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The Fed set sail

January 4, 2013 in Uncategorized

“Now that might sound as ever a little cryptic, Fedspeak, but that means inside of the committee there are a few dissenters. Or people asking questions about the current path. But with the single vote against, the same fellow, Jeffrey M. Lacker, he may be starting to sway the others. I suspect that at this juncture this is a very good conversation to be having. Because that probably means things are improving, they well might be better in the coming months than most folks anticipated. Although the struggles in American politics continues to be a bigger problem.”


To market, to market to buy a fat pig. There was pleasing employment data in the form of ADP employment data which is always the precursor, the tantalizing entree if you will, to the US non-farm payrolls number. A better than anticipated number gave the market some forward momentum and boosted hopes of today’s number being better. Of course there is a certain seasonality to these numbers, hiring for the holiday period. You can as ever read the full report and decide for yourself whether or not the jobs market is moving in the right direction: ADP National Employment Report December 2012. Now ADP has been wrong for just a little bit in mirroring the Labor Departments number, but they have changed their methodology, ADP, as far as I understand it. The guesstimate for today is somewhere around 150 thousand additional jobs for the month of December.

Jozi, Jozi 26o 12′ 16″ S, 28o 2′ 44″ E Stocks registered another day of gains, moving higher after lunch. Lunch here consisted of nuts, bananas and dried fruit, very apelike of me really. I must have been feeling in touch with my ancient ancestors, luckily I did not feel like eating ants, or any other insects. Not ant eating were the indices, they were more termite mound piling, the all share added nearly another half a percent to close well above 40 thousand again. Again, I want to stress that this might be a big number for some, but around here we stress that we care more about the companies that we own than the levels of the index. But, it is pleasing to note that confidence seems to be returning somewhat.

A journalist friend asked me two questions: “What is so significant about the All-Share touching the 40,000 mark?
What are the long term, negative and positive effects of the US Fiscal Cliff deal on our market?”
I thought they were decent enough to ask, and I thought that I would share my answers to him:

    I suspect that there is a certain amount of relief that a last minute deal was struck, but the worrying signs is that like in the debt ceiling negotiations in 2011, the timeline is almost breached each time.

    We knew about this for the better part of a year, but the political landscape remains deadlocked in Washington DC.

    A number is a just exactly that. Just a number is that 40 thousand I say. I suspect unless your time frames are extremely short and you deal with nonsense (in my opinion) such as resistance levels then I fear it means nothing. Ultimately the levels of global indices are determined by the mood in the US and where you next think the S&P is going. On a historical basis the index (the S&P 500) is relatively cheap, some sunny outlooks on Wall Street suggest that when the confidence returns the rally could be comfortably on. I would say that we should continue to watch US employment data closely, the trend has been in the right direction. We should also monitor closely the US housing recovery which seem over half a year old and a definite trend intact, at least to me.

    I suspect that all that they have done for now is make progress on tax reforms, at least put a dent in it. But dealing with the more serious issues, that has been delayed a little. And (it) needed to be, because whilst there is a recovery in progress, it is much too fragile to risk the spending cuts and tax hikes.

    So, for now we can breathe easy, but make no mistake, there are still many bitter battles to be fought on Capitol Hill.

    As investors one should view this as opportunities, when they present themselves, the selling on concerns of X or Y or Z. As a trader, phew, that makes it way too tough to call.


New York, New York. 40o 43′ 0″ N, 74o 0′ 0″ W Stocks sank after the Fed minutes release of the December meeting showed that not everyone was in agreement with the current bond buying program. You can get an insight into the behind the scenes action if you want, follow the link: Minutes of the Federal Open Market Committee, December 11–12, 2012. In the paragraph titled “Options for the Continuation of Asset Purchases” there is a clear indication that not everyone is completely convinced after having done a review. This little piece sums it up quite nicely: “In their discussion of the staff presentation, some participants asked about the possible consequences of the alternative purchase programs for the expected path of Federal Reserve remittances to the Treasury Department, and a few indicated the need for additional consideration of the implications of such purchases for the eventual normalization of the stance of monetary policy and the size and composition of the Federal Reserve’s balance sheet.”

