Platinum

The precious metals took a bit of a thumping yesterday and you had gold flirting with $1030 and platinum as low as $1303.

Impala Platinum got sold off a bit as the metals prices fell but at R168 a share its not far off the R170 strike of that warrant so it doesn't worry me too much - especially as there is still time to run on it.

I've taken two other positions in late trade yesterday.

1. Long platinum at $1308
2. Long Dow - 9775

I wouldn't be surprised to see platinum bounce back to that $1340 price in the near term and the Dow, while looking expensive to some analysts also doesn't seem to have the inclination to fall hard and fast. If the Dow had another run at the 10000 mark I'd probably cash out and see if we consolidate at these levels.

Call update

Just a quick note - on Tuesday Impala Platinum rose by 1.85% to R166 after earlier in the day after hitting a high of R168.49 earlier in the day.

A quick look at trade in the US ADR has IMP trading at around R168.50 if the present Rand / Dollar exchange rate is used (R7.40).

There was a bit of a pickup in trade in my prefered call warrant IMPSBC with 469235 warrants trading hands and the warrant rising 3c to 27c - admittedly it didn't trade particularly much in the latter part of the day when IMP gave up some of its gains.

Last week I said I thought the dollar would bounce back against the Rand and it seems to have done so - albeit slowly and this is proving a positive boost for the rand hedge stocks listed on the JSE.

Long AUD
Speaking of currency related developments I picked up a currency trade via my Global Trader account which seemed to make sense to me.

This week we take a look at the Australian Dollar (AUD) a currency that has come up three times in our past reports and has continued to strengthen on the back of firmer Gold prices and the carry trade. The Reserve Bank of Australia (RBA) became the first central bank to increase interest rates this year, by increasing their cash target rate from 3.00% to 3.25% on 6 October. This increase took the market by surprise, as most analysts had expected the RBA to keep interest rates unchanged.

The question in most investor’s minds at the moment is will the AUD continue to strengthen against the greenback, or is the greenback oversold at these levels. We, however, continue to be bullish on the AUD as the currency continues to be backed by relatively stronger fundamentals than its peers. Year on year unemployment levels in Australia declined from 5.8% to 5.7% in September 2009, as the Australian economy continues to strengthen on the back of anticipated increase in demand from the Asian markets. Australia’s trade balance however continues to show a different picture as the trade deficit continues to remain relatively high, as it was recorded at $AUD1.5 billion in August. Australia continues to provide investors with higher yields for their investments.

The AUD is currently trading at its 52 week high at 0.9265 to the Dollar. We anticipate the AUD to continue its strong run against the Dollar with our eyes firmly fixed on the 0.95 resistance level. The AUD should continue trading firmer with 0.935 as the first resistance level and followed by 0.95 as the next level. On the down side we expect the currency to find support at 0.90 and then 0.88.

Their recommendation was long AUD vs USD at 0.92 with a stop at 0.90 and a take profit level at 0.935 which I will follow and see what result it produces.

Saturday morning review

Two quick themes I want to look at again on this bright and cheerful Saturday morning

First up is the power of dividends and the old fashioned "buy and hold"
It has many detractors as a way to wealth but I was sitting here this morning watching the dividend notifications flow into the various portfolios we old and the passive portfolios holding the likes of Sasol, Discovery and FirstRand were nicely topped up this morning.

It is a theme I have repeated a couple of times - if you are getting into investing or simply trying to accumulate a nest-egg, then good old fashioned accumulation of good quality stocks with good dividend track records is hard to beat over the long run.

I was having a look at our old family trust account and it always amazes me in terms of return for us. It comprises 8 core stocks (ATN, PWK, SOL, NPN, MTN, BTI, REM, BVT and SBK) and every quarter I check back to it and I find that it has generated another R10000 in passive dividends.

I use R10k as a measure rather than percentage returns because for that portfolio, after it reaches R10k it will then begin to look at re-investing these funds.

Powerful stuff not to be understimated despite all the trading mumbo-jumpo that goes on.

Sasol and Impala
I exited my long position on Sasol yesterday on the back of a nice run up in the share and saw a handy profit. Could it go up more? Probably - but that's why we old the underlying shares in the portfolio to benefit from that upside. The leveraged position was there to give our portfolios a little something extra.

Anyone following my Twitter feed will know that after cashing out of Sasol I went long Impala Platinum after it was down about 2% on the day... didn't work out ideally after it got smacked down more than 4% in total but I remain long.

