Monday, 8 October 2012

It's stockmarket silly season

Let's get straight to it. Here are the facts:

  1. The stockmarket crash of 1929 took place in October;
  2. 1987's 'Black Monday' crash took place in October;
  3. The financial crisis of 2008, specifically October, recorded the worst ever volatility and 5 of the 10 worst point-drops in the Dow's 100 years of history...
These are NOT the facts; just interpretations* of data:
  1. 'Cyclical P/Es, using 10-year earnings as the divisor, suggest the S&P is currently somewhere between 30 & 50% over-priced..' (Doug Short)
  2. 'Expect markets to drop 90%; starting now.. '(Robert Wiedemer). For those of you who don't know, Wiedemer predicted the 2008 crash.
  3. 'Greatest debt bubble in history..' (Harry Dent) - 'markets could fall as much as 60% in the next few months..'
With respect to these authors these few examples (of many) have been written and re-written; rehashed and remixed and interpreted in some cases, as many would argue, as a means to an end. There's nothing new here. It's the same each year. You might even call it 'cyclical negativity' or even 'Red October' (with apologies).. Even as I write this I can't help but feel a little bemused by my own interpretation of these interpretations. I can, however, predict with some confidence, that somewhere between now and the future, the markets will crash and somebody, perhaps even one from the few I've mentioned here, will have predicted the crash; accurately. Play red long enough; have enough capital and you'll be a winner, at least once and that too is a fact. 

Wednesday, 19 September 2012

Romney & Obama - a dearth of riches

In the US it's another bout of Let's get ready to ramble* (* with apologies to Michael Buffer) and let's agree, to date at least, not much has been forth-coming from either Presidential-hopeful; the incumbent or the challenger..US voters, ordinary men and women in the main, are faced with a damned if you do, damned if you don't leadership conundrum.

Yes it's easy, as an outsider, to point fingers. There are, of course, many constraints, mostly real, some imagined. Even so, there are too many inherent failures on both sides of the political-farce to lend much hope for a US economic revival in either the short or medium -term. The combination of party ineptitude and the untidy, less-than-witty presentations of their chosen presidential - spokesmen doesn't fill many with much enthusiasm and therein lies the rub.

Perhaps less articulate than he's given credit for, most market-participants grudgingly agree, in broad terms perhaps, with Marc Faber's assertion that the Fed's policy of printing money will 'destroy the world'. The FED therefore, by definition, cannot lend-lead the US economy out of decline. I say lead because that's whats needed here. Leadership is seemingly a global commodity in short supply... Sound political leadership; effective government; restraint on political-pandering and a good deal of strategic forethought is the only hope for the millions of Americans who find themselves either unemployed or under-employed.

Half-way around the world, in South Africa, we face a similar situation, only less dynamic. Leadership, as a concept, is a premise long since lost. Entitlement, corporate ineptitude in the face of crisis and political philandering is commonplace, if not entrenched. It's symptomatic of self-absorbed-largesse, the excesses of the elite and like everything else and without belaboring the point, usually at the expense of the ordinary citizen.

Monday, 3 September 2012

Taxing Paul to stimulate Peter to pay Paul..

Order in the Financial System is as fragile as the atom; the hitherto basic unit of matter. Paradoxically, the word 'atom' is derived from the Greek word atomos or 'indivisible', which is, as we know, not exactly accurate.      

Now, if the ancient Greeks gave us atomos and the Romans gave us fissio or 'fission' and modern Greece gives us sovereign ineptitude; is modern Italy the next economic catalyst of global consequence? If today's Financial System, against which we measure modern evolution, is wholly reliant on stability to hold its form, would it be foolish to imagine a systemic financial fission in our immediate future? If change comes from crisis we could, as we speak, be witness to the dawn of a new financial energy.