Now that might sound as ever a little cryptic, Fedspeak, but that means inside of the committee there are a few dissenters. Or people asking questions about the current path. But with the single vote against, the same fellow, Jeffrey M. Lacker, he may be starting to sway the others. I suspect that at this juncture this is a very good conversation to be having. Because that probably means things are improving, they well might be better in the coming months than most folks anticipated. Although the struggles in American politics continues to be a bigger problem. I had to have another laugh as Dr. Wrong Doom, also known as Nouriel Roubini suggested yesterday that there would be another crisis in Washington DC. He is rather stating the obvious, a lot still needs to be done and the fight around entitlements will come to a fore soon. It has to. I would like to think that an improving US economy, albeit at a slower rate would probably just do enough for now.

Have you heard the whole idea of avoiding the debt ceiling debate? This is strange, but legal, and involves one platinum coin worth one trillion Dollars. Joseph Weisenthal (who has a poor view of the Nouriel, like me), has been talking about this idea for 18 months or so: Suddenly, Lots Of Influential People Are Talking About The Trillion Dollar Coin Idea To Save. Now of course Tim Geithner could make this his last act, but is unlikely to do it. But the fact that he could, that is just strange. Perhaps the lawmakers of yesteryear had more than a little insight into human nature and pigheadedness of politicians.

Today is that dreaded non-farm payrolls number. I say dreaded because for me it is. The amount of emphasis placed on one number is in my opinion way too much. For instance, why don’t people care more about Chinese retail sales and which direction that is heading in? I suspect that may be a number to watch in the coming years, but until then, NFP it is. More jobs created in the US = greater economic activity in the world’s biggest economy. Which means that should be good for stocks globally, right? The greater the spending power of the US as a collective, that means good things for manufacturing companies globally. So, until the Chinese spend more collectively than the Americans, the importance of this number is probably justified. And I must just get over myself and get into the same excited mindset as all the others around.


Digest this linkfest.

Of course when I came across this story, via the BusinessInsider you would have appreciated that I would have almost been numb with excitement. The link is to a brief piece at the CME website, written originally at The Schork Report, titled: Venezuela: A Squandered Opportunity. Treating the national oil company as your personal piggy bank, but more importantly for the people, the missed opportunity of at least 100 billion Dollars in revenue is just dumb. Thanks for nothing Hugo Chavez. As I have often said, nationalisation does very little for the masses, very little. There are many more examples of failed state companies than successes. All state companies do are provide cushy overpaid jobs with great inefficiencies. Call me a capitalist pig, I prefer libertarian. A vanishing breed I suspect.


If you ever wondered why we are not big fans of the big banks, then hopefully this article will go a long way to putting that argument forward. One of the key elements when making an investment in a company is to be able to understand as fully as you can as to what it is that the company does. The piece is via one of the aggregators that I follow and the headline pretty much gives it away: What’s Inside America’s Banks? If most folks struggle, what price is there in it for the retail investors? I suspect that the “smart” money will tend to trade these financial and banking companies in the cycles. You have heard the whole argument: Privatizing profits and socializing losses. Someone needs to be blamed for human stupidity, and if that is an institution, all the better than singling out specific humans with names.


I thought that this was perhaps the most interesting thing that I saw yesterday. Buffett Utility Buys $2.5 Billion SunPower Solar Projects. I am pretty sure that the Oracle of Omaha would have taken a serious look at this, or am I mistaken? The part that made me laugh, because there is a Twitter account that I used to follow (uuummmm, excuse my English) called (another word for excrement) Analysts Say, and this little quote nailed it: “The sale gives panel-maker SunPower “a sizable captive demand channel for its modules which should help ensure the company maintains healthy factory utilization levels even if the oversupply conditions in the industry take longer than expected to be resolved” Hah-hah! Awesome. Try and make up one of your own.


Crow’s nest. Stocks are mixed here in Jozi, the Rand is weaker and commodity prices are lower as the Fed signals a change of sorts. No more QE beyond this year. And that means that the gold price is taking a bit of a smear. Gold stocks are down around two and a half percent this morning. Eish.


Sasha Naryshkine

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