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.

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. 

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.

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?

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? 

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...

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...