If the System taxes Paul to stimulate Peter to pay Paul which is as it is, why shouldn't Paul have the option to write down Peter and pay less tax? If the Financial System has promised Peter that he could be Paul with a little stimulatory luck, then the System needs Paul to make good its promise to Peter even though Peter can never be Paul. If Paul needs Peter or he wouldn't be Paul but Peter and if Peter becomes Paul then Paul is no different from Paul and shouldn't be taxed because Peter is no more.. Now if Paul is not Peter and Peter can never be Paul then Peter lives under a financial illusion conjured up by the System. Seems to me things would be far easier if Peter stayed Peter and Paul was left to be Paul because only the System says Paul is better than Peter.. 

Friday, 31 August 2012

Jackson Hole - Snake or honey-pot..?

In Africa we'd council you not to poke your arm into a crevasse or tree-cavity lest you disturb the snake that lives therein and unless you think you can dance at the end of a screwdriver jammed vigorously into the electrical box of life, you might not enjoy the experience if you do! 

Most technical analysts, extrapolating from last year's events in and around this time, are calling for a decline of up to 6% in the near-term on most major indices. Quite 'unlike' our own traditional African doctors who divine the future from old bits of tin and a lion bone or two, these paragons of advanced investment science do the same from past performance and behind stochastics & a bollinger band or two. In Africa we say 'Siyavuma' in response to the diviner behind the bones which means 'we agree'. Whether you chant siyavuma or choose to remain silent in response to the technicals is not important. The point is the analysis is broadly similar in consensus and in the public domain. I know it, other traders know it and so should you. 

Prophesied market eventualities come to pass only when cash flow drives the price. Today's negative market prophesy needs a macro trigger to ebb the equity-flow. Given that most of us know what the prophesy claims, it is by definition self-fulfilling and who wants to be left behind the curve, siyavuma or not! Now, if Ben Shalom Bernanke doesn't stir the stimulus pot later today at Jackson Hole, you might find a snake at the end of your arm for the prophesy is clear; equity is dear..

Friday, 27 July 2012

Anglo American - a modern tragedy

I can't help but feel a little sad each time Anglo American CEO Ms. Cynthia Carroll takes the stage. By all account, she's functionally competent and in the main, a decent executive. Even so, she's not family and therein lies the rub. There's no sense of history or culture or an appreciation of the blood, sweat and tears shed by millions of South Africans on whose backbone Anglo currently strides the international sphere. It's also shameful that not a single worthy South African put up his / her hand to lead, what is ostensibly, an AFRICAN company. 

I concede that globalisation has forever changed the face of business. Companies operate across cultural nuance and geographical divide. That's true. Notwithstanding, when The Board fails to elevate or tap into the beating heart or soul of a company the management team will always under-perform. That too is a fact.

Modern management theory measures performance on the basis of an isolated evaluation of a set of financial statements. It is, however, a gross simplification, particularly in the mining industry. A superior operation is not its projection chart or its cash flow statement. It's about it's people and relationships both inter-company and inter-industry. It's also about experience; not at board level but at the coal face. It's a sense of history which drives a culture... Ignoring culture as an old-fashioned premise, at board-level, nullifies the history, negates experience, breaks down relationships and demotivates people.. *As a result production suffers, revenue falls, financial statements reflect the change, projections are cut and wholesale change is instituted from middle-management down.. ; which demotivates people, breaks down relationships, negates experience and nullifies history. Quite candidly, therefore, dismissing the CEO of the platinum division for poor performance when 30% of production is sold to crisis-stricken Europe is callous leadership and is ignorant of experience.

Applying modern management theory to Anglo American we'd note, simplistically of course, a 46% decline in eps. which is an oddity given that commodity prices have declined by an average of 20% over the same period.. There's some slippage thereabouts... I wonder why?

Wednesday, 18 July 2012

What's your legacy?

South Africans and our friends around the globe celebrate the birthday of Mr Nelson Rolihlahla Mandela (aka MADIBA), a Statesman, our National Treasure, a global icon and a gentleman extraordinaire. His is a living legacy, a beacon of hope, past and present and most importantly, proof sufficient that triumph in adversity is the sweetest of them all.

Today's politicians would do well to lead, follow or get out of the way. 

It always seems impossible until it's done - Nelson Mandela

Thursday, 12 July 2012

Minutes to win it...

