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. 

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.

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.. 

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..

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?

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

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?