Sasol, the Nasdaq and the Dollar

So we are slowly sliding out of an interesting 2010 and treading with some trepidation into 2011. Markets are interesting at the moment... I wouldn't say tough because I'm still happy being long for the simple reason that there is a sea of liquidity out there desperately seeking places to be parked. I think it is pretty obvious that people are not going to make (or even protect) money by leaving it in the bank.

I have three active trades on the go at the moment:

Sasol
I like this share. Good dividend payer, growth prospects, trades at a discount to its peers and hell its been largely unloved in 2010 despite oil now heading for $100 a barrel. The company started the year at R290 a share and up until September it didn't go anywhere but in the last couple of weeks its been slowly

gaining some momentum and looks like it wants to push aboe R340 a share.

Call me a cynic but the company is widely held by domestic asset managers and I wouldn't be surprised if this stock starts getting some serious media attention in the early half of 2011 as they try and ramp up their portfolios. Sasol also recently announced a $1bn investment in a Canadian project and a lot of its other Gas to Liquids (GTL) plants are coming on line and pushing up production volumes.

All signs are there that Sasol is kicking up a gear so I am comfortable being long Sasol at R335.

The Nasdaq
Technology stocks have been out of favour in the US for a while now but there is lot going for them. The last couple of quarters have been good for telecomms and tech stocks with many indicating share buybacks and dividends were on the cards. I stand under correction but I think Intel has lifted its dividend in each of the last five years.

US companies have sat with alot of cash on their balance sheets over the last two years and at some point they are going to look to deploy that capital. That means investing in new technology, PCs, semi-conductors etc. A Nasdaq at 2600 doesn't seem to be too risky in my books.

The Dollar
Considering how I got smacked around by US currency over the last six months I probably need my head read but here's my logic:

- The US is coming out of recession
- AIG, Bank of America and Citigroup are repaying their debts
- The emerging market story is interesting but it has meant that many of the US companies are offering some seriously good value. I wouldn't be surprised if demand for US assets starts to rise as institutional investors start realising that they get better value for their money in the US rather than directly ploughing money into emerging markets?

I thought about it a bit and decided to go long dollar, short yen. There is some uncertainty in Asia with the Korean spat so I wonder if the basket of Asian currencies might come under some selling pressure?

Let's see how those play out over the next few weeks.... Happy Xmas and New Year folks

Long dollar, short euro

"In the next months there will be many demonstrations, nobody knows what really is going to happen, But people know there is no other way than to come down into the streets and protest"...

... that was the message from one of the protesters involved in riots in Greece earlier today.

This is serious kak methinks, and I can't see how it won't spread to at least Portugal and Spain over the next week. I read a report that Spain's unemployment rate is now well over 20%... this is not something that gets addressed quickly and even a hint of panic and people will start pulling money out of the banks.

The Euro I reckon is toast unless the regulators take some serious action to try and co-ordinate their efforts quicker. With that in mind I've gone long dollar, short euro on Friday. I should have entered the trade earlier but I reckon it is now terminal...

The euro recovered a bit late on Friday night on speculation that the Greek bailout will be sorted out over the weekend but if Spain and Portugal fall over early next week then there is going to be carnage.

Not too much else looking that attractive is there?

Time to go defensive?

It is interesting to look at some of the flash points coming up around the world over the last few weeks:

• Bombs in Russia (I think there is more to this story to come)
• Riots in India
• Problems in Thailand
• Violence in Mexico
• Some protectionist stuff happening in the US / China row
• Greece and Portugal debt problems won't go away

Gut sense suggests that going slightly defensive in portfolio construction and probably upping exposure to both US equities and the US dollar in the short-term might pay some dividends.

Day Trading is for suckers

There is a really interesting piece on the Business Insider website written by Henry Blodget which talks about why day traders can never win.

You can read the full article here but here for me was a key quote which needs to be borne in mind:

Most Wall Street traders have skills, information, and tools that day-traders can only dream of. Trading is a zero-sum game: Market moves aside, every dollar won by one trader comes out of the pocket of another trader. Day traders competing against Wall Streeters is the equivalent of a college football team (or Pee Wee team, depending on the day-trader's skill) competing against a pro team. Is it possible to win? Yes. But it's highly unlikely (1 in 100). Wall Street's winnings do have to come from somewhere, though, so Wall Street thanks the day traders for playing.