• Upfront let me emphasise that I have always prefered Implats (IMP) over Amplats (AMS)
• I maintain that IMP is run for the benefit of shareholders while AMS is run for the benefit of Anglo American and it is a subtle difference but an important one
• The premium I attach to IMP is that when it has its good years, it rewards shareholders with great dividends and special dividends
• From what I have read almost all of the IMP assets in Zimbabwe have been written down to zero

In the last couple of weeks AMS has out-performed IMP by a mile but watching some of the communication out of the various asset management houses there is definately a trend starting to develop where they are advising institutional clients to look at IMP again.

IMP had a very scratchy September with (correct me if I am wrong) but I think they had 3 fatalities - something which is being focused on by a lot by the industry and of course the media. But if you are pragmatic about these things then you also have to recognise that it re-focuses management on operational problems which in turn (one hopes) flows through to a better run platinum business.

I was reading some research out RMB Morgan Stanley released on Friday and this comment by one of their analysts jumped out at me:

"Marking to market, Implats looks more robust: Applying spot values for the rand, PGM and base metals, we estimate that AngloPlat’s NPV would fall 27% to R494, while Implats would fall by 24% to R174. Alternatively, we assess that AngloPlat is pricing in platinum of USD1520/oz or a rand of 8.15/USD. Implats appears more robust, with its NPV pricing in the current spot (R7.40/USD, platinum USD1345.)"

In other words, there is next to no upside being priced into IMP at the moment... which one would assume means its ripe for those cheesy brokers and analysts to start pumping up their "overweight" and "buy" recommendations.

Which brings me to what I think could be drivers for a focusing in on the platinum sector in the next 3 months which will boost the IMP share price:

• Important factor - South Africa dominates global platinum resources. Any sense that the politics or the operating environment (Electricity) - founded or unfounded - and you will see the platinum price move up
• Lonmin have a dispute with their workers who are looking for a 25% wage increase while the company is offering 5%
• Xstrata dumped its bid for Anglo-American which I would take to mean that something else better is on the table. Something in platinum (Lonmin rearing its head again?). If the platinum sector goes through another round of assets shuffles then this catches the imagination of traders and investors who start looking at the sector for opportunities.
  
• From the newsflow I get the sense that IMP seems to be coming into favour - and off a relatively undemanding base, it could be one to watch.
  

Dow 10000 is here

Well the Dow Jones index has finally breached the 10000 point level once again and the psychological kicker that has come through is evident in Asian trading this morning. The Nikkei is up over 2% and people in general are feeling good about themselves.

Its just a damn pity that the US Dollar keeps seeing its ass and falling through the floor! It is acting as a serious handbrake to my long Sasol trade. Interestingly the SOLSBG warrant has continued to track up even if the Sasol share price has been moving sideways.

I had been gradually building up a long in platinum and have added to that position yesterday as the price has firmed above $1355. I suspect positive sentiment will be with the markets and industrial metals this week - trend is your friend and all of that.

On the small cap front
Did anybody see that new power board put in place at African Dawn?!

Christo Weise and Robert Emslie as non-execs. This surely has to be worth a punt if these guys are throwing their weight behind it.

Director dealings
It is interesting to see that directors are starting to sell into this market - is it the guys cashing for an early Christmas?!

Just yesterday:

• Topping over at Steinhoff sold R11m worth of shares
• Mokoena at Eqstra sold R240k
• Lazarus at Blue Label sold R309k
• Curle at Altech cashed in some of his options and sold R1.38m worth of shares
• Matlakala at Metropolitan sold out R2.5m
• Van Deventer at Shoprite settled options and cashed out R7.9m

I dunno - maybe if you start adding up the dealings in the last couple of weeks you will find a big number of people are cashing out. Wonder if it is just the Christmas / Festive Season phenomenon or whether they don't see value in their shares at these levels?

Monday - quick note

Hello boys and girls

A busy day on Monday but one which ultimately went nowhere fast.

The primary reason for my angst was that Sasol went ex-dividend today which lopped R6 off its price - money which was quickly recovered as markets continued to rally.

Sasol eventually finished the day off 80c at R288 with the SOLSBG warrant ticking up 2c to finish at 31c.

Goldman Sachs today set a revised (downward) price target on the oil firm with a 12-month target of R403... still a handy premium to where it is now!

Gold carried on trucking up nicely and I have some small long positions open on platinum as well. If there are legs to this economic recovery then an industrial precious metal like platinum could benefit at present levels.

Anyway tomorrow is another day - happy trading!

Bits and bobs

Tough week - just when you think you have things figured out you get worked over....

Before I get into my post this week I have to post something from Paul Theron over at South African asset management firm Vestact which I thought rang so true:

Deadly financial plan

FINANCIAL planning is deadly boring. What is worse, most of the assumptions are wild guesses, like the rate of inflation, your date of death and returns on equities.

Blogger Carl Richards suggests that it might be better to forget all the thumb sucking and just focus on some of the things we can control, and then hope for the best.