Buying equity anticipating post-meeting minutes to reflect one or two words in the right order is just about as useful as learning to balance 5 ping-pong balls on your nose. Failing to appreciate that the odds are stacked against the trade is similar to a bout of inconsolable hysteria after failing to bounce a dime into an open-necked bottle at 30 feet.

Hoping against hope that Germany will fund delinquent excess whilst Merkel teeters on the political abyss presumes that PIGS will fly in the middle of July..

There are some fearsome odds we seemingly ignore. $600 trillion approx. is the size of the global derivatives market. Romney vs Obama for the world's most important economy is a David vs David contest. Where's Goliath? Companies have retrenched, are retrenching and will continue to retrench extraordinarily large percentages of their work force. Consumer spending resilience under those conditions is probably ephemeral at best. Internal controls at the world's largest financial institutions are either lax or deliberately misleading. Global youth unemployment, the Arab spring and the Asian Tiger struck low with cat-flu virus are fairly strong signals that all is not well. When 27000 words of legislation regulate the planting of a cabbage, who can honestly claim surprise when the Europeans disagree to disagree?

If Buffett's form holds true, 'risk-on' is just around the corner; the music's stopped and the exit is jammed. Ping-pong anyone?

Wednesday, 11 July 2012

Anti-theft lunch bag fools the playground

Two little boys running mad
Rajoy & Monti; from spendthrift fame
Both little boys thoroughly bad
The rules they break, they play a game

Onto the playground they have run
To steal the lunch off Merkel's mum
Her lunch bag in hand and off they dash
Their celebrations, prematurely rash

The bag wide open, they see the mould
Back to Merkel they must scold
The bag's disguise in mould is sham
Under the plastic is good ham

Wrapped in court for many a week
Merkel's lunch is still her own
Rajoy & Monti will you moan
Off to class they must sneak

Tuesday, 10 July 2012

All Tuckered out

Paul Tucker's testimony to the Treasury Committee was either a masterclass in talking a lot & saying very little or confirmation that just about anybody, with the right 'connections', can ascend to the position of Bank of England deputy governor.  

Either way and what's difficult to comprehend is why someone in Tucker's position would volunteer and publicly affirm, indirectly perhaps, a level of incompetence unbecoming of his position. Even with the benefit of hindsight, it's still difficult to justify Tucker's contention that the BoE had little reason to suspect irregular behavior in the LIBOR market. Minuted evidence from meetings Tucker chaired does, in fact, suggest otherwise. His indefensible contention, when pressed by the committee to answer directly, that he might have 'misinterpreted the signs' as early as 2007, does little to alleviate the negative public opinion.

Whether Tucker's self-preservation instincts motivated a 'massage of the truth' or even if he failed to show up at the LIBOR free-for-all at all, there's little justification or evidence sufficient to restore the level of competence his position demands.   

Wednesday, 4 July 2012

Out of Ashes, An Opportunity!

The rate-fixing scandal is quite simply a systemic cultural failure. London burns and the ramifications are difficult to quantify. Even so, you cannot deny the gift-wrapped opportunity for the US. Opportune US regulators can now, at last, justify / demand or fix associated trade in US dollars. The expected shift in trading and jobs away from London to New York should, if nothing else, convince the global community that Europe's star has waned.

As for the individuals specifically implicated in the so-called rate-fixing scandal, whether they emanate out of Whitehall, the BOE or from the formal financial community only, there are a range of criminal sanctions and punitive guidelines covered by legislation. Deliberate attempts to rig or manipulate interest rates allow for little justification and although there is evidence of unsubstantiated mudslinging, the ramifications for the individuals so implicated, are dire.

In a remarkable quirk of timing, today's testimony by a US-born ex-CEO of a UK bank could denote a banking shift away from London to the US. Free at last?

Wishing our US friends a safe and Happy 4th of July. 

Tuesday, 3 July 2012

London loses its 'Global best practice' tag!

