Hark! Hark! The trouble has gone and the world stock markets can get back to printing money for investors - oh joy oh happy tidings...
Whatever....
Global stock markets have kicked off Monday in slightly more positive territory and traders and investors are tentatively putting a few bucks back into the market.
Just remember before you decide to dive back into the market with highly geared positions that last week the market bounced nicely one day and then broke all records again on the downside.
While the rebound is encouraging that we may have hit a short term bottom, remember that the damage has been done and things are not turning around economically for a while...
It is all good and well pointing out that there is a bucket load of liquidity now in the financial system, but lets remember the jobs that have been shed recently.
Wherever I look, I am reading stories about huge numbers of jobs being shed. If it is not the financial or motor manufacturers in America, its the mines right here on our own doorstep.
I was pretty bullish on Impala Platinum a few weeks back but the platinum price has been slaughtered and suddenly the mines are cutting back on jobs and their capital expenditure projects.
I keep saying it but WHAT IS GOING TO HAPPEN WHEN THESE UNEMPLOYED PEOPLE COME INTO THE SOUTH AFRICAN ECONOMY?!
I chatted to one of the CEO's of SA's big 4 banks and he said (a little more bluntly) - there is groot kak (big trouble) coming.
According to him - anyone who says that we're at the bottom of the house price and credit cycle better think again.
I hate being negative but its something to bear in mind that the crisis seems to have moved from being a financial crisis into the realm of an economic crisis and THAT will not be fun for anyone involved...
Monday, October 20, 2008
Wednesday, October 15, 2008
More trouble...
If you don't laugh you're going to cry!
One moment everybody is harping on that Gordon Brown has saved the day and the markets rebound and the next you've got the JSE all share index down 7%... Pretty tough to manage your portfolio when you're getting mood swings like this.
I have been chatting to quite a few senior execs in JSE listed companies in the last few weeks and I get the sense that while they are trying to put on a brave face, many of them see real trouble ahead.
A lot of people are talking dropped local interest rates in 2009 followed up by an economic rebound toward the end of next year. I tend to disagree - there is quite simply too much bad news coming into the market for the to simply shrug it off...
We might have gotten a little excited and bounced strongly on Monday / Tuesday but reality is now setting in...
One moment everybody is harping on that Gordon Brown has saved the day and the markets rebound and the next you've got the JSE all share index down 7%... Pretty tough to manage your portfolio when you're getting mood swings like this.
I have been chatting to quite a few senior execs in JSE listed companies in the last few weeks and I get the sense that while they are trying to put on a brave face, many of them see real trouble ahead.
A lot of people are talking dropped local interest rates in 2009 followed up by an economic rebound toward the end of next year. I tend to disagree - there is quite simply too much bad news coming into the market for the to simply shrug it off...
We might have gotten a little excited and bounced strongly on Monday / Tuesday but reality is now setting in...
Tuesday, October 14, 2008
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
Monday, October 13, 2008
Dead Cat
Hate to say it but don't get too excited about this bounce today. I see the JSE and world markets are all trading up a bit as the European rescue plan is mooted...
But just think for a minute - what has fundamentally changed since today and Friday? Yes Europe has agreed to shovel money into equity markets to try and prevent future collapses, but this doesn't mean much in the bigger scheme of things.
Read the JSE Sens announcements this morning and you will see where the real problem is coming for South Africa.
Sallies - the fluorspar miner - has confirmed they will be closing down its Buffalo operations putting 130 people out of work. Banks are either cutting jobs or at the very least not hiring.
Miners are seeing their base and precious metals get prices get slaughtered - why would they be hiring?
What is going to happen when these people come into the ranks of the unemployed?
Who is going to pay their bills? This is the problem that SA businesses are likely to face going forward? Unemployment is already an issue in South Africa, a recession, depression or "global slowdown" as the strategists like to call it will be the catastrophe our system didn't need.
If we are repossessing 6-7000 cars a month at the moment, then what is going to be the case when the unemployment figures start to bite?
I heard a figure today at lunch that 130 motor dealerships had closed up in the last few weeks. More jobs disappear from the system?
You walked through many of the shopping centres in the last few weeks? Look at the number of shops closing their doors and doing closing down sales...
