Over....

I guess this means that the rally is over...??

Looking over at the Dow in the US it's "blood on the trading screens" with the heavyweight industrial index down over 320 points....


It's funny - it didn't matter how many people you spoke to in the last week or so, almost everybody was cautioning against being sucked into this rally... and yet people couldn't help but chase the "hope".

I'm guessing we're going to see a sub-7000 Dow this week as reality starts to sink in again about how tough things are out there. My feeling is that today was the death knell for General Motors (and probably Chrysler as well)... although I have no idea how Ford is managing to stay alive in these markets.

Having said that, I don't think South African equities are particularly expensive and I guess doing a bit of stock-picking should pay-off in the next few years from these levels.

Two stocks I've blogged on before, remain popular in my tiny investment universe - namely Interwaste and Zeder.

Interwaste
Interwaste is a waste-management firm and the only way for SA investors to gain exposure to this lucrative sector in the listed space. The company reported its full year results to December 2008, and a much better performance. I looked specifically at the cash flow from operations and I reckon this free cash-flow indicates some dividends could be on the cards in the next few months.

Remember also that management remain sizeable shareholders in the business and that will probably mean that they'd like to push for dividends as well out of their investment.

Zeder
This agricultural operation has announced that they will be going ahead with a rights issue at 135c a share, in the next few months. The company says it sees a number of opportunities and it is raising cash to take advantage of them.

Zeder is trading on an historic PE of 6 in a relatively defensive sector, especially with its large stakes in KWV and Pioneer.

Think there is merit in adding to these two positions.

Dying dollar?

I know it is something we blogged about a while back and I see it has just become very topical again.

Here is a piece from Reuters which I found quite intriguing:

China eyes SDR as global currency to replace dollar

* China proposes sweeping overhaul of world monetary system

* IMF's special drawing right could replace dollar over time

* Advantage would be greater stability, fewer crises

BEIJING, March 23 (Reuters) - China's central bank chief on Monday proposed a sweeping overhaul of the global monetary system, outlining how the dollar could eventually be replaced as the world's main reserve currency by the Special Drawing Right.

The SDR is an international reserve asset created by the International Monetary Fund in 1969 that has the potential to act as a super-sovereign reserve currency, Zhou Xiaochuan, governor of the People's Bank of China, said in remarks published on Monday on the bank's website, www.pbc.gov.cn.

"The role of the SDR has not been put into full play due to limitations on its allocation and the scope of its uses. However, it serves as the light in the tunnel for the reform of the international monetary system," Zhou said.

Zhou did not refer directly to the dollar.

But his speech, issued in English as well as Chinese, spells out in detail Beijing's dissatisfaction with the primacy of the U.S. currency, which Zhou says has led to increasingly frequent international financial crises since the collapse of the Bretton Woods system of fixed but adjustable exchange rates in 1971.

"The price is becoming increasingly high, not only for the users, but also for the issuers of the reserve currencies. Although crisis may not necessarily be an intended result of the issuing authorities, it is an inevitable outcome of the institutional flaws," Zhou said.

"The desirable goal of reforming the international monetary system, therefore, is to create an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies," he added.

FEWER RISKS

A super-sovereign reserve currency not only eliminates the risks inherent in a credit-based currency such as the dollar -- in contrast to one backed by gold -- but also makes it possible to manage global liquidity, Zhou argued.

"And when a country's currency is no longer used as the yardstick for global trade and as the benchmark for other currencies, the exchange rate policy of the country would be far more effective in adjusting economic imbalances. This will significantly reduce the risks of a future crisis and enhance crisis management capability." he said.

Reform of the international monetary system is likely to take a back seat to the more pressing task of economic and financial stabilization when leaders of the Group of 20 developed and emerging economies meet in London on April 2.

But Zhou's speech shows that the issue is a pressing one for China, whose top officials regularly bemoan the volatility of the dollar and what they see as mismanagement of the world's leading economy.

Zhou acknowledged that establishing a new reserve currency that commands wide acceptance may take a long time. It would be a "bold initiative that requires extraordinary political vision and courage".

Hahahhahaha another take on sub-prime

"Heidi is the proprietor of a bar in Berlin. In order to increase sales, she decides to allow her loyal customers - most of whom are unemployed alcoholics - to drink now but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).

Word gets around and as a result increasing numbers of customers flood into Heidi’s bar.

Taking advantage of her customers’ freedom from immediate payment constraints, Heidi increases her prices for wine and beer, the most-consumed beverages. Her sales volume increases massively.

A young and dynamic customer service consultant at the local bank recognizes these customer debts as valuable future assets and increases Heidi’s borrowing limit.

He sees no reason for undue concern since he has the debts of the alcoholics as collateral.

At the bank’s corporate headquarters, expert bankers transform these customer assets into DRINKBONDS, ALKBONDS and PUKEBONDS. These securities are then traded on markets worldwide. No one really understands what these abbreviations mean and how the securities are guaranteed.

Nevertheless, as their prices continuously climb, the securities become top-selling items.

