The day the dollar died?

I arrived back in JHB on Monday last week to discover that the US dollar had slipped below the R10 to the US Dollar mark. I have to admit that I had mixed reactions to seeing this.

Will I look back on 22 December 2008 and see it as the Day the dollar died?

The dollar has only managed to gain 3.3% of value against the euro since the start of the year and has been under significant selling pressure in the last few months. Against the Yen the US dollar has seen the biggest annual decline for the last two decades, this year.

From my perspective I make some handy money from things like Google so a weaker Rand vs. the dollar is useful.
HOWEVER times are a changing and I guess its going to be interesting to see what happens in the global currency market over the next decade or so.

Can't remember if I blogged about it, but a few weeks back I sat through a presentation by one of these strategist types for one of SA's big banks and he was predicting a major shift away from not only US equities into Asian equities but also a move

away from the dollar as the world standard currency.

I can buy the theory that positioning yourself for movement in the Asian equity market makes sense and have been trying to angle a part of my portfolio this way

While the euro has been the early short term this strategist is expecting currencies like the Singapore dollar to become increasingly important in the bigger picture.

So lets take a look at this currency.

As of this morning, the Singapore dollar (SGD) is trading at 1.43870 SGD to US$1.

Not being a trader in the currency market I'm going to make a note of this figure and track it on a weekly basis and see whether the money is shifting into Asia.

I'm going to do the same for the Yen, Chinese Yuan Remimbi, the Hong Kong dollar, the Thailand Baht and the Vietnam Dong. For good measure I've thrown in the Indian Rupee because of India's growing importance in the bigger picture.

US$1 vs. Japanese Yen = 90.3261
US$1 vs. Chinese Yuan Remimbi = 6.82252
US$1 vs. Hong Kong Dollar = 7.75005
US$1 vs. Thailand Baht = 35.0630 (international rate)
US$1 vs. Vietnam Dong = 24,704.36
US$1 vs. Indian Rupee = 48.4366

I'm not totally convinced the dollar is "dead" - purely because many Asian economies remain heavily export dependant and it suits them to have weaker currencies.

Throw in the fact that in the short term there is political uncertainty in places like Thailand and war tension in India and Pakistan, I suspect that while these currencies make some ground vs the US dollar in the longer term there will be some issues counting against this basket of currencies.

Window-Dressing

I've been watching global equity markets tracking up in the last few days and I just want to make a quick observation before investors start getting too excited about a stock market rebound....

WINDOWDRESSING....

It's the end of the final quarter and its been a brutal time for investment managers who have enjoyed years of success and mega bonuses in December... Now that habit has been tipped on its head and suddenly the losses are mounting.

While managers deny the habit, most traders will point out that end of the quarters (particularly around December when volumes are thin), fund managers will try and nurse their performance figure by buying up equities...

My little piece of advice - don't buy a trend on the last few days of trading - the same problems still exist....

End of empire?

The price of gold has this morning surpassed the price of platinum.

Gold is now trading at US$813 and Platinum is trading at US$810.

This is the first time this has happened in the last 12 years. Its interesting times and it says a helluva lot about two things - the state of the global economy and the state of the US dollar.

Both of which I remain heavily negative toward.

Obama may change things in the US and perhaps reintroduce an age of dominance but perhaps its time to start considering the end of the US empire?

Let me know what you think?

Maybe I'm just a spoilsport, but watching the Dow rise above 9000 points STILL doesn't get my all that excited...

Ok I'll be the first to admit that it was a bit more pleasant to actually some green in my portfolio today, but like I said - I'm not all that certain that the rebound has the legs that traders think it does...

Tribune Co., publisher of the Chicago Tribune and Los Angeles Times, sought bankruptcy court protection from creditors and the New York Times may have to mortgage its Manhattan headquarters as a major debt repayment looms.

In between that a couple of smaller hedge funds went belly up and of course we have the impact of job losses both in SA and abroad...

I suppose one "bright" spark is that the Big 3 auto firms look like they're getting their chunk of the bailout money although what good it will do is beyond me...

PLEASE can somebody explain to me how this is why share prices could be justified at being at the bottom?!

Couple of topics I wanted to touch on this evening.

1. Zim endgame
What happens in Zim has enormous social ramifications for us - no matter how our leadership tries to dress it up. My personal opinion - Zim is hitting rock bottom now. Cholera is likely to spread rapidly and it is unfortunately going to be a major social problem, but unfortunately its the only way that Mad Bob is going to be replaced.

In amongst the chaos, there might just be some opportunities to start positioning assets?

2. Empowerment plays
A while back I blogged about the empowerment plays in South Africa. Many of the weakly capitalised empowerment groups are starting to take some serious pain around their investments.

However the two empowerment heavyweights who may just flourish in an environment like this are Brimstone (BRT) and the Mvelaphanda Group (MVG) which I currently have in my portfolio.