Blodget's conclusion is right - if you are planning to day trade your way to enormous wealth then think again - you're probably chasing a pie in the sky dream....

That's probably not what you want to hear if you are visiting a day-traders blog but let's cut the bullshit - making trading wealth is incredibly hard.

Part of the problem I think is that too many private day traders want to cast themselves as institutional traders.

• They sit with multiple screens and charting systems open. They want to talk about resistance, break-outs and the double nipple formation.
  
• They feel they have to be "in" or "on" the market the whole time
  
• If they are not moving money they are not really "trading"

If you are planning to get rich quick then go-ahead and trade forex through one of the online platforms with 200 times gearing. 90 out of 100 of you are going to get fried, maybe 5 of you will eke out a living you're probably going to give most of it back and statistically one of you might make one or two big scores and walk away before you give it all back.

If you do believe you have what it takes then consider these steps:

• There is nothing wrong with buying a reliable share portfolio which includes dividend paying, cash generative shares with high returns on equity - profiting from gains made here is just as much "day-trading" as trading in and out of the global currency market every 10 minutes.
  
• If you are going to trade regularly identify one or two core themes and run with them. Don't try and chase every market and every instrument because that is what the news is doing.
• The trend is your friend. It is the oldest trading mantra and for good reason. We all want to call "the top" or "the bottom" of a market but you will go broke going against the trend.
  
• Use a bit of common sense - trading is made out to be more complicated than it really has to be. Buy low - sell high does not mean buying a stock or currency now because it was 1% lower than it was yesterday
• If you are waking up in a cold sweat at two in the morning and rushing to check your portfolio or positions then you are over-commited.
  

I hope that gives you something to ponder?

Slight change in strategy

After the Euro sunk against the dollar yesterday I slipped out of that trade and changed to long dollar short Swiss franc.

Seems to be playing nicely so far - will keep an eye on it and let's see where this takes us.

I probably don't understand society but...

... we wake up on Monday after a massive earthquake has hit a major commodity producer like Chile and markets are going up?!

Me - I am largely indifferent but it says a lot about society doesn't it. My only open position at the moment is long the US dollar versus the Euro and some small long-term equity positions and that's about it.

This is a massive earthquake and there have been 90+ aftershocks to rock Chile all between 5.0 and 7 on the Richter scale. The swells off the coast of Hawaii are rising again and action in the Pacific on Friday was felt in Australia, New Zealand, Japan, Californaia (which you can short the shit out of till it sinks into the sea), Chile and Hawaii.

If you're interested in currencies, there is a good story on Bloomberg this morning predicting that pound sterling could drop by as much as 30% against the US dollar.

“Alarm bells were ringing in Greece for a long time and when it happened, it happened very quickly,” Haig Bathgate, head of strategy at Turcan Connell, said at the company’s offices in the Scottish capital. “The U.K. is in a similar predicament. It could be hit very hard.”

You can trade Forex products here if you want to get in on the action.

With any luck the Poms also sinking into the sea along with California and we're saved from their painful whinging and Wayne Bridge acting all sanctimonious about his woman being groped by a team-mate.

Anyway time to sit back and watch Hawaii get washed away...

The US dollar

Out of curiosity are you still hanging on to your US dollars?

I see that there are media reports of North and South Korea trading pleasantries over a couple of artillery cannons this morning. Now THAT will do wonders for the global economy if we have both the Middle East and the Korean peninsula trying to obliterate eachother now won't it.

Anyway just a humble observation early in the morning and seeing as PIMCO were in the SA media earlier this week talking about how the US dollar was set to bounce back specifically against the pound and the euro, I thought it might be time to start looking at a few for the portfolio.

Update

Just a quick update on my long USD short ZAR trade. Things have moved in the right direction and I am marginally in the money.

Quite pleased that the Rand is starting to get comfortable below the R7.50 to the US dollar level and it is good to see decent volumes continuing to go through on that USDSCA warrant.

Something that should give a bit of momentum to the weakening of the ZAR will be the hints being offered by the bond market. Foreigners were net sellers of R596m worth of SA bonds on Thursday following up on the R645m sold on Wednesday.

These are the kind of flows likely to indicate that people are starting to pull in their horns and take money back to the developed markets for a while.

According to the guys over at RMB: "RMB analysts said in their daily report that risks of an immediate break
of 7.62 have faded as mixed US data has taken the strength out of the US recovery and global risk-taking is resuming, if slowly."