Lets not get too excited about a little bit of a bounce in the stock markets... the pressure remains to the downside....
But just think for a minute - what has fundamentally changed since today and Friday? Yes Europe has agreed to shovel money into equity markets to try and prevent future collapses, but this doesn't mean much in the bigger scheme of things.
Read the JSE Sens announcements this morning and you will see where the real problem is coming for South Africa.
Sallies - the fluorspar miner - has confirmed they will be closing down its Buffalo operations putting 130 people out of work. Banks are either cutting jobs or at the very least not hiring.
Miners are seeing their base and precious metals get prices get slaughtered - why would they be hiring?
What is going to happen when these people come into the ranks of the unemployed?
Who is going to pay their bills? This is the problem that SA businesses are likely to face going forward? Unemployment is already an issue in South Africa, a recession, depression or "global slowdown" as the strategists like to call it will be the catastrophe our system didn't need.
If we are repossessing 6-7000 cars a month at the moment, then what is going to be the case when the unemployment figures start to bite?
I heard a figure today at lunch that 130 motor dealerships had closed up in the last few weeks. More jobs disappear from the system?
You walked through many of the shopping centres in the last few weeks? Look at the number of shops closing their doors and doing closing down sales...
Lets not get too excited about a little bit of a bounce in the stock markets... the pressure remains to the downside....
Tuesday, October 7, 2008
Savings and Asia
I had an interesting chat to one of these "global strategy" types recently.
Normally I take what these guys have to say, with a pinch of salt, but this guy did raise some interesting financial / economic factors that I thought might be interesting to throw into the mix.
First and foremost he seemed to buck the trend of economists / corporate investment strategists who are predicting that the US will bounce back sharply in 2009.
He has tracked a number of 'bubble' financial events like the gold boom, tech bubble etc over the course of history and his model 'seems' to have been able to give some idea of how the markets are likely to perform going forward.
(I say 'seems' because in my experience it is easy to make models and data fit a pattern and say SEE I TOLD YOU SO....)
According to his model we're likely to see a liquidity driven rally hit our markets shortly but we're in all likelihood going to see a flat to negative return from now until 2013 (specifically in first world American and European markets).
In terms of client portfolios though, they are beginning to look to Asia and more specifically Japan as the area where the recovery is likely to come from.
Their thinking is that with the very high natural savings rate of people living in the Asian countries, personal and corporate balance sheets are significantly less geared than their US and European counterparts, i.e. once the dust has settled on this financial crisis, there will be a lot of
liquidity on the sidelines waiting to be injected. Simply put - INVESTORS WILL HAVE THE FREE CASH TO BE ABLE TO PARTICIPATE IN THE ECONOMIC / STOCK MARKET RECOVERY....
and THAT dear reader is the lesson that we as South Africans need to take from recent financial events.
In places like Japan, Taiwan and Singapore (and even Australia to a lesser extent) - people are saving up to 40% of their salary each month. In South Africa, the figure is something ridiculous like 2%.
(And I know at least 2 middle class white families where that figure is a big fat 0% - every cent they earn is being channeled into repaying credit cards and debt).
At the end of the day, it is a mindset that we need to change - person by person. There cannot be such an enormous divide between one savings culture and another.
But that decision to start building a mindset of saving has to be taken by you. The South African government is not going to introduce an effective savings regime in the near term - therefore you need to take responsibility for it yourself.
As your personal savings column grows - so do the opportunities to take advantage of rebounds in the stock market or the property market or whatever.
You have given yourself the opportunity to participate.
Participating in Japan?
For those South Africans who like the Japan, your options are pretty limited in terms of direct participation. Apart from some regional unit trusts which you could investigate (check out www.equinox.co.za) your only other bet is the Deutsche Bank issued X-Tracker ETF product which we have touched on briefly before.
The share code for this instrument is DBXJP and basically it lets you buy the best performing shares in the Japanese index. It requires no active investment - the same as the local SATRIX40 for example. Chat to Deutsche Bank or an investment professional if you believe this is something you could be interested in.
Normally I take what these guys have to say, with a pinch of salt, but this guy did raise some interesting financial / economic factors that I thought might be interesting to throw into the mix.