One day, although the prices are still climbing, a risk manager (subsequently of course fired due his negativity) of the bank decides that slowly the time has come to demand payment of the debts incurred by the drinkers at Heidi’s bar.

However they cannot pay back the debts.

Heidi cannot fulfil her loan obligations and claims bankruptcy.

DRINKBOND and ALKBOND drop in price by 95%. PUKEBOND performs better, stabilizing in price after dropping by 80%.

The suppliers of Heidi’s bar, having granted her generous payment due dates and having invested in the securities are faced with a new situation.

Her wine supplier claims bankruptcy, her beer supplier is taken over by a competitor.

The bank is saved by the Government following dramatic round-the-clock consultations by leaders from the governing political parties.

The funds required for this purpose are obtained by a tax levied on the non-drinkers."

Going farming

It is damn tricky to make any money trading in this environment so I guess sticking to simple strategies is probably the best way to try and accumulate wealth while the world is tumbling around you.

Somebody asked me the other day why I am buying equities in a market that continues falling.

That's easy

1. Nobody can pick the bottom to the cycle. We've seen huge sell-offs and maybe we will see more losses but I think that we're getting to a point where some of the good SA businesses are starting to offer some value.

2. I am young enough that I need some kind of long term nest-egg and forced savings method to ensure I'm not blowing what I have grown. If I depend on monthly salary cheques or income from my businesses and I blow all of that, then in reality I am going backwards. By sticking some money into quality, income generating stocks trading well below their NAV I am creating a type of forced savings to carry me through that I won't be tempted to dip into.

Good old Jim Rogers was on Bloomberg yesterday and he said that he reckons it will be the farmers driving the Lamborghini's in the coming years and that kind of ties in with some of my thinking that farming and agriculture are going to be great places to invest over the next few years. I've got a few shares in Zeder - who announced a pretty interesting deal yesterday with KWV - and I'm planning to add to the Pioneer Food Group shares in my portfolio as well as look at adding Crookes Brothers as well.

Otherwise, selling pressure remains constant in the US and the Nikkei bounced off intra-day lows.

Going long

Geez another rout on stock markets yesterday and the Dow Jones went below our 6800 target briefly closing at 6763 points down 299 points.

Big news of the day on the international front was that AIG reported a US$62bn loss for the quarter and on the local front the speculation is running riot (For the nth time!) that Old Mutual will offload their Nedbank stake.

What was interesting though was that despite the rout on US equity markets, the Alsi only moved down 0.43% and at this very moment in time the Nikkei has given up only 49 points and at one stage was threatening to go green. While the US takes the pain the rest of the world seems to be taking a back-seat ... a chance to look for a short term bounce?

I started going long in late trade on Monday, pretty much across the board.

• Long Gold
• Long Sasol
• Long Old Mutual (yeah yeah I know.... but there results are coming out so its worth a punt)
  
• Long Absa
• Long Remgro

You're probably thinking I'm a little loco going out on a limb here and going long but I think one has to stick to their convictions in some instances - I said 6800 was close enough to my short-term "low".

Also watching the Rand / Dollar exchange rate, I think this is where the kicker is going to come from over the next few days. The Rand slipped to R10.50 to the dollar and there doesn't seem to be too many reasons for it to go stronger either. I wouldn't be surprised if it fell to R11 to the dollar by the end of the week and that will provide a bit of upward momentum for our index - particularly if international markets take a bit of a breather...

Will see how it plays out

Fools rush in

I've been thinking quite a lot about this idea of a "bottom" to the stockmarket.

Logic says you can't pick a bottom and I can accept that, but I also get the sense that market in the short term is tired of all the red.

Many professional traders have been slaughtered in the last few months, institutional investors are forced to keep a certain percentage of their holdings in shares (even if the prices keep declining) and particularly if you look at the South African equity scene I reckon a big chunk of the hot money - the offshore investment funds - have been pulled out of our market.

For my own thinking I've pegged the Dow as falling to between 6500 and 6800. At the moment we're at 7000. Index weighting issues aside, the 7000 level looks pretty tough to break and I wouldn't be surprised to see a bit of a bounce this week.

The banks locally were flushed out on Friday and I suspect we'll get a bit of a relief rally this week. While I don't think the South African banks have seen the worst of it in terms of bad debts, they still remain super-profitable and paying dividends.

Taking a short term view (Close of trade on Friday) - I've taken the following positions:

- Small long positions on Absa, First Rand and Standard Bank
- Small long position Remgro
- Gold to finish above US$950 this week

While I still remain pretty negative about the outlook for equity markets over the next six months, I believe shares are starting to get pretty close to levels where we can absorb some earnings declines from previous high levels.

Let me emphasise one thing though - while we may be getting to the point where local equity markets are looking at historically attractive levels, that doesn't mean they're going up now... that I suspect is still going to take some time (at least the rest of 2009) before people start putting their toes back in the water.

Remember though that we still have an election to get through and plenty of job cuts to come into the system.

Only fools rush in.

Obviously things can change in the blink of an eye so tight stops might be recommended on the above (except perhaps the gold call), but lets see how Monday and Tuesday play out first...