Bruce Whitfield 00:03
To Arthur Karas, Portfolio Manager of MacroSolutions at the Old Mutual Investment Group, is on the line to us from Cape Town this evening. We posted again, which, you know, a negative global environment was fairly impressive, Arthur, good evening.
Arthur Karas 00:36
Good evening. I guess if you look at some of the top performers, it gives you a bit of a flavour of what's happening. So, we had yet another good performance from the gold shares, which is the kind of environment I guess that people are looking to for a bit of defensiveness and a bit of protection from the volatility. We also had some of the big defensive companies, global expensive companies on our market, that being British American Tobacco, and Anheuser Busch, they're also positive on the day. Richemont, luxury goods, appears to be an express train at the moment, nothing can stop. So, all of those having a good day, giving you some idea of what's happening. People looking for defensiveness, people looking for place to hide their money, and then trying to benefit from the very strong luxury goods sales that keep coming out of China and the rest of the world.
Bruce Whitfield 01:27
That's what's driving it, isn't it? I mean, that's what's driving LVMH, is making it one of the 10 most profitable companies in the world. We got the founder of LVMH, of course, one of the 10 richest people in the world. And off the back of that we're just seeing huge demand for the shares and the underlying companies at some fairly challenging and demanding price points.
Arthur Karas 01:48
Yes, and price is the interesting thing there. The luxury goods companies have got tremendous pricing power. So, in dollar terms, things like luxury high-end watches, high-end handbags, have seen huge price increases, and it's done absolutely nothing to the demand for these products. The cachet behind these names means that it's not easy to replace them with a new brand or to try and build that up. So, these companies have shown tremendous pricing power. And that's helped to contribute to their profits.
Bruce Whitfield 02:22
Well, certainly has. It's been a very, very good run for the luxury goods companies. Private hospitals did well, Naspers and Prosus under a little bit of pressure today. Financials taking a bit of strain. I did see there's some concern, of course, around the sort of financial sector players. [...] Capital came out with results today, they're not great results. They warned last week that they were going to go into a loss. And of course, then the other big listed player in the investment space is Coronation. And with its massive tax bill, for the way in which it structured its global business, is also going to face losses too. So, the investment sector itself isn't doing brilliantly at the moment.
Arthur Karas 02:26
The investment sector really is dependent on the markets. You're matching that the fees at any asset manager, or even insurer, is linked to the value of the investment portfolios that they look after for the clients. So, in a bearish market like this, you'd start to become concerned about the fee income that the asset managers are going to earn. And when it comes to the other financials, the banks, you know, they've got the benefit of high interest rates on the one side, but what we are seeing a steady progression of, is a concern about asset quality as we head into this year on from high interest rates, you're going to see some people borrow too much money, simply buckling under the strain of higher debt repayments.
Bruce Whitfield 03:46
Ja, and I mean, South Africa's got its own debt problems. And those debt problems are only going to grow. Not too much confidence in the currency at the moment, either. Lots of talk in the market that the currency is massively undervalued. But I just can't see the currency staging any kind of dramatic comeback unless there's calamity for the dollar, or suddenly somebody discovers that you can make electricity from beach sand or something.
Arthur Karas 04:11
Yes. I think that that's true. I think that the currency is cheap. Lots of South African listed companies are very cheap. That's also true. I think the struggle is trying to find a catalyst: what is going to allow these companies to perform, what's going to drive their profits? And as you were talking to your previous guests, electricity is probably the single biggest thing overhanging that. Some of the solution to those problems, the build out of the renewables projects that will help provide some growth in the shorter term. But the higher interest rates combined with electricity, combined with what appears to be quite a negative sentiment around the local economy is going to weigh heavily on the currency and on some of those local companies for a while. That said, when we see the dollar weaken, we do see the Rand strengthen. So, dollar weakening is definitely something on the horizon for us as US rates start to peak. And that should help at least hopefully prevent the Rand from getting weaker.
Bruce Whitfield 05:17
Ja, absolutely. Thank you, Arthur Karas, Portfolio Manager at MacroSolutions at the Old Mutual Investment Group. Ja, today's markets were marginally positive in a sea of red across the United States and Europe. The All Share Index added 210 points, a quarter of 1% to 78 121 on the All Share Index. And this has got nothing to do with money and it's got nothing to do with business. It's got everything to do with me being a bit self-indulgent, and Peter Bruce liked it. And so, it came up in my feed and it's a letter from one of the world's great American authors, John Steinbeck, to a Marilyn Monroe. It was found amongst Marilyn Monroe's papers when she died, dated the 28th of April 1955. She lived in the Waldorf Towers in room 2728. And John Steinbeck wrote to Marilyn, saying "Dear Marilyn, in my whole experience, I have never known anyone to ask for an autograph for himself. It's always for a child or an ancient aunt which gets very tiresome, as you know better than I. It is, therefore, with a certain nausea that I tell you that I have a nephew in law, who lives in Austin, Texas, whose name is John Atkinson. He has his foot in the door of puberty, and that is only one of his problems. You are the other. I know that you are not made of celestial ether, but he doesn't. A suggestion that you have normal functions would shock him deeply. And I'm not going to be the one to tell him. On a recent trip to Texas, my wife and I made the fatal error of telling John that I had met you. He doesn't really believe it, but his respect for me has gone up for even lying about it. Now, I get asked for all kinds of silly favours, so I have no hesitation in asking one of you. Would you send him in my care a picture of yourself? Perhaps a pensive girlish mood and ascribe to him by name and indicating that you are aware of his existence? He is already your slave. This would make him mine. If you will do this, I will send you a guest key to the ladies entrance of Fort Knox. And furthermore, I will like you very much. Yours sincerely, John Steinbeck." But what a marvelous letter John Steinbeck penned in April 1955 to Marilyn Monroe. I've seen this letter before and today I did a deep dive around the internet and it appears to be a genuine letter. There's no indication that Marilyn Monroe acceded to the request, whether she was so overwhelmed by post and didn't have time to do it before she died, I don't know. Certainly, a young man called John Atkinson, back then was a young man, today, a retired preacher, has no recollection of the letter ever being written on his behalf, or no knowledge of it being written on his behalf and certainly didn't ever receive a signed picture of Marilyn Monroe. But we've lost the art. We've lost the art of that kind of communication. John Steinbeck was a master of that communication, of course, and today, it's "okay, hey, dude, let's have a selfie". It's not quite got the same sort of warmth and witty repartee as the magnificent John Steinbeck had in 1955.