.... they're bankers and probably wrong.... Personally I wouldn't be surprised to have a decent sell-off going into December - particularly with concerns around structural problems in places like Greece, Spain, Ireland etc.

A great number of out of China with November Industrial Output up 19.2% - well above economist expectations. The recovery seems to be taking hold at all levels of the economy which is very encouraging for longer term investment stability

Anyways - I have a good feeling about today. Let's see what the day holds.

And we're off!

I'm still trying to get my head around that US jobs number but I guess I'll take what comes - it looks like the jobs are finally starting to come through in the US economy.

The dollar started to bounce back and that burnt the gold and platinum prices on Friday - it will be interesting to see what impact that has on SA shares during the next week. If foreigners decide to lighten some of their SA holdings we might see the Rand come under a bit of pressure.

Rand slipped to R7.46 vs the US $ on Friday and a move through the R7.50 mark could be quite telling. I see it has subsequently strengthened a bit at the end of the trading day to R7.41.

Like I said in my previous - I still the dollar offers some of the best opportunities for traders over the December / January period.

Ouch

Well that Dollar / Yen trade was an almighty screw up and I am suitably poorer for my efforts.

I still think in the long-term (3 to 4 months) the trade is the right one but having been stopped out twice in the last few weeks I've had my fill of this particular currency play.

That doesn't mean I've moved my attention away from the currency market and I've used some of these new Standard Bank Currency Reference Warrants to go long the US Dollar against the South African Rand.

One of the fallouts I would expect to see courtesy of Dubai is some money being pulled out of emerging markets and parked off in in things like the US Dollar - particularly as Christmas rolls around.

If one looks at the US dollar call (USDSCA) there seem to be quite a lot of people taking bets that the rand is going to weaken from these levels. Of the last 7 trading days 4 have had trade in excess of 2.3m which is not bad for an instrument which is only 2 weeks old.

I also bailed on my Sasol call after my stop-loss was breached - the warrant was decaying too fast and my sense is that investors are not going to rush to bid up emerging market shares over the next 30 days.

Long dollar, short yen

Anybody who has been following my Twitter feed over the last week will know that I have been yapping on and on about the US dollar being the only place to be for December.

More specifically - long dollar short yen.

Now given what has and still is happening to the US dollar over the last 12 months, most of you are probably looking at me a little cross-eyed and wondering if I have taken my medication this morning... but hear me out.

I like the dollar going into December for a couple of reasons:

1. Say what you like about it, it will ultimately a defensive hard asset over the long run

2. Asia is stressing about their exports, at some point they are going to start putting pressure on their govts. to weaken many of their currencies to try and resucitate their export market

3. Singapore and Korea are now talking about trying to limit capital flows into their markets. Taiwan last week banned foreign investors from placing funds in time deposits on concern about currency speculation. Plenty of asset managers have been talking up the Asian currencies for a while now. Do they have the capacity to keep taking these inflows in the short-term? I don't think so.

4. Its a volume game - the two currencies who can genuinely absorb major inflows - the dollar and the yen (I'll touch on the yen now now).

5. Equity markets have run hard and there is a general sense that maybe its time to take something off the table and re-evaluate into the new year. Where are you going to park that cash?

Just for shits and giggles I am reading an article at this very moment about them evacuating people in "flood-hit Britain" - Mud Island is sinking into the sea ----> FACT

Which brings me to the Yen. The yen at 88.80 to the dollar is BAD news for Japan. A look at the Nikkei vs. Dow and S&P shows you that it the currency is doing Japanese companies no favours. In my opinion it won't move much lower and people will be looking for an excuse to buy the dollar over the yen in the short-term.

So long dollar, short yen and long Sasol are my only open positions at the moment.

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.

Crazy Friday

Geez how crazy was that Friday?? Enough to drive me to drink - not that I need an excuse of course.

The short platinum and copper trades took a while to get going but eventually they joined the tumble in metals prices and there was a bit of profit for Friday. The job numbers came in bad and NFP reflected the real problems the US is facing - you can massage what you like things aren't great...

The commodities and underlying equity markets took off like a bat outta hell and then suddenly started losing ground with Gold falling to US$955.

I entered a long pozzie on Gold just under US$960 anticipating something of a bounce as some "normality" returned to the market. Gold gyrated around a bit like a stripper at the Lollipop Lounge and just like the pros - promised a lot and delivered bugger all.

