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Another Airline Myth : American Airlines will find your joke about being an Al Qaeda operative hilarious. FALSE. A 14-year old girl was interrogated by police after tweeting her joke. See details below. |
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Nightowls rejoice! Fastjet are switching to midnight flights from JNB to DAR. Precision Air used to do this, and it worked well. |
Type in the promo code flymetoLondon & you may get a 5% discount on your SAA flight to London. Try your luck! This week only.
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Cape Town-Southampton on MSC Opera: last minute - cabin prices slashed! 28 Apl - 17 May 2014
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Fastjet Midnight Flights |
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The Purple Shall Rule! The tweets which American Airlines did not find funny at all:
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The bottom line: It's been a long time since we've had something truly financial in the "the bottom line". Today, we've got a guest post from rob@investsouthafrica.co.za. We've secured a special offer to SouthAfrica.TO subscribers of R600 for a year's subscription or R1500 for 5 years. Just email him. to get on the mailing list, before the end of April 2014. Allowing for Potential Interest Rate Increases in South AfricaThere’s a surprisingly large number of people who base their investment decisions on unadjusted PE ratios – this is a suboptimum strategy in lots of cases. If we have a pretty good idea of factors which will change earnings going into the future, we should “normalise” earnings to take these into account. Today I’m sharing some thoughts on the impact of expected changes in interest rates on owner earnings & share valuations. In particular, the thought that normalised earnings should reflect normalised interest rates, and not current short-term rates. Do you agree with the following statement? “To maintain inflation at 4.5% over the long run the reserve bank would need to have an average repo rate of around 7.5% to 8.5% (5.5% currently). In the short term there’s the issue of our struggling economy. However, with South Africa’s fiscal & current account deficits, if we don’t raise rates soon we will get hammered when the United States of American pick up momentum with raising its base rates”. One of many questions this raises, is to what extent will the US be able to raise rates:
That’s problem number 1 with interest-rate forecasts: I may have a feeling for the direction in which things are heading; however except in extreme situations there are lots of ifs and buts. Then we get to problem number 2 with interest-rate forecasts : the traders at the coalface know exactly the same and probably more than I do about the financial health of world economies, and if I’m worried about China, so are traders and they’re thinking about it a lot more, and probably factoring it better into their decision-making process than me. So, how am I to compete with them? The answer is I don’t – I have zero interest in trading the forex markets, and I’ll rarely attempt to trade the fixed interest markets. Market interest rates are my EstimatesIf you can’t beat ‘em, join ‘em. Generally speaking, the government bond interest rate markets are so efficient, that the best knowledge of where things are heading is probably already in the price, and is a far better estimate of where things should be than I’m able to make. Realising this, and relying on government bond yields saves me a lot of work. Short-term rates are an exception to the ruleShort-term rates are sometimes an exception to the general thought of the interest rate market being efficient. Governments can keep short-term interest rates artificially low (or high) over the short term, but if rates are kept artificially low in the short term then inflation will rear its ugly head, and in the long-term interest rates will need to be adjusted upwards to keep the inflation beast under control. The argument could easily be made that in South Africa rates are artificially low : CPI inflation is 5.9% but the repo rate is only 5.5%. However, the yield on a longer term bond like the R209 is 8.85% (28 March 2014), which probably reflects an underlying belief that yields are going to have to rise up to about that level and beyond (using the argument that long yields should equal the sum of yields over shorter periods). Adjust for Expected Change in Interest RatesIf we believe that short term interest rates are going to have to rise about 3.5% (9% minus 5.5%), this means that:
The debt/investments of the company need to be studied to check whether any adjustments need to be made to “normalise” them, in our calculation of owner earnings. If others aren’t carrying out the adjustments there’s a possibility ofcompanies with positive net cash balances being undervalued and companies with negative net cash balances being overvalued. Discount RateAnother (bigger) area in which interest rates are used in share valuations is in discounting future cashflows. An approach to figuring out the worth of a share is discounting its net after tax estimated future cashflows to an investor, by the net after tax required return (to compensate for risk taken). As the net after tax required return varies from investor to investor, this means that the value of a share differs between investors with different tax statuses! This is one of the many sources of volatility in the share market. ———————————————————————————– SubscribeYou can request to subscribe to my paid investment newsletter at rob@investsouthafrica.co.za (it receives all the juiciest & up to date information). There's a special going for SouthAfrica.TO subscribers of R600 for a year or R1500 for 5 years. Alternatively, you can subscribe to the free investment newsletter at http://freeinvestmentadvice.org/subscribe.php ---------------------------------------------------------- Due to regulations, our emails and our entire website should be considered as having been set up for entertainment purposes alone. Expect errors and omissions. Investment in shares should be conducted by professional investment experts only. Any use of the information on our websites and newsletters is at your own risk, and by using it you agree that the owners of, authors and associated parties wont be held liable for any losses suffered as a result of using the information. None of the information should be construed as being advice. Our newsletters, articles, discussions and website are not an offering for any investment. It represents only our and others' opinions, which are often wrong. Any views expressed are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest. Illustrations, forecasts or hypothetical data are not guaranteed and are provided for illustrative purposes only. There are risks involved in buying or selling a financial product. Past performance is not indicative of future performance. Any investment values given are not guaranteed. Investment returns can be volatile. When investing there is the risk of losing all or a substantial amount of your investment, as well as the risk of illiquidity. There may be advertisements on some pages on our website and newsletter, and we may earn income from these advertisements. We cannot attest to the accuracy of the material presented here, and opinions expressed may be changed without prior notice. |
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Karen, Rob & the rest of the SouthAfrica.TO team