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This is the Sharenet company blog where we will bring you the latest news and events on the go at Sharenet, together with tips on using our site and our products.

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    Endgame

    John Mauldin recently wrote a book called “Endgame” which is about the end of the debt supercycle and how it changes everything. I found it to be a very interesting read.

    One of his first arguments why Europe and most of the West are in such a bad place is due to simple formula that defines the growth in Gross Domestic Product (GDP):

    Change in GDP = Change in Population + Change in Productivity

    In order to grow your economy you only have two ways to do it, there is no other clever way. You can’t borrow yourself out of the problem and you can’t let other nations work for you while you sit around doing nothing.

    Change in Population
    It is common knowledge that most of the nations in the West sit with an older population nearing retirement with few productive years left. Contrast this to India, China, and Africa with a massive younger population with many years still to produce products for their nation.

    Below is a graph of China’s population pyramid. It is clear to see that the majority of the population is aged between 20 and 45. It is also clear to see how the one-child-policy is affecting the younger ages. This will definitely be a problem for China in years to come. A small young population has to work very hard to support a large old population. This is exactly what we currently have in the West with the “babyboom generation” now entering retirement age.

    For further details refer to http://en.wikipedia.org/wiki/Population_pyramid

    Change in Productivity
    Well, sorry to say but there is no replacement for hard work. We need to work smarter and harder in order to increase productivity. Every decade USA employees work 1 year more than South African employees (i.e. 10% more). This is purely a result of South Africa’s more generous public holiday numbers and average annual leave when compared to the USA.

    Mr Mauldin looked at an interesting study by the Kauffman Foundation. The study looked at the type of firms in the private sector that create the most jobs. (It is also a well-known fact that governments are not there to create jobs but instead should only create the healthy environment for the private sector to flourish so that it, in turn, can create jobs.)

    The Kauffman Foundation focused their study on the USA from 1992 to 2005. The study shows that by far the most jobs are created by start-ups. Yes it is true that 50% of start-ups don’t make it after 5 years but they are still the best job creators. The graph below shows that start-ups created, on average, 3 million new jobs in the USA in their first year. The older the firms are the fewer jobs they create. Therefore as the Kauffman Foundation says “… we don’t count on the Intels or Microsofts to create employment: we need entrepreneurs.” I feel like changing President Clinton’s slogan from “It is about the economy dummy” to “It is about the entrepreneur dummy”.


    Source: Business Dynamic Statistics, Tim Kane

    For further details refer to:
    http://www.kauffman.org/uploadedFiles/firm_formation_importance_of_startups.pdf

    May we go into 2012 with such a drive in South Africa to work harder and smarter and support to the start-ups of the new year.

    This is Seed’s last newsletter for 2011. May you have a blessed Christmas with your family and loved ones. Travel safe and keep well, we’ll see you again in 2012.

    Kind regards,

    Vincent Heys
    info@seedinvestments.co.za
    www.seedinvestments.co.za
    021 9144 966

    Permalink2011-12-20, 11:50:33, by Mike Email , Leave a comment

    Average Monthly Equity Market Gains

    Before we start today's report, Seed is in the process of looking for someone to fill an exciting new role as an Assistant to the Wealth Managers. For more information please visit our Facebook page and have a look at the job specification. Please share with any suitable family and friends.

    Looking back over an extended period of time, it is interesting to note the gains made by the local equity market on a month by month basis. We have analysed the month by month returns from the local equity market since 1970 and charted these monthly averages. The returns include dividends received – i.e. they are the total return from an investment tracking the JSE All Share index.

    Firstly, given the general upward trend of the market over the long term, it is natural to find an average gain per month, with June being the lowest average at just 0.3%.

    However what stands out is the average gain in each December month since 1970, which at 4.1% is far ahead of the next best month July at 2.5%.

    Average monthly gains on the JSE per month from 1970:



    We do know that averages can conceal a lot of variation and so looking back at the last 11 December periods, we find that only 2 out of the 11 periods produced a negative total return.

    The highest gain in this time period was 11% in December 2001 – a year when the market as a whole produced a total return of 28.9%.

    Gains on the JSE each December:

    So the question is what is likely to happen in December 2011? Well, despite the history of generally positive performance in December, we would not want to infer too much from this.

    For the year to date to the end of November the local equity market is up just over 5%, and over the last 12 months it is up 11.7%. Given that these returns are below the average annual return since 1960 of 19.4%, there is a possibility of a good end to the year.

    On the other hand we have the world focusing on the European Union summit, which starts on Thursday night. The market is looking for a unified and positive outcome, but there remain many differences between the member countries as to the ideal policy and model. Watching very closely is the rating agency Standard and Poor, which has put 15 of the 17 euro countries onto credit watch negative, with a possible debt downgrade following this weekend.

    The stakes are high. The market has been pushing the politicians to come up with credible solutions to the current treaty, which clearly has structural problems.

    Because of the high correlations of global markets, a positive outcome over this coming weekend, together with the rating agencies holding back on any downgrades has a high probability of a rally in global equity markets to the end of the year.

    Kind regards,

    Ian de Lange
    info@seedinvestments.co.za
    www.seedinvestments.co.za
    021 9144 966

    Permalink2011-12-12, 15:58:55, by Mike Email , Leave a comment