARL).
  • Offer for Assore (JSE code: ASR) at R320 which may provide some opportunity. There are no dates yet and lots of T&Cs. But if I see some weakness to say around R255-R270 (15%-20% below offer price) I'll pick some up for the R320 take out.

JSE – The JSE is a registered trademark of the JSE Limited.

JSE Direct is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited.

Mar 4, 2020

Simon Shares

  • Recession, surely nobody surprised? Growth lower for longer. The budget is certainly designed to help, but the R160billion cut from pubic sector wage bill is not going to be easy. Likely we'll also now get at least 2 rate cuts this year, each 0.25% minimum.
  • Last week of February was the worst week for global markets since 2008. It was violent and it's not going away.
    COVID-19 marches on. Of note, 94k sick but 3.4k dead. With mortality of 1% it should be 300k sick and at 2% mortality it should be 160k sick.
  • Are markets ready for the spike in sick? We'll find out but the Fed is not waiting.
  • Negative US rates in my life time as the Fed panics and cuts by 0.5%. Thing is COVID-19 is a supply issue, not a demand side. Fed can influence demand with rates, but that does nothing to the supply side. This after a G7 meeting, but only the Fed has responded so far and US markets sold off some 3% after the rate cut.
  • At the post rate cut press conference;

"the risks to the U.S. outlook have changed materially" -- Powell

"The virus and measures taken to contain it will surely weigh on the economy ... for some time." -- Powell

* I hold ungeared positions.

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JSE – The JSE is a registered trademark of the JSE Limited.

JSE Direct is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited.

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