For the first time in a while these well capitalised businesses can get in when assets values are weaker and take some meaningful stakes of distressed businesses. This is part of the reason that I have them in my portfolio at the moment.

I think they are made for a situation like this.

Conclusion:
As I said - I don't particularly buy this rally and still think that there is some sideways and downward movement to come.

There is still a lot of change left in the global corporate landscape and it is going to be intriguing to watch.

Grindrod surges

It was a big rebound day for shipping firm Grindrod today. The share jumped 17.35% after lunch after initially trading down in the morning.

Seeing as I bought some Grindrod late last week, I'm not going to complain. Interesting move up - especially when one considers how many shares the directors have been buying.

Transportation indexes

It is not rocket science to work out that the ‘financial’ crisis has now spread to becoming a global economic crisis that has threatened thousands of jobs and businesses.

This is the problem that is facing stock pickers at the moment – if the problem was limited to a bit of a bit of ‘shock and awe’ as the markets tumbled, then you could feel pretty confident going in and buying some shares at what look like low price to earnings ratios and then sit back waiting for a rebound.

But what if the problem is deeper? What if all these people who are losing their jobs as the stock market shock starts to wear off?

Every time somebody loses their job, it is one more person that does not have a means to pay off any accumulated debt – be it cars, houses, credit cards or other personal debt. What looks like a good price to earnings ratio in 2008 would certainly not be applicable if clients have begun hauling in their spending and hoarding their cash going into 2009.

The reality is that economic activity has fallen off a cliff and nobody really has any idea when it is going to get restarted again.

Looking at a couple of trading boards, an interesting theory has been put forward – tracking the transportation and logistics indexes as a proxy for economic activity.

I thought I would start with the Baltic Dry Index because A) It has been in the news quite a lot recently and B) Being a Grindrod shareholder I’ve heard a lot about it in recent months:

Baltic Dry Index:
In a nutshell, the Baltic Dry Index (BDI) helps ascertain global freight rates based on demand for commodities, how much fleet supply is available to meet the demand and market sentiment for the global shipping industry.

Wikipedia simplifies it saying: “Every working day, the Baltic canvasses brokers around the world and asks how much it would cost to book various cargoes of raw materials on various routes (e.g. 100,000 tons of iron ore from San Francisco to Hong Kong, or 1,000,000 metric tons of rice from Bangkok to Tokyo)”

Local shipping company Grindrod has seen its share price absolutely decimated in recent months as many investors have tried to correlate that performance of the BDI with the anticipated earnings for the shipper.

While this isn’t exactly the case, you can see how much emphasis big firms have placed on using the BDI to track overall market sentiment.

Looking at the graph, you will see some correlation between the two.



Dow Jones Transportation Average
The Dow Jones Transportation Average (DJTA) is the oldest US index. The index includes 20 companies involved in the railroad, shipping, airline and trucking industries.

You can find the constituents here - http://www.djindexes.com/

Below I’ve printed out a graph for the last three years.

What I found interesting was that despite many consumers (retail, commercial and industrial) having slammed on breaks in the last few months, there seems to be a bit of sideways movements in both these indexes, which may indicate that a more ‘real’ level of economic activity has been found.

I am a big believer that historical data doesn’t necessarily point to what is going to happen going forward, but I think building in tools like this to review the ‘bigger picture’ might be very useful in making some investment decisions.

Anyone else using these tools or done any back-testing on this data?

Value picking

Even though I think there is a bit more downside risk (particularly in the US) I've been doing some small 'value' picking to add to my portfolio.

Below I've just outlined the companies that I've added and some of the thinking behind it:

ApexHi-B - Listed property as an asset class has to make up a portion of your overall portfolio. It provides some diversification and it provides some income. ApexHi and Growthpoint are my prefered property stocks and have subsequently added some to the portfolio.

DBXUS - Even with some downside risk to the US, a lower risk entry via an exchange traded fund that tracks the US market makes sense to me. Initially just trying to get some exposure to the US market and will continue to build up the position from these levels / below.

Grinrod - Shipping firm Grindrod has been under a hell of a lot of selling pressure in the last few months. That hasn't stopped the company directors piling into the stock. Even with the slowing global economy, Grindrod simply looks out and out cheap.

Abil - African Bank impressed me at their recent results announcement. I think the dividend yield on the stock is good, management look sharp and have a plan for the business and most importantly they are well capitalised so I've decided to add a few to my portfolio...

That's where I'm at at the moment. Might add some of the ZSHARESGOVI for a diversification component as well, but we'll see how things go.

Hectic

Some pretty hectic trading action there in the US.

My data shows the Dow Jones down 679 points which puts it at 8149 ... Hectic mess...

Irrespective of the tough trading day today, I reckon the JSE is in line for some serious pain tomorrow.

A quick look at the commodities has me very worried. Gold has lost 41 dollars today to trade around US$770 and platinum has taken a big hit to be bid at US$804.

Not pretty...