It's not surprising that Barclay's Diamond has resigned. Even so, further scrutiny and full disclosure could well vindicate or indeed confirm his fall from grace. Time will tell. What was a surprise was the reinstatement of Agius as Chairman. It's difficult to comprehend and cynically symptomatic of the financial services industry generally. Then again it would be wholly irresponsible for Barclay's to continue to function without both its CEO and Chairman.

Complicity or collusion is by definition inclusive of other parties which raises a number of important questions. Aside from the corrosive taint hanging over the UK's arcane banking and regulatory industries and the associated reputational risk to London's claim of 'global best practice', the threat to the UK's economic prospects cannot be discounted. Endemic complicity is never victimless. In practice, as a consequence, retail investor abuse is both systematic and common.

If complicity is confirmed, the 'Barclay's-event' mutates into an industry-wide issue which opens up the industry, rather than the company or the individual, to civil claim. The threat of a civil claim must, as a consequence, threaten the balance sheets of the banks involved. You could argue that the banks involved, protecting their cash reserves in fearful anticipation of a fine and or a general civil claim, might not be INCLINED to function appropriately in the retail lending markets. The stifling effect on an already unstable economy in desperate need of stimulus cannot be denied.

THIS IS NOT HOW YOU SUPPORT ECONOMIC GROWTH and or REPAIR the reputational damage to the global financial services industry post the events of 2008.

Monday, 2 July 2012

Shoddy mistreatment of clients & shareholders

It's time and past time to FIRE / DISMISS the executives who either directly or indirectly contribute to market manipulation in any or all its forms and who by virtue of their appointment only hold a mandate from shareholders / clients to exercise oversight with due care and vigilance. Accepting the resignations of these individuals offers an avenue of escape which avoids the social blight they clearly fear most. It's a tacit acceptance of flagrant misconduct and or blatant incompetence both disgraceful and an insult to the market and the service-ethos at large.

A Savile-row tailored suit and a disproportionately high wage does not absolve any individual from negligence, INTERBANK-COLLUSION, malfeasance, misconduct, incompetence or blatant stupidity!

By the way Diamond, Dimon and Agius, aside from your obligations prescribed under fiduciary duty, it's your job to exercise due care, oversight and control! It's time to institute an international civil claim against these (b)ankers directly.  

Thursday, 3 May 2012

Murdoch, The Media & The Art of War

Success demands an understanding and practical application of the pian (chapters) proposed in Sun Tzu's 孫子兵法. Mr. Murdoch (herein after 'the Master') is obviously a studied practitioner of the Art.
  1. Plan- Having been given a lengthy time to assess the allegations and apply due consideration, the Master has had the latitude / leeway to calculate his best chances of victory. 
  2. The Challenge- the Master's successful campaign requires the limitation of  the cost of competition and conflict. Accepting personal blame limits further conflict / interrogation / discovery and deflects conflict away from the business. 
  3. Attack by Stratagem- Powerful 'friends' pursuing personal interests openly support the Master, a definition of 'independent' opinion and the epitome of unity rather than defiance via legal strong-arm tactics pillared by limitless company funding.
  4. Positioning- In the first hearing the Master defends & denies, successfully buying time to consider his options before advancing in relative safety (ie: for the Company). The Master has recognized and seized a strategic opportunity, deflated the "enemy's" contention through a process of self-imposed blame and squashed any further opportunities of attack - conflict averted.
  5. Directing- Who can credit the Master's (hitherto bombastic and arrogant) creativity and timing  in shameful acquiescence of personal blame. By anyone's definition completely out of character.
  6. Illusion and Reality- having diverted the conflict away from the Company by assuming personal blame, the Master creates the illusion of personally-imposed regulatory deviance rather than Company non-compliance. This cleverly engineered change of environment* provides the Company the legitimacy it doesn't necessarily deserve. (*Who will discredit the Master's intended illusion of Company-innocence given his undisputed history of interference. The Master's age wraps the illusion nicely for only an old dog loses the will to bite..)
  7. Manoeuvering- the Master has understood the dangers to the Company and has avoided further conflict by interposing himself between the process of discovery and the Company
  8. Variation in Tactics- the Master's flexibility and change of tactic from outright denial to an unexpected, unequivocal acceptance of personal blame is wholly successful. The Company remains intact.  
  9. Moving The Force- the Master currently waits for the 'enemy's' next move. Any new allegations will be carefully evaluated and referred back to 'Planning' for response. 
  10. The Use of Intelligence - the Master will CONTINUE to develop good sources of information / intelligence for, one reason and one reason only; Success depends upon it.

