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- More delistings. I write about this for next weeks FinWeek. But it is expected and does indicate we're at (or near) a bottom with quality at really cheap valuations.
- Top40 just holding above 45,000 making us literally a few hundred points away from an official bear market locally.
- El Niño likelihood now at 70%, bad for food producers and consumers. I have found a website that tracks the likelihood, it Australian but weather don't care for borders.
- Saudi Arabia oil chief says OPEC in ‘produce as much as you can’ mode and Brent drops to $76 after peaking at $84 recently. Bad news for Sasol* (JSE code: SOL) but coupled with ZAR at R14.40 potentially good news for consumers.
- Long4Life* (JSE code: L4L) results, they have cash and cash equivalents of R1.05bn, about 115c a share. Still mostly the old Holdsport business at 60% of revenue and 64% trading profit.
- Nu-World (JSE code: NWL) results show HEPS +11.5% and dividend +11.9%. Really good results in a very tough economy (helped by a swing in currency translation gains of some R46million). One concern is a bank overdraft of R133million, up from R59million and I always ask why an overdraft and not a formal loan structure? The stock is on a PE of under 5x and a dividend yield of over 6%, staggeringly cheap, but this has always been the case with this stock and the question is what will trigger a rerating higher?
- R27.4bn revenue shortfall for 2018, and a R85bn shortfall in revenue over the next three years.
- Treasury revised down its growth projection for 2018 from 1.5% to 0.7%, rising to 2.3% in 2021.
- Debt as a percentage of GDP will continue rising, reaching 59% at the end of 2022, from 50.7% in 2016/17.
- Three items – white bread flour, cake flour and sanitary pads will be zero VAT rated from next year.
- "Demolish the walls between public and private sectors." Privatisation?
- IG CFD conversations
- Investing in listed property
- Upcoming events
* I hold ungeared positions.
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Correlation is not causation
Correlation is when two things are seemingly linked but more important is causation when they really are linked and one leads to another.
As humans we live by the mantra of 'what causes what' and this remains very important to our species, but we get it wrong far to often. Some are simple and correct, increasing earnings from a company will in time result in a higher share price. But in the short term all sorts of issues are driving price that most often have nothing to do with the state of the company underlying that share price. Hence stocks get cheap and expensive creating opportunity for investors.
But we need to be very careful of linking events that while they seem linked are not linked.
A great website Spurious Correlations has many correlations that have no bearing on each other. One example is “people who drowned after falling out of a fishing boat” correlates 95.24% with “marriage rates in Kentucky”. Now nobody really believes that in this example one causes the other.
We're constantly being bombarded with data and trying to figure out what drives that data and what impact it'll have. Part of the problem here is the 24 hour instant news agenda. Markets move and news needs a reason beyond buyers vs. sellers. So we find a reason, one that seems to fit but may very likely not be true.
The point here is two fold;
- Understand our desire as humans to link one event to another (think of the things we 'see' in the clouds). More often then not the links that we take for granted are weak at best and more likely Spurious.
- Be very skeptical about supposedly causation. Interrogate the logic and confirm it for yourself, don't just trust what seems right.
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