So how’s this for a financial plan. (1) Save as much as you reasonably can; (2) Don’t lose money through risky or stupid investments; (3) Draw down no more than 4%-6% of your assets each year once you retire.

There you go, all sorted.

...... And here we monkeys are trying to time or beat the market with our "systems" and analysis!

Sometimes I think keeping it all nice and simple beats this whole trading lark ... and then I get it right and I feel like a genius for a couple of hours!

Things that occur to me:
I do remain bearish on some aspects of the global economy but there is some genuinely positive data coming through:

• Sometimes we traders get nailed by short-term "noise" that we don't look at what is right in front of us. I took a look at these charts which plotted the Baltic Dry Index (BDI) against Gold, Oil etc etc and it makes for interesting reading - underlying shipping rates are on the up (solidly)
• These string of natural disasters intrigue me and I am surprised they have been given so little coverage by the financial media. There is likely to be a lot of government sponsored re-building which will need to take place here in the coming months. Would be interesting to know how this will impact supply and demand of commodities
• I still think there is tension with Iran and I don't see the oil price going South any time soon except perhaps against a rebound in the dollar (see below)
• While I have been shouted down on it by certain people - I still believe that Pakistan is a far bigger economic and security threat to the world than people are giving it credit for. For crying in a bucket they stormed a millitary base and held soldiers captive in one of the countries which has active nuclear armaments!
• I see Jim Rogers is calling Gold to $2300 over the next decade and oild somewhere between $150 - $200 as well but sounds like a lot of noise and very unspecific.
  

Trades I like:

• I am still long Sasol (probably short-term target of R310). The Rand to Dollar exchange rate has played havoc with this trade but it seems to have ground itself higher, despite the currency. Still think there is a bit more legs to this trade
• I get the sense that we might be about to see the dollar do a short-term bounce (which might tie give a boost to SOL). Yes it has been sold down hard but at some stage but when something is completely out of favour, it suddenly surprises. It is also still a "hard" currency and with many export dependant economies needing a strong dollar exchange rate, it might not be a bad idea to look at the USD recovering in the short-term
• I have put on some SMALL and TENTATIVE shorts on Gold as well on the back of a dollar revival
  
• The 10000 point Dow must be on the cards for this week

Heartening stuff

I hear somebody threw a shoe at the head of the IMF at some presentation yesterday. Heartening stuff to see that people are venting their fury on bankers.

Friday mumbles

After making a small profit on my short on the Top40 I closed out my position and the only open trade I now have open is a long on Sasol. At least the Rand is providing a bit of a handbrake at the moment and the oil price at $68.60 is "robust"

There is no question that the rising unemployment issues in places like the US remains a threat - you cannot have a jobless recovery - finished and klaar. Personally I think a lot of stocks will still come off over the next few months - particularly those with exposure to the consumer end of the market.

A couple of people commented that being long Sasol while shorting the TOp40 was surely counter-productive and in general that makes sense. But Sasol is cheap in comparison to its international peers.

At the moment Sasol is trading on a price to earnings (PE) multiple of say 10.5 (allowing for some currency).

In comparison the historical PE's of:

• Exxon Mobil - 17 times
• Chevron - 15 times
• Royal Dutch Shell - 13 times
• BP - 13.9
• ConocoPhillips - 13
• Total - 9

For sure Sasol is not Exxon or Chevron but when one considers the multiplier effect that a weaker rand could have on earnings and the great technology the company possesses, it would make sense to see Sasol pushing on from here.

But that's just my view so who knows.

It is not a very scientific method of analysing investor sentiment but I thought what was quite interesting was to take a look at the top headlines on CNN....

# Chicago, Rio lead race to host Olympics
# Key piece of human evolution revealed
# 1,100 dead in Indonesia quakes, U.N. says
# Ex-prosecutor says he lied about Polanski case
# Martin: Hollywood is clueless on Polanski
# CNNMoney: Dow plunges on economic reports
# Fortune: BofA CEO scores $53M retirement
# KSL: Elizabeth Smart says she was raped daily
# Vote now for 2009 CNN Hero of the Year
# Time: What Berlusconi's Obama jokes say
# Ticker: Republican sounds off on Polanski
# Boy, 11, wages fight against the N-word Video
# Stranger carries boy from burning building Video
# H1N1 vaccine on schedule, official says
# What if you ditched your car for a day?
# Kanye West's 'Fame Kills' tour meets swift end
# Sister upset about Mackenzie Phillips' book Video
# Poo power saves farmer $200,000 Video T-shirt
# CNN Wire: Jon Gosselin’s epiphany...

...... Yip sounds like people are REALLY worried about panic in the global economy this Friday.