Personal feeling - commodities still look toppish and with the job numbers still showing no sign of a turnaround they seem to be looking like we could be about to start a second down-leg (particularly in the base metals and platinum). Gold and Oil still seem to be trading as something of a "risk" proxy.

There is some talk of the dollar starting to strengthen on the back of some prospects of rising interest rates in the US. The problem with interest rates going up is that its going to deaden any of these so called "green-shoots"...

No real conviction for direction tomorrow beyond expecting a bit of a rebound in gold.

Unwound some of the dollar stuff

I have unwound some of the long dollar short yen positions I was in. Felt I was a little over-geared in the short term and there was some profit on the table so it was easier to walk away and try again another day.

Bet on the dollar

If you've been following me on Twitter you'll see I've been plugging my long Dollar | Yen position which has so far yielded some rewards.

The thinking behind this is four-fold.

1. There is the political instability around North Korea which is likely to lead to some volatility in the Asian markets (including presumably the currency markets)

2. As the economy (or more specifically the stock-market) has rebounded, there has been some flight from low yielding but perceived "safe" currencies such as the Yen into the Euro for its higher yield. I argue that the dollar sale has been overdone and in fact offers better value than the Euro.

3. While I still expect another market down-leg, the more the rally takes hold (particularly in the US) the more appetite there will be for the dollar - I don't see the currency alternative at the moment nor do I see something else that carries enough "size".

4. China, Japan and the rest of Asia all want the dollar to be strong relative to their currencies and logically they are not going to try and put some pressure on their own currencies to keep them weak relative to the dollar.

It is not a long term trading position - simply because I think there is too much volatility and earnings uncertainty everywhere but I think while everyone is keeping their eye on the Euro, I think the US dollar offers something a little different.

Go Gold go!

Absolutely loving this gold price action and pretty sure we've got clear air up to $970 before the end of the week. At this moment in time we're floating around the $953 mark and the only thing that hasn't played the game in terms of my AngloGold call has been the strong Rand. (or is that more specifically a weak dollar)

Still pretty confident that long ANG is a good place to be going into tomorrow.

Sasol was looking fine but dipped off today as the exchange rate strengthened and US markets sold down but still pretty happy with where we're at.

Looking forward to tomorrow, I reckon there is going to be plenty of short covering around gold as people pile in and technically I don't see the Rand / Dollar getting through the R8.20 mark to the dollar.... in fact I think there might be some hot money being pulled from emerging market currencies tomorrow...

Let's see ...

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".

Asian Currencies

A while back we blogged on the subject of the dollar and whether Asian currencies such as the Singapore dollar were in line to become increasingly important in the global economic picture.

I picked up this story off Bloomberg:

Asia Agrees on Expanded $120 Billion Currency Pool
Japan, China, South Korea and 10 Southeast Asian nations agreed to form a $120 billion pool of foreign-exchange reserves that can be used by countries to defend their currencies amid the deepening global recession.

Read the complete article here...

The US has been so busy trying to stimulate its own local economy that it hasn't been able to defend its dollar and I'm wondering if this isn't a hint that w're one step closer to seeing the dollar replace.

Asian currency update

No major moves here yet but watching the Singapore Dollar quite closely..

US$1 vs. Japanese Yen = 93.7376
US$1 vs. Chinese Yuan Remimbi = 6.83312
US$1 vs. Singapore Dollar = 1.47174
US$1 vs. Hong Kong Dollar = 7.75377
US$1 vs. Thailand Baht = 35.0324 (international rate)
US$1 vs. Vietnam Dong = 17,478.00
US$1 vs. Indian Rupee = 48.4205

Dollar fizzling out?

We touched on the declining dollar recently.

There is an interesting article on Bloomberg this morning discussing the dollar rally fizzling out. The link is here:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aKpyxDjnfiJ4&refer=home

It's interesting to note two things:

1. They've accepted that all the money the US Federal Reserve is pumping into the markets to try and stimulate economic growth is finally starting to have an impact on the the value of the US dollar.

2. Currencies like the dollar, yen and Swiss franc are going to be the losers while higher yielding currencies such as the Brazilian real, Indonesian rupiah and Polish zloty as well as emerging marketing currencies are going to be the winners.

I thought that was interesting considering that many of the "strategists" within the SA investment scene are talking up Asian markets and currencies at the moment.