Global corporate management is full of artful deflection. Knowing why is the key to your own success...

Wednesday, 25 April 2012

Trickle-down innovation & your Apple iPad / iPhone...

Very rarely companies 'beat-the-street' (ie: profits exceed expectations) significantly on the upside. Last night Apple Inc. did just that. It's testament to brand strength and the dedication of the 'post-Jobs' management team. What does this mean for the price of Apple stock?

Market participants have been less inclined to hold onto their Apple investments lately which isn't surprising given the stock's astronomical price-rise in the last few years. Additionally, the untimely passing of Steve Jobs, Apple's innovation-genius, adds some credence to the 'sell-your-Apple' call. Has Apple reached its zenith in terms of product-development / product-innovation?

It doesn't take too much digging to reveal a sales-strategy so diabolically clever that, if true, consigns the premise that 'the iPod was Steve Jobs' greatest achievement' to the trash-bin. It's a sales-strategy so ephemeral, so revolutionary that it rewrites marketing theory. 'Those in the know' will tell you Apple's future is bright, very bright and it's Jobs' real legacy. It's a legacy not necessarily beneficial for Apple-users but it certainly will be for Apple shareholders, at large, around the globe.

'Those in the know', if pushed, will tell you that long before the release of the iPad2, Apple's engineers had already developed the iPad 5, 6 and 7. (similarly the iPod & the iPhone). In a perfect world we'd believe the truth of 'what they've said'. We'd accept that Apple spared us the iPad10 because we were, quite frankly. not quite ready for it. We'd admire Apple's redefinition of reverse-engineering or trickle-down innovation and accept, at face-value, Apple's strategy to reveal it's revelation to us 1 version at a time, each version 'advancing' a small step or two. We'd understand that brand-push pressure would have us reaching for our wallets at each 'new release'. We'd understand, accept and admire! We'd also be mesmerised by the brand; we'd buy; we'd replace; we'd replace again and we'd spend some more. It's a lasting, innovative and admirable legacy built to drive Apple's profits well into the future.

Then again, this is the real world and 'what they say' is hardly ever based in reality.

Tuesday, 24 April 2012

Europe's next World War is one of ECONOMIC relevance

Speak to an educated, politically astute European and don't be surprised when he / she tells you that Europe is embroiled in a war so bitter that subsequent social divides will take generations to bridge. 

An influential colleague contends that Europe is in a fight to the death and the enemy is none other than Britain and the United States! 

Why have the Europeans been so slow to respond to the EU crisis?  It’s a function of an outdated institutional structure and cumbersome Legislative, Judicial & Administrative bodies.

These are just a few of the institutional bodies / individuals responsible for the well-being of the European Union:

  1. Ministers and parliamentary secretary generals.
  2. Commissions / Committee of regions, economic and social council-BEI (European Bank of Investments)
  3. FEOGA-(European Agricultural Guidance and Guarantee Funds).
  4. (EMCF) -European Monetary Cooperation Funds.
  5. Secretary General of the Council of Europe
  6. Parliament
  7. W.E.U (Western European Union)
  9. E.C.B (European Central Bank)
  10. O.E.E.C (Organisation for Economic Co-operation and Development)
  11. The Council of Europe
  12. NATO (North Atlantic Treaty Organisation)
  13. CSCE (Commission on Security and Cooperation in Europe)
  14. The legislative council has powers.
  15. The commissions and the legislature and the executive for the E.C.S.C. 
  16. E.I.B (European Investment Bank)
  17. E.B.R.D (European Bank for Reconstruction And Development) 
It’s understandable why Europe has responded so slowly to a deliberate, well-coordinated economic attack and why the consequences have been devastating. Germany has alluded to this fact and is demanding structural reforms.