First and foremost he seemed to buck the trend of economists / corporate investment strategists who are predicting that the US will bounce back sharply in 2009.
He has tracked a number of 'bubble' financial events like the gold boom, tech bubble etc over the course of history and his model 'seems' to have been able to give some idea of how the markets are likely to perform going forward.
(I say 'seems' because in my experience it is easy to make models and data fit a pattern and say SEE I TOLD YOU SO....)
According to his model we're likely to see a liquidity driven rally hit our markets shortly but we're in all likelihood going to see a flat to negative return from now until 2013 (specifically in first world American and European markets).
In terms of client portfolios though, they are beginning to look to Asia and more specifically Japan as the area where the recovery is likely to come from.
Their thinking is that with the very high natural savings rate of people living in the Asian countries, personal and corporate balance sheets are significantly less geared than their US and European counterparts, i.e. once the dust has settled on this financial crisis, there will be a lot of
liquidity on the sidelines waiting to be injected. Simply put - INVESTORS WILL HAVE THE FREE CASH TO BE ABLE TO PARTICIPATE IN THE ECONOMIC / STOCK MARKET RECOVERY....
and THAT dear reader is the lesson that we as South Africans need to take from recent financial events.
In places like Japan, Taiwan and Singapore (and even Australia to a lesser extent) - people are saving up to 40% of their salary each month. In South Africa, the figure is something ridiculous like 2%.
(And I know at least 2 middle class white families where that figure is a big fat 0% - every cent they earn is being channeled into repaying credit cards and debt).
At the end of the day, it is a mindset that we need to change - person by person. There cannot be such an enormous divide between one savings culture and another.
But that decision to start building a mindset of saving has to be taken by you. The South African government is not going to introduce an effective savings regime in the near term - therefore you need to take responsibility for it yourself.
As your personal savings column grows - so do the opportunities to take advantage of rebounds in the stock market or the property market or whatever.
You have given yourself the opportunity to participate.
Participating in Japan?
For those South Africans who like the Japan, your options are pretty limited in terms of direct participation. Apart from some regional unit trusts which you could investigate (check out www.equinox.co.za) your only other bet is the Deutsche Bank issued X-Tracker ETF product which we have touched on briefly before.
The share code for this instrument is DBXJP and basically it lets you buy the best performing shares in the Japanese index. It requires no active investment - the same as the local SATRIX40 for example. Chat to Deutsche Bank or an investment professional if you believe this is something you could be interested in.
Friday, October 3, 2008
Ouch!
I called that bloody Impala Platinum VERY wrong.
Lucky I had the stop loss or my trade would be worth nothing.
Ouch!
Lucky I had the stop loss or my trade would be worth nothing.
Ouch!
Wednesday, October 1, 2008
Stop losses
Stop losses - those bloody things we love to hate.
Today reminded me why we had them and why they need to be there even if we 'think' we know better.
As mentioned yesterday, I exited my Impala Platinum calls after they took a bit of a pasting in early morning trade. The moment I sold out, I had this 'sellers remorse' and was certain that the US bailout would all be approved and the market would turn around and fly.
Bailout occured
Market bounced... A bit
The next day market lost momentum
Impala started trading down even further
Nobody likes selling at a loss and feeling like they called it wrong. But we all do it and the sooner we get over ourselves and admit that we made a mistake the better it is for our trading sanity.
It might not feel like it at the time but stop losses really are there to help you preserve your capital. Find your system and stick to it.
Today reminded me why we had them and why they need to be there even if we 'think' we know better.
As mentioned yesterday, I exited my Impala Platinum calls after they took a bit of a pasting in early morning trade. The moment I sold out, I had this 'sellers remorse' and was certain that the US bailout would all be approved and the market would turn around and fly.
Bailout occured
Market bounced... A bit
The next day market lost momentum
Impala started trading down even further
Nobody likes selling at a loss and feeling like they called it wrong. But we all do it and the sooner we get over ourselves and admit that we made a mistake the better it is for our trading sanity.
It might not feel like it at the time but stop losses really are there to help you preserve your capital. Find your system and stick to it.
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