Money with a dash of Funny: Moody's downgrade

Showing posts with label Moody's downgrade. Show all posts

Monday, 12 June 2017

The NASDAQ takes a Whack

"Across the oceans and seas, it was a monster turnaround for tech stocks. And by monster, tech stocks were driven over by monster trucks after a great start. It was plain sailing and all good by midday, and then heavy selling by machines or algorithms or generally unsettled humans by the valuations (or all) led to a pretty heavy sell off of the high beta technology stocks."

To market to market to buy a fat pig Friday. So long ago. Next Monday of course will feel further away from the prior Jozi trading session, it is of course a long weekend! The dust settled on the "disastrous" UK election outcome for the incumbent, there were more than just a few embarrassing moments for the current British PM, Theresa May. This FT article suggests that she is on borrowed time, even though she intends serving out the rest of her term - Theresa May faces party showdown after disastrous election.

The suggestion by May is otherwise in the article, her political number is seemingly up. Her appointment of a pro European as her 2-IC suggests that Brexit hardness will be watered down. Ha-ha, further down in the article, the jostling for power suggested that the number one aim was to keep Jeremy Corbyn out of Downing Street. My recollection of Downing Street is that other than if you have the ability to get in through the steel gates, you can't get in (If you know what I mean). It is heavily guarded.

Corbyn is actually quite cool in terms of his choices, vegetarian, pro-peace and anti-war, he enjoys minimalism and rides bikes (I think he owns 2, an excess) for transport. Perhaps he really walks the walk. In terms of policies, I couldn't be more in disagreement with having government control of everything, something Labour believes in. I believe in individuals. Always. We are hardcoded to both care for one-another at a family level and be selfish, to make their lives better than your own. That requires intensive hustling. Capitalism works better than any other option, open trading and markets make more people better off across both the seller and buyer. Not the opposite, where you hold onto your old theories of the world.

Anyhows, British politics aside, markets here in Jozi ended comfortably green into the weekend. Perhaps they knew something about the Boks and Bafana that we didn't. A weaker Pound Sterling meant that BATS and Hammerson were at the bottom of the leaderboards, Amplats and Shoprite were at the top. The Jozi all share index added exactly half a percent, industrials up half a percent, Naspers pulling BATS ahead to close the market higher. Gold and Platinum stocks were the real winners on the day, reality setting in that we are moments away from across the board non-investment grade. This came to the fore post the market close, see here - Moody's downgrades SA one notch, assigns negative outlook. Whether you like it or not, capital dictates terms when you need to borrow, not the other way around.

The points that Moody's make are all well known to us, erosion of institutional strength, lower growth expectations and erosion of fiscal strength, as a result of lower growth and lower tax receipts. Question is, what can be done to arrest us from this state? The point that we find ourselves currently? Where do we go from here? For starters, when there is a trajectory down, you need to level off at a point to convince the people who are lending you money (let us not forget that), that you are reliable and trustworthy and that things are still on track. Confidence is the best kind of stimulus. That seems sorely lacking at this point in time, you can see it all around you. If that changes, i.e. confidence returns, there may well be a marked pickup in all things financial.

Tell that to Mr. Market. Who does not really care! The Rand is the best performing currency out of the developing market ones that Bloomberg covers, this I saw on my timeline this morning. And by timeline, I mean Twitter, the only truly customisable news application. Fake news or not, individuals must always think before they tweet, or take everything verbatim. Talking of which, have you ever held something to be completely true and then been taken as a sucker for fake news? Or is it hype and caution first and then ask questions later?

Across the oceans and seas, it was a monster turnaround for tech stocks. And by monster, tech stocks were driven over by monster trucks after a great start. It was plain sailing and all good by midday, and then heavy selling by machines or algorithms or generally unsettled humans by the valuations (or all) led to a pretty heavy sell off of the high beta technology stocks. The NASDAQ lost nearly 300 points from 11am to 2.50pm, some stocks turned tail over ten percent in a few hours. Why? Well, for some time now there has been talk of the new and inviting technology stocks, as well as some of the old favourites. New acronyms, "stocks are missing the political risk" they say. Year to date the NASDAQ is up over 15 percent. And earnings have definitely driven stock prices higher.

All the big names took a beating, Apple, Alphabet (Google), Amazon, Tesla, NVIDIA, Facebook, Microsoft, Alibaba, it was unrelenting. In fact, of the top 20 technology stocks by market capitalisation, only one was higher, and that was IBM. No surprises there, bearing in mind that the valuations are lowest for the older technology company. In fact, if you sort by the top 80 technology sector stocks by market capitalisation, there was only one other stock in the green. Mobileye is the only other stock up there. And that is only as a result of the company being subject to a buyout from Intel. So it is more currency related (they, Mobileye, are based in Israel).