Britain is the enemy… 

(A simple example) - Britain proposed the purchase of significantly subsidised New Zealand sheep in exchange for British-made vehicles offered cheaply. The sheep are sold to France at excessively inflated prices and the commission shared…It's open to scrutiny and is a tangible and deliberate attempt by Britain to collapse the EAGGF. 

The United States is the enemy… 

(A simple example) - European banks have been driven to the cusp of bankruptcy by a co-ordinated attack by US banks intent on creating problems where there are none in an effort to destroy the Euro. Interbank rates are open to scrutiny and confirm the intent.

Whichever way you look at it it's certainly a refreshing take on the European Crisis and perhaps an opinion we should not dismiss too lightly. 

Monday, 23 April 2012

Your country doesn't need you!

At it's core Globalisation feeds on Cheap Labour. It's undeniable and it's entrenched..

Read the History of the United States and it’s obvious that the early days were indeed the ‘land-of-the-free’ not in freedom of spirit but rather a catch-all phrase for the going hourly wage of the average labourer. Cry foul and say it isn’t so but whichever way you want it ‘Free’ (cheap) migrant labour from Ireland, Italy, China and others built what is, today, the world’s largest economy. Today’s shift in ‘economic strength’ away from the West is based ONLY on the glut of cheap labour offered in China, South East Asia and India and is the ONLY advantage the 'East' has over the 'West'.

Paradoxically the proposed move to the political right in both France and Germany suggests, now more than ever, that The Citizens, in their demands for a decent living from the countries of their birth, have little grasp of the economic side-effects of globalisation. Unless the citizens concede the point and join the masses in the eastern sweatshops, their economic days are numbered. Social instability is here to stay. By extrapolation, politicians who promise 'work for our people' will become more popular in mature economies but the promises are nothing more than an economic dream in countries which face economic obsolescence.

Where material wealth defines the person why should we care that the people-of-the-west are accelerating towards a state of beggared poverty? Perhaps in a fuzzy sort of way and somewhere embedded in our warped sense of right & wrong we can’t help but feel sorry for the ‘strugglers’; a sentiment which, perversely, led to globalisation in the first place. 

Friday, 20 April 2012

Sarkozy - egg's on your face

It's the perfect example of a conflict of interest so diabolical that until we remunerate our politicians on a performance-based basis only, we'd be damned fools to expect any change.

Political self-preservation, of which France's Sarkozy is reliably the world's foremost exponent, is so deeply entrenched in the system that we accept, subconsciously, a lesser standard of 'good leadership' originally a measure of progress, now merely an imposition of noise by the most vocal individual, regardless of substance. It's symptomatic of faltering checks & balances in a world materially distracted. We've become on-demand cyborgs of consumption. Today's Apple is tomorrow's fruitcake... The US too is no different. The same nepotistic flaw is a character-trait nurtured in self-indulgent praise heaped on Members of Congress from within Washington itself. Paradoxically there are MANY politicians who do, in fact, possess the capacity to take us forward but why should they? 

In the end our bouffon's many words and fewer deeds have seemingly served him none at all. He's met his Hollande and now's the time to set the record straight... Pay the incumbent less than nothing until performance goals are met.

Thursday, 19 April 2012

Investing in the 21st century

Ours is a world of make-believe and whilst we do our best to earn an honest living we’re lulled into a false sense of security believing our accumulated wealth has some real bearing in the future. Currency is just an exchange of paper with an assigned value. That value is ephemeral at most. A house is just its bricks and mortar. Condensing the premise a little further it’s fairly easy to conclude that PEs of 20 and more are just convoluted conjuring tricks offered to the uninitiated by profit-driven spin-doctors in Armani suits. Gold too is just a malleable metal with some industrial use and an added dose of bling. Its allure, if you like, is mostly based in history. It too has an artificial value. Natural demand versus supply would yield a gold price a great deal lower; perhaps even as low as $900 if the pendulum swung back to equilibrium. Is Gold a hedge? Against what, hunger or even, perhaps, as a foil against a failed financial system? Time will tell and that too is very much a guestimate at best. Logically, if the pawpaw hits the fan gold will have little value in exchange. Yes, sure, between the more affluent the allure holds true but amongst the other 99.9%; I think not. It would be better to store one or two bushels of grain.

