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

Here Be Dragons...

In late US trade yesterday, stocks on the Dow Jones and S&P500 surged in excess of 6% as President-elect Barack Obama picked New York Federal Reserve Bank chief Timothy Geithner to replace Henry Paulson.

I don’t follow US people too much, but judging from the market reaction, he comes with a good reputation. But on the subject of whether one man can stop what is fast looking like a protracted financial crisis – the jury is still out.

What I thought was an interesting ‘leading’ indicator was the difference in price movements in the platinum and gold prices yesterday. Gold the traditional safe haven, platinum the industrial and ‘luxury’ metal for jewellery.

The gold price shoots up to US$801 an ounce while platinum is marginally firmer around US$824… So in other words the ‘safe’ metal has gone up while the industrial metal (or luxury metal – depending on how you look at it) – which is supposed to indicate that consumer and business confidence may be returning hasn’t got near the same level of ‘emotional’ support from the markets.

Hhhhhmmmmm wonder if the real market is telling us something there>

Don’t get me wrong, I think at these levels the market may be offering some value for long term investors. I’ve been buying index tracking funds for some offshore exposure as well as some SA equities for a while now – but those have got a longer term investment horizon. The point is – if you’re planning to buy in on the rally in the US – I get the sneaky suspicion on my investor map that it should be marked with the Here Be Dragons (HBD) symbol.

Just something else that is worrying me around short term shocks to the SA market… Maria Ramos has just been appointed as the new CEO of Absa (As of 1 March 2009). Ramos and Gill Marcus have denied that there will be any conflict of interest with Trevor Manuel (Ramos’ partner). There is some concern that Ramos being appointed to a major bank may indicate that Manuel may step down next year – we all remember what happened the last time rumours started circulating that he had resigned with all the other cabinet ministers….

Carnage continued

But I don't understand - the fund managers promised us we were "near the bottom" and South Africa was insulated from the rest of the world.

They told us Gordon Brown was a HERO who had saved us from financial armageddon. Everytime he came on to TV I heard Tina Turner blaring out the Mad Max soundtrack.

I don't understand what went wrong....

Ok that was me taking the piss because its Friday.

Some pretty spectacular stuff yesterday. Gold index lost another 5.6% and we now have the platinum price within 100 dollars of the gold price and both are continuing to head south... So much for the "safe haven" theory for now.

Currencies are all over the show and problems in Argentina, Russia and other emerging markets is proving to be a bigger problem than most people expected.

The All Share index dropped below 20 000 points for the first time in a long while and if you're trying to pick a bottom to this then you're a braver man or woman than I am.... Ever tried to catch a falling piano??

Here's a hint - D O N T

That DBXJP X-Tracker has held up nicely actually moving ahead of where I bought it. That I suspect is largely a function of currency moves but I'll take the security its provided.

For the rest things look a little messy and the deluge of selling pressure doesn't seem to want to let up.

I'm pretty sure there are pockets of value out there. Things that look good to me include Standard Bank, Absa, Tiger Brands, Pioneer and PikWik. They're all pretty defensive, even if the banks do take some pain the next few weeks.

I also quite like the Mvelephanda Group (MVG) story. They're a nice diversified group and yet the share price has also been under a lot of pressure now. I bought MVG at around R5.60 and its now sitting at R4.90 (after paying out a dividend and special divvie). I think there is value in this story.

But if you are buying short term and you expecting the market to stage a big turnaround then like I said - go and stand underneath Ponte and have a mate drop a piano toward you - if you can catch it then we MIGHT have hit the bottom...

Property and stock market correlation

An interesting piece was run on Realestateweb yesterday with two rather big name property players giving contrasting views on whether the stock market collapse would have a negative impact on housing prices in South Africa.

Saul Geffen, the CEO of ooba, the country's biggest mortgage originator, apparently described the property market as compelling and argued that investors that were tired of the uncertainty of the stock market would instead move back into property because it was something tangible because they could touch and feel it.

Samuel Seeff, chairman of the Seeff Properties on the other hand argues that the uncertainty and economic downturn would probably further depress prices and keep investors out of the market.

Now obviously Geffen has to ‘talk his book’ to some extent so I guess we have to try and look at the real factors to find out whose right.

First and foremost, I suspect that many ‘paper millionaires’ have seen much of their wealth get obliterated with the stock market tumble. That obviously affects their credit records.

I don’t think it is rocket science to work out that if you previously had R1m in assets listed on the stock market and those are now worth R700k, you credit score will have decreased. This obviously makes you more of a credit risk than it did than before and the credit you qualify for will be lower.

If one just looks at the general economic consensus going forward, one would think that it gives you some idea of how property is likely to perform…

Yes interest rates may drop next year but lets remember that overall GDO growth is expected to halve for the next two years. That would mean a lot more delinquencies and businesses closing up shop – just in general a lot less extra cash in the consumers hands.

I just don’t buy anybody arguing that property demand and prices is likely to increase in the middle of an economic slowdown that will halve growth prospects.

In terms of prudent capital management, I also don’t expect Absa to be the only bank to put the brakes on clients drawing against their access bonds. There is going to be a hell of a lot less free cash available to draw on.

My final comment on this is as follows:

If you have R10 000 cash and you want exposure to the property market, you are probably faced with 2 options:

A) Put the R10k down as a deposit and apply for a loan which you might or might not get. Lets be blunt – if you are paying a R10k deposit on an investment property, you are probably going to be cash negative on the transaction

B) You put R10k into a quality listed property fund (such as Apexhi or Growthpoint) where you might find your unit price being buffeted a bit depending on the mood of the stock market but you are pretty much guaranteed an 8 – 10% cash positive return

Sorry I don’t buy it – the performance of the stock market would lead the performance of the property market from where I stand….