80 top technology shares and a company founded in 1911 is the only one out. Year to date? IBM is down over seven percent. And now my friends, you know why IBM was the only stock up amongst the 80 biggest technology stocks. By the end of the session, tech stocks and nerds lay licking their wounds, chipped screen, cracked Oculus and fried hard-drives, down 1.8 percent for the NASDAQ.

By complete contrast, the Dow Jones Industrial average added over four-tenths of a percent, energy stocks getting a huge lift! The broader market was somewhere in-between, down nearly one-tenth of a percent by the close. Financials and healthcare stocks were also winners on the day. Regardless of what you think about politics in DC, it seems that the market will only care if worst case scenario transpires. I saw a poll that suggested that "investors" still expect tax reform to get done.

Linkfest, lap it up

Today marks 200 years since the bicycle has been around - The bike at 200: World's craziest rides, then and now. There are some interesting adaptations of the two wheels.

Have you seen the headlines recently talking about how US households now have more debt than in 2008? Rather misleading headlines which can be considered "click bait". The truth is that the US consumer is in a much healthier position now than they were in 2008 - The Myth of the Indebted American.

Research shows that to be happier it is as "simple" as living closer to work - The Problem With the Relentless Pursuit of Happiness.

Home again, home again, jiggety-jog. Stocks across Asia are all lower, US futures are lower, including more tech pain a little later. I am guessing that the high beta stocks could be under attack for a while. We should start lower here ....

Sent to you by Sasha, Byron and Michael on behalf of team Vestact.

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Friday, 22 June 2012

Moody's bank blues

"It is easy to feel beat up after a day of selling like that, particularly when the overall mood was starting to improve. Policy response is going to be key from here on out for the rest of the year. Germany needs to be committed to being more proactive, in a way the cracks starting to appear in their economic armour might ironically see the action more forthcoming."

Jozi, Jozi. 26^o 12' 16" S, 28^o 2' 44" E. The bad news finally came and the sellers were not afraid to act. Whilst Spanish bond yields continued to fall from the high at the beginning of the week, the Spanish bond auction during the day went well. Sort of I guess, better than expectations, but at the same time the Spanish are paying a Euro era record for their five year debt, just above six percent. The demand was quite high though, the suggestion is that if Europe is "going to get the job done", then of course these yields are attractive in the medium term. The other Spanish news on the agenda was of course an independent bank audit which suggested that Spanish banks need as much as 62 billion Euros to shore up reserves to the level that they ought to be. That news release was a pretty late one in our time zone, but it was coming nevertheless.

But the news that was impacting on us the most was quite simply another pretty dull looking HSBC Flash PMI read which showed that Chinese manufacturing was again under pressure. That was the news that moved the needle on commodity prices, with oil falling to an 18 month low, this is to a level when Kaddafi (Qaddafi?) and Mubarak were still in control in their respective Northern African countries. The one is dead and the other one is technically dead. All commodity prices also took heat not only on the Chinese news, but filtering through from the prior session and a lack of extra stimulus had a negative impact on precious metal prices. Gold bugs were, you guessed it, upset with Ben Bernanke once again. WHAT? No more stimulus? What is that about? As such the broader commodities complex sank, Sasol was hurt the most, the stock ended down 4.4 percent on the day. The broader resources ten index closed down 2.36 percent, sending the Jozi all share index 0.73 percent off, or 254 points to 34534.

Byron's beats tries to explain that you should rather be grateful for the Chinese growth story, because it has made us all better off.

But these production dates have not happened. In fact they have been surpassed. The mine started production 5 months ahead of schedule and contributed 1.5 million tons to Kumba's full year production of 41 million tons at the end of their year December 2011. They expect to produce 5 million tons at the mine this year.

As shareholders of Kumba we are very pleased with this but there is a bigger story here. In 2007 Kumba had revenues of R8.7bn and profits of R2.1bn. This was from 31 thousand tons of production. Last year Kumba Made R17bn in profits from R48.5bn in revenues and paid R9.7bn in taxes. Where am I going with this? Through efficiency and a bucket load of demand from China, Kumba have more than nationalised 2007 revenues. Our government now extracts nearly 5 times Kumba's 2007 profits. If Kumba had been nationalised in 2007 I highly doubt government would be getting close to what they make from the private company right now.

Other than our receiver of revenue, Kumba shareholders and employees have also benefitted handsomely. Massive dividends and generous bonuses have been paid and reinvested into our economy. There are two points I am trying to make here. One, allowing a miner to operate efficiently will create more benefit in the long run for everyone. This kind of thing is not happening in South Africa enough at all and it is situation that needs to be dealt with immediately. Miners are struggling and are faced with many government related headwinds.