As for the markets it’s only a matter of time before our very real problems become unmanageable and when it does I would hazard that ALL investments will quickly dissolve into meaningless. Nevertheless, Armageddon is not in our immediate future so we’ll continue to live in the here and now exploiting discrepancies and or inefficiencies for self-promotion and a little profit. If that’s AAPL then so be it. If it’s an AU etf then that too is fine.

Just don't take yourself too seriously, time is the only legacy. 

Wednesday, 18 April 2012

Emerging markets - NEUTRAL?

It's quite clear that Europe's economy is currently non-sustaining ie: more liquidity is required, especially in the short to medium term. With the systematic transfer of private-sector debt to the public sector there's not too much doubt that the ECB will inject liquidity into the system. That being the case Europe's impact on the global market should be fairly muted in the second half of this year.

More interesting is the debate on China's economy and the commensurate market reaction on the price of commodities. BHP Billiton projects a rosy outlook for commodities, generally and iron-ore specifically. Even so, housing data released this morning suggests that China may be headed for a 'less-soft' landing than initially expected. In addition, one or two developing political nuances in South America and Southern Africa adds fuel to the emerging-market-neutral debate.

Given the global- market aberration and the historically low equity-ratings in the US, it's no surprise that recent global equity-investment flows are US positive. Even so, the currency of the land of the free is only for the brave.

Monday, 16 April 2012

This is the future...

China's GDP is approximately a third the size of US GDP and within the decade China's GDP will be the largest by anyone's definition.

Within the same decade China will boast more than 25000 individuals with wealth in excess of $100 million.

If Spain, Portugal, Greece and Ireland are 'key' economies sending global equities to highs and lows depending on the latest sovereign bond yields why is it that when China relaxes the yuan markets reverse intra-day declines immediately?

Should we really care about next week's hat-in-hand 'EU-posse' to the IMF or should we dismiss the escapade as just another Brussels-engineered 'storm-in-your-wallet' pantomime played out by silk-clad beggars?

Tuesday, 20 March 2012

Changing the rules to suit themselves .....again.

Very few equity investment-models, if any, are consistently accurate. Large derivative-based hedge books attest to that fact.

Why then do investors rely so heavily on research when ALL research is, in one form or another, subjectively predictive? So why bother? If the rules of the game stayed constant, then that would be a different ball-game altogether. Research would be more substantive. Investment reality, however, is a very different animal and the devil's always in the fine-print. Turn the pretty glossy document over and you'll notice in nondescript terms one important caveat. Paraphrased most claim:  'blah blah bulldust ...more blah and loads more bulldust. This research report is based on our interpretation of current circumstances only..ceteris paribus (all things being equal)... blah blah bulldust'; disclaimer, disclaimer. 

Therefore, equity research interprets and forecasts a company's / sector's prospects based on current variables only, of which regulatory stability is just one of many and the most ephemeral. Take Africa for example. (..or Australia or South America or China or whatever...). Some of the world's largest mining houses have significant investments in Africa. Most of those investments generate significant ROI and constitute a large proportion of the miner's earnings. Those investments only yield significant returns, assuming the investing miner has done its homework, if the regulatory conditions remain constant. It's when the rules are changed, either in a regime overhaul or a significant change in policy, that forecast returns become nothing more than blah-blah-bulldust! 

So when Zimbabwe, on a whim, demands the transfer of 51% of a miner's listed equity or South Africa talks of a 51% super-tax on profits, it doesn't matter much what Bloomberg's- Best (No.1 rated analyst) predicted prior to the change in rules, now does it? 

