A whole lot of nothing

A week which opened up a little nervous but ultimately ended green.

The JSE Top40 (J200) opened at 23730 and finished at 24075 helped by a bit of a bounce in banks and industrials (SAB and RCH). For the rest it was a case of going nowhere fast.

Portfolio changes:

• Sold out of my long IMP call on Wednesday (IMPSBC) for a marginal profit - time decay was starting to bite into the warrant despite being in the money
• Switched into a long on SOL (again SOLSBG)
  

While I still maintain that IMP in the long run is a good call (especially with platinum gaining traction at the top end of the the $1300 range), the time decay on the asset is hurting.

Sasol seems to have built a nice base around the R290 mark (Friday close as well as warrant strike). IMP on the other hand has broken below R170 (the warrant strike) and coupled with the safety issues and the drop off in production - it maybe needs to do a few things right to tempt me back.

Having said that trade in both warrants was brisk over the week and for investors with a bit of risk appetite, they both seem to be an option.

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.
  

Gold and (SPlat)inum

After my atrocious call on Impala Platinum as a screaming buy at R180, I’ve tended to stay away from commodity stocks.

Having said that, there’s an interesting thing that I have been watching with half an eye – the gold price is rapidly sneaking up on the platinum price – something that would have sounded completely unrealistic a few months back when platinum was at nearly 2000 dollars an ounce.

This morning, gold was within 31 dollars of platinum. Both metals have moved up a bit on European trade.

Currently gold is trading at 756.6 dollars (up 12 from yesterday) and platinum is trading at 806 (up 37).

The Gold Exchange Traded Fund (ETF) – GLD – is showing some real strength since September – while most other asset classes are taking stick, the Gold ETF has added value and I don’t think its finished yet either.

The ETF has climbed from around R60 to around R78 which is a pretty healthy return in these tough times. The Gold price itself seems to have established a base at around US$720 and is gaining momentum, the more apparent the trouble in the global economy becomes and the stronger the dollar goes – the better the return on the ETF becomes.

Can’t say whether it will continue to offer good returns for investors but I have added a few to my portfolio in recent months as a form of capital protection.

Ouch!

I called that bloody Impala Platinum VERY wrong.

Lucky I had the stop loss or my trade would be worth nothing.

Ouch!

Wow!

Wow! The Dow Jones Industrial Average sank 770.59 points (6.92%) yesterday as the US congress failed to approve the terms for the proposed US$700bn bailout that was supposed to save sinking financial markets.

The tech heavy Nasdaq went down 199.61 points (9.14%). Unless a miracle happens today, we're likely to get trashed.

Interestingly though - the Rand is slipping quite drastically and is now trading at around R8.33 to the US dollar.

I'll be he honest - I don't think we have even begun to see the real moves in the Rand / Dollar rate.

The question though is going to be twofold:

- What are our resources going to do with the weaker Rand? (Will the Rand buffer boost them or will they just keep being sold down)

- When the hell are these commodities supposed to bounce?!

Commodities such as base and precious metals were supposed to bounce on the back of increased demand from China following the Olympics. But this doesn't seem to be the case OR the

There is a palpable excitement building around Gold shares / the gold price at the moment and this failed bailout may just be the tonic that is needed to light some serious fires in the precious metals markets.

Gold is now above the psychological barrier of US$900 an ounce. A sliding Rand and a rising gold price is fuel for a run on these shares which creates some great opportunities for traders.

I maintain my exposure to the precious metals / Rand Hedge market through a small call position on Impala Platinum. For the rest of the market it still looks pretty grim.

Impala - cheap punt

Traders lick their lips when a bit of turmoil hits the markets. The collapse of Lehman Brothers and the 'rescue' of Merrill Lynch has been just the catalyst for a decent sell off and I reckon this is creating some very nice opportunities.

One trade that I have been eyeing for a while has been going long Platinum producer Impala Platinum.

The thinking around this is three fold.
1. The currency - The Rand / Dollar is slipping. SA resources run hard when the Rand slips. I believe that breaking the R8 mark was critical and I'm thinking we are about to see some sell off of the Rand. (Although I cant say where the money is going to).

We have seen emerging market currency sell offs before and when they happen, they happen FAST.

2. Plat stocks have taken a bit of a hit in the last few weeks and the junior miners are taking some pain. I think there is time for a bit of consolidation

3. Impala has some very nice assets that the market has completely discounted in Zim. IF this power sharing detail provides even a semblance of political stability and its game on for these assets.

Bit of a cheap and nasty punt but lets see how it goes. Entered a call warrant with IMP trading at R189....