My second point is that those of you who believe the Chinese are selfish and are purely focused on extorting Africa should reassess your opinion of them. Yes they may have their own best interests at heart but without their growth our economy would be nowhere near where it is today and we have all benefitted indirectly. In fact the entire globe has benefitted. Without the Asian growth story we would be living in a very different world right now, that is for certain.

New York, New York. 40^o 43' 0" N, 74^o 0' 0" W. When the market participants caught wind of a pending across the board ratings downgrade for all the major banking stocks across the globe, the selling activity accelerated. Moody's stepped in after hours, the longest day of the year in the Northern Hemisphere saw them make the following release afterhours: Moody's downgrades firms with global capital markets operations. I have already seen several of the banks themselves object to this, some saying that this is almost reactionary. There are some implications with short term trading between the banks, specific to derivatives, as far as I could understand it from the FT, but a lot of banks say that they have done a lot since 2008 to deleverage and shore up capital. So, is this a case of the ratings agencies telling everyone the obvious? Perhaps. But we will still maintain around here that these big banks are not where we want our clients funds invested, the capital requirements required by new regulation and the handcuffs placed on past lucrative business segments are going to impact future profitability. Thanks Moody's, we knew this already.

Markets got crushed, it was one way traffic, the markets graphic was, well ..... graphic for the bulls. The Dow Jones closed down nearly two percent to 12573 points, the broader market S&P 500 lost two and a quarter percent on the day to 1325 points, whilst the tech stocks sold off one fifth of a percent worse than the broader market. Materials and energy stocks, like they were here, were sold off heavily, over 4 percent lower for the oil and gas producers. Yech. Exxon Mobil, Chevron, ConocoPhillips, and even services company Schlumberger (one of my favourites) all sank between three and four and a half percent. And if that was not enough for you to feel a little beaten up, well then, Proctor & Gamble lowered their guidance for the fourth quarter, citing Dollar strength and slower growth in developed markets. They are not the only company to do this is recent days, McDonald's are taking strain in some of their geographies, ditto Pepsico. Soft cabbage patch here Sandton dolls, that is where we are right now.

It is easy to feel beat up after a day of selling like that, particularly when the overall mood was starting to improve. Policy response is going to be key from here on out for the rest of the year. Germany needs to be committed to being more proactive, in a way the cracks starting to appear in their economic armour might ironically see the action more forthcoming. As far as I understand it Angela Merkel is going to be attending the quarter final in Poland tonight, in the mother of all sovereign debt clashes, with the Germans taking on the Greeks. Last night, in case you missed it (like Ronaldo did on a few occasions) the Portuguese beat the Czechs one zip, with the one of the worlds best scoring a stunner. I have Mario Gomez in tonight, with the Germans edging the Greeks, any other results would be a huge shock. The G20 heads have already met, there was not too much fanfare this time around, the G20 Leaders Declaration looks like a generic document with tweaks. Commitment to this, commitment to that, working harder on this. Yeah, thanks for the politics everybody.

Currencies and commodities corner. Dr. Copper is lower, at the lowest level I have seen in a while, 327 US cents per pound, the gold price is also lower at 1565 Dollars per fine ounce, the platinum price is also lower at 1430 Dollars per fine ounce. The oil price is about the only good news for consumers here, down at 77.84 Dollars per barrel for Nymex WTI, whilst Brent Crude oil trades at 88.78 Dollars per barrel. The Rand is getting a little tap on this risk off day today, 8.37 to the US Dollar, 13.07 to the Pound Sterling and 10.54 to the Euro. We are selling off here again today, but it has been a few good weeks.

Parting shot. Awesome, I found these graphs again, they were Economist graphs published which takes the last two thousand years worth of economic activity globally and what the majors contributed at a specific time. As the Economist blog points out, this data was complied by economist Angus Maddison who died a couple of years ago. This first graph is found via the Wiki entry for Maddison:

And then on to the starting point, the Economist blog entry titled: More 2,000 years in a single graphic. I quite like that one line there, lower, with the Maddison graphs: "Among the points it presents is that in the first decade of the 21st century, the population of the world produced more economic output than in the first 19 centuries of the common era combined."

So, think about it, the last ten years have produced more economic output than the years 0 to 1900. Yeah, you are right, things were so much better in the old days. No matter what you might, or might not think about the future of our species, I suspect continued progress will continue to see output globally rise in the coming years. And with that prosperity will grow, and there will be fewer pariah states. How many of those can you count? I guess also it depends who you are. Current Pariah states are fewer than they were in the past. I look forward to the days when North Korea finally emerges from that category. Do yourself a favour, look at the last graph in that Economist blog and ask the question, do you think that a more spread global economic pie is better or worse for all of us? The simple answer is yes, it is better.

Sasha Naryshkine and Byron Lotter

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