Thursday, 15 March 2012

The media's talking heads; a hard-landing and the US dollar

Economists define a hard landing as the resultant economic recession a country endures from overtly aggressive macroeconomic policy, usually against inflation. Fairly straightforward then. Get to hell out of the market...Right? Wrong.

So what is a recession really? It's defined, inter alia, to be.. a fall in GDP growth, a rise in unemployment and a drop in household income; exactly the scenario China finds itself in today. JP Morgan concludes, rather gravely, that China is, de facto, in a hard landing..... 'It's not a debate, it's a fact', JPM tell us. Predictably Bloomberg cites the notable credentials of the JPM analyst holding resolutely firm in his conclusions. It's obviously, an unequivocal confirmation of the prognosis. China is, undeniably, in a hard landing. For the bulls invested in the global equity markets the empirical evidence justifies, perhaps, the rising gnaw of panic in your pockets.. 

Herein lies the investment rub. Read in micro isolation, JPM's 'hard landing' theory, would collapse commodities... Asian and 'primary-resource' equity markets would tumble, cash holdings would rise and the US $, would soar into the stratosphere. Don't forget the US $ is still the globe's most liquid currency and all that cash must find a home... 

Investors who operate within a microcosm usually find themselves out of context in, what has become, a global economic macrocosm. Don't forget, a decline in GDP growth from 10% to a forecast growth of 7.5% meets the definition of recession... Steel and cement sales would be commensurately lower too. If the US GDP is forecast at 2.2% this year, rising from 1.7% last time round then China's 7.5% is not too bad...

Wednesday, 8 February 2012

Glencore / Glenstrata or even Xstracore steals your bacon..

The proposed merger between Xstrata and Glencore is about as useful as an arthritic, one-legged man at an arse-kicking contest. Yes it's a mega deal. So what? Big deal!

Let's have some breakfast and I'll tell you why!

Caffe' latte, cappuchino or filter coffee? Filter? Good choice. Roast or instant? Milk? Fine. Hot or cold? Hot. Okay. Sugar? Two spoons do for you? You'll have to excuse me a minute I need to make it myself. I had to let the staff go. Times are tough! Whilst you wait pull up a chair and make yourself at home. The central-heating's a little low I know; energy prices are through the roof... Bloody OPEC! Eggs & bacon? One rasher or two? Benedict, poached, fried, boiled or scrambled? Soft, medium, hard, over-easy or sunnyside up? Good. Excuse me a minute....

That's a pretty standard conversation these days in most homes, yes? It's a farce and you've been fooled....

Let's start with your coffee. The price of coffee, roughly speaking, doubled from mid-2009 to mid 2011. It has subsequently crashed back down to pre-2009 prices. Whilst the world's economy and its equity markets faced the toughest conditions since the Great Depression the price of coffee doubled. Your sugar? Prices of raw sugar FOB tripled (yes that's 3x) over the same period. How about your eggs; your bacon? Don't forget you have to feed corn to the chickens and pigs or there won't be any eggs or bacon, right? The price of corn FOB (free on board: a shipping term) tripled, roughly, over the same period. Getting the raw commodity to your plate requires energy, heat, butter, oil etc. Prices? Yes, you guessed it; - through the roof!

Now, if the economy was bad and it was and if I had to let the staff go and they've let theirs go which means less money is spent by all on coffee, bacon or eggs why have food prices (soft commodities) climbed exponentially? Crops we know haven't failed. Arable lands are not eroded and farming technology is progressive. To coin a common phrase, WTF?

Doesn't make much sense, does it? So why? I'll tell you. Johnny Glenstrata, a speculative trader, surrounded by his adoring fans, [the media, the proprietary desks of the too-big-to-fails and the other CBOT muck] has TRADED the price of food, coal and energy higher (exponentially and artificially); for speculative profit. Stealing lunch at the playground is fairly straightforward when the other kids are half your size...

Don't scoff; sit up and smell the coffee. The stink of it is monopolised greed. Brazil, currently the world's largest food producer, is, as we speak, implementing the prohibition of ALL speculative trade in soft commodities...