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.

Still looking grim

I am not one of those perma-bears in the Marc Faber mould, but I have been short for the last few weeks (often at some cost to myself).... I'm sure I keep forgetting the mantra - THE TREND IS YOUR FRIEND!!!!!!!

In fact I am actually a believer that the worst is behind us, but the structural problems and the volatility still need to be dealt with and markets have simply run too far too fast.

Anyway, finally into a decent short position on the JSE Top 40 (J200) which looks like it still has some legs.

Reasons that I reckon you can stay short:
- Two bombs in Pakistan this weekend are likely to keep the whole area alert for more tension
- More US troop losses in Afghanistan - the US is caught between a rock and a hard place between Iraq, Iran and having to commit resources to Afghanistan which is becoming a real problem
- On the ALSI on Friday there was a decent downward move and with resources still under the whip, there could be more downside to come - ask yourself why stocks should move up now?

Faber
Speaking of Faber he was interviewed by Bloomberg recently and this is what he had to say:

“You cannot postpone the hour of truth forever,” adding “The next stage is for total breakdown of the financial system and for an economic and financial crisis that will bankrupt governments.”

Strategy wise he continued to beat the drum of buying Asian stocks and gold while selling down the US Dollar and the Pound - I can agree on the pound, I'm less sure on the dollar although I think in time it will be replaced as the global fiat currency.

Playing into this strategy I am still a buyer of the DBXJP and DBXWD exchange traded funds (ETF) and considering using the spreads account to short the pound... the question is what do you short it against? The Euro...? Not so sure.

The Privateer
There is an excellent piece in the latest copy of The Privateer talking about protectionism, trade tariffs, Obama and the Chinese.

Summing it up are these two paragraphs - sound familiar?:

Any student of the depression of the 1930s will be familiar with the “beggar thy neighbour” policies which did as much if not more than any other piece of economic insanity in turning a stock market crash into a decade-long global depression. The infamous “Smoot-Hawley” tariff act was signed into law by President Hoover on June 17, 1930. It did notbring US tariffs into being, what it did was to lift tariffs on 20,000 imported items to record levels to “protect” American business.

Eight months before the act was signed in October 1929, US and world stock markets had crashed. Six weeks before the act was signed, US stock markets had reached what proved to be the top of their post-crash rally. Within weeks of the passage of the Smoot-Hawley act, trade barriers in the form of tariffs and quotas went up across the world.

Short and damn proud of it

I won't lie, I have been seeing my ass trying to short this market.

Having said that it looks like I am in a short on the JSE Top40 (J200) which might have some legs.

I bailed on my AngloGold long position this morning as my stop of R320 was broken and so far it looks like the right decision with ANG looking to re-test the R300 mark.

I'm reading an excellent piece in The Privateer, which I'll post a piece from once I've absorbed it all but maybe if I can throw out some motivation for being short on the Top40 in the short-term.

A) Since the third of March 2009, J200 has rallied from 16400 to 23350 - the rate of appreciation was unsustainable

B) The South African Rand has strengthened heavily in the last few weeks as the US Dollar has weakened. If the appreciation is sustained or continues further then invariably you are going to have some earnings downgrades on the resource counters as the brokers adjust their forecasts.

C) The biggest short-term driver - there is a mountain of paper about to be issued by the likes of RBS in the coming weeks. There has to be questions asked about whether or not the market can adjust for this influx

D) The signs of economic powerhouses adopting protectionist policies are on the up and the decision by Obama to up the tariffs on the tyres imported from China is setting the wrong tone. Unemployment is rising, money in pocket decreasing ... and now you want the consumers to fork out higher prices for the imported goods? Protectionist policies will hurt export based economies hard.

E) Hows this for an interesting stat - for the month of August 2009 there are US$31 of insider stock sales for every US$1 of buys - can you say NO CONFIDENCE?

I am certainly not one of those Uber-Bears predicting the end of the world as we know it, but from every vantage point it would appear things have run too far, too fast. There might be a bit of window-dressing at the end of the September quarter but the enthusiasm to make a real assault on the Dow 10000 mark doesn't seem to be there.

We live in interesting times!

Shorts, warrants and something in between

Do you ever get the sense that you're at the end of a grand ponzi scheme and suddenly you are the last guy holding out waiting for your money to come in?

I'm starting to get that creepy feeling and I started looking around for a bit of downside protection today. Started shifting away from a lot of my small-cap stocks into either cash or puts today.

Without question my "feelings" are very non-technical and would be thrown out the door by most traders - but having watched the market in the last few days (specifically the US), one can't help but get the sense that the market is running out of steam.

Thought this made for interesting reading - this is the volume traded on Put warrant TOPSBV which is a warrant issued by Standard Bank on the Top40.

Monday - 14 September - 13.5m warrants traded
Tuesday - 15 September - 1.3m warrants traded
Wednesday - 16 September - 6.4m warrants traded
Thursday - 17 September - 7.7m warrants traded

There is a lot of action around this warrant and I get the sense that people are starting to buy some protection against downside risk.

Looking at the US markets this evening I see that they seem to be bumping their heads around 9800 level on the Dow and people have stopped to ask themselves - what next?

I still have a long position on Anglo Gold which seems to be doing ok although I am watching it quite closely. If it doesn't kick on again tomorrow I might be tempted to exit it although I wouldn't be surprised to see gold move up going into the weekend. Looking at the ADR (AU:US) its off just under 2% but the JSE listed counter has not been helped by the dollar being so weak - a little slip in the rand and the gold shares could fly.

Warrants / spreads / products etc
An observation that I thought could be the opening for an interesting debate around linear and de-linear trading products in a market such as these.

I haven't traded warrants in ages, preferring to instead use things like the spread trading platforms offered by our favourite bucketshop. However I was finding myself getting stopped out at losses on that particular platform with some regularity even if the overall trend I was looking at was right.

While there has been this big move toward straight line products like spreads, knock-outs and binary options there is still an important place for a product such as warrants which can absorb some sideways volatilty (without hopefully being strangled by time decay).

The importance of picking the right product to work alongside your trade is often as important as picking the right trade - it means sweet bugger all if you can't execute on the right strategy.

Any ideas?

Does anybody know of any offshore Exchange Traded Funds (ETFs) that you can buy through an online broker and pay for on your credit card?

As a South African our locally-listed ETF options are relatively limited. It would be nice to access other markets like Brazil and China.

At the moment locally I have the following ETF's in my portfolio:

The Deutsche Bank X-Trackers - DBX Japan (DBXJP), DBX World MSCI Index (DBXWD) and DBX MSCI US (DBXUS) as well as the New Gold ETF (GLD) and the local government bond offering from investec ZSHARES GOVI (ZGOVI).

Obviously it would be nice to expand the universe a bit and be able to find ETF's that give exposure to other regions as well.

Zecco.com
Has anyone locally had a look at this Zecco.com offering?

It looks quite interesting in terms of a low-cost investment and trading platform. Would be nice to be able to use a credit card to transfer funds into an account though.

Thoughts on which online brokers allow you to transfer funds via your credit card?