Save us Janet!

 

“As she says, inflation should remain low, the unemployment outlook in the US since July has improved. Obviously the Republicans want to make America great again, 13 million jobs added to the US economy since 2010 is not acceptable.”


 

To market to market to buy a fat pig. Janet Yellen said this, so that happened. It must be that she holds the secret sauce to everything. You know that part in The Hitchhiker’s Guide to the Galaxy where the answer “to life the universe and everything” is 42? Janet Yellen has the answer seemingly to everything, perhaps it really is 42. In the same way that apparently we are waiting for some direction in the state of the nation this evening. The answer to that is also 42. When Janet Yellen speaks, it is almost as if the little four year old Mr. Market has been handed their comfy blankey. Lean in a little, Janet Yellen will watch the data the same as all of us, the only difference is that unlike the ordinary market muggles that we are, she has the giant interest rate wand. We should rather refer to her as she who shouldn’t be named.

Yesterday afternoon our time, the prepared remarks of Janet Yellen started filtering through, ahead of the Fed chair’s Semiannual Monetary Policy Report to the Congress. You too can follow the link and read what she has to say to a bunch of politicians equally searching for answers. As she says, inflation should remain low, the unemployment outlook in the US since July has improved. Obviously the Republicans want to make America great again, 13 million jobs added to the US economy since 2010 is not acceptable to people who wear little animals on their head, that passes for hair. Sis, sorry, that is not nice. The New Hampshire primaries certainly show that the US is currently really polarised, left and right at extremes.

Here, a friend of Byron, Stu van der Veen manufactured a cartoon of who really has the ammo. The picture speaks for itself. Well done Stu and Byron, perhaps we can look for more of these in time.

Yellen went on to say that falling equity prices, higher borrowing costs for riskier borrowers (oil companies?), and a stronger Dollar are all less supportive of growth. Those are all her words, I mixed them up a little. Not quite like David Guetta, he would have done a far better job than me. I love however that one line, more eloquent than the Yogi Berra “It’s tough to make predictions, especially about the future”, in which Yellen simply says: “As is always the case, the economic outlook is uncertain.” She writes that she and the Fed are looking further, abroad, and that foreign economic developments “pose risks to US economic growth.” Pointing at Chinese data, which might not be reflecting a sharp slow down, a slowing nevertheless.

And then perhaps the two most important sentences of the prepared testimony: “It is important to note that even after this increase, the stance of monetary policy remains accommodative. The FOMC anticipates that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate.” Paging through my Fedspeak dictionary that simply means, we will raise rates as and when we need to, based on the incoming data. As you know, the future is uncertain. Ha-ha! Brilliant.

Of course I don’t have the thick Brooklyn accent, nor the Ph. D in Economics from Yale to deliver the speech, only the Fed chair Janet Yellen can do that. Most people in the world don’t, yet somehow we can critic the speech and the course of action as if it was so easy. As we often point out, it must be awesome to have Thanksgiving at her household, her husband, George Akerlof won the Nobel prize for Economics. Their son has a Ph. D in Economics from Harvard and teaches at the University of Warwick in Coventry, in the United Kingdom. They probably talk about the cat or the dog, football or baseball. Or perhaps even the quality of the turkey or pumpkin pie. Or not, perhaps it is all economics!

The upshot of a rates lower for longer delivery was initially a rally for markets across the globe, including the US. Stocks which opened much stronger, the rally faded somewhat, and then fizzled and petered out towards the end of trade in the US session. The Dow Jones Industrial Average eventually closed down 0.62 percent, the S&P 500 ended the session down 0.02 percent, whilst the nerds of NASDAQ were able to hang onto some of the gains, up just over one-third of a percent.

The other significant moves included the gold price moving to an eight month high, comfortably above the 1200 Dollar mark on the session. With the outlook globally being weak, oil prices sank to their lowest levels in three weeks. Crude oil trading was once again very volatile and all over the show. Goldman reckoned that the oil prices could go to 20 Dollars a barrel, yet at the same time there was some smug reporting that 5 out of their top 6 ideas had been abandoned. The one idea that has stayed is a basket of non commodity exporting companies against a basket of emerging market stocks. If you can work out that one, good luck to you!

On the local front, here in Jozi, the finest place on the highveld (you too over the Jukskei River my friends!), with the best football, cricket and rugby teams in the land (currently the Titans and Lions lead the Sunfoil series), stocks closed down 0.15 percent. Resources stunk up the joint, some monster moves lower from Anglo American, Amplats, Glencore, AngloGold Ashanti and Sasol, these stocks have been consistently at the top end of the winners recently, a little pull back.

Financials at the top end of the leaderboard, a strong rally from Deutsche Bank (looking to buy back some of their less risky bonds) sent the Eurocentric stocks higher, including Steinhoff and Mondi. Newly changed name, Rand Merchant Investment Holdings was top of the leaderboard, up nearly five percent on the day. The subtle change from Insurance to Investment in the name (neither the short name, nor the code changes) tells you a little about the future of the business. The company of course owns 25 percent apiece of both Discovery and MMI Holdings (Momentum and Metropolitan), as well as 83 percent of Outsurance, 76 percent of RMB Structured Insurance, 95 percent of RMI Investment Managers and 100 percent of Alpha Code. As per the Alpha Code website “AlphaCode is a club for next generation financial services entrepreneurs.” Looks interesting, our old pal Simon Dingle is there in some capacity!

Stocks across Asia welcome the Chinese markets back from the Lunar New Year with a whole lot of Monkey Business. Wiki tells me that the biggest monkey is a Mandrill, the smallest is a pygmy marmoset, which weighs a whopping 100 grams. About half of the “stuff” that you will consume for breakfast. I guess the ugliest monkey, that is open for interpretation. This is the worst start since 1994 after the lunar new year, the catch up has seen Hong Kong down four and one quarter of a percent currently.


 

Linkfest, lap it up

Josh Brown ask the good questionBear Markets Without Recessions – It’s a thing. The US market is unlikely to go into a recession this year. Our own economy is more likely to go into recession though. The biggest companies on the JSE are dominated by offshore earnings, so we need to be as/more concerned with what is happening in other parts of our global village than at home.

Talking of bear markets, here is a comparison of how our thinking changes due to our emotions switching from greed/ arrogance to fear – Bull Markets vs. Bear Markets. Here are two comparisons that I enjoyed:

Bull Markets: I’ll be greedy when others are fearful.
Bear Markets: I lied – I’m fearful when others are fearful.”

Bull Markets: That guy’s been calling for a crash for years – he’s an idiot.
Bear Markets: That guy just called the crash – he’s a genius.”

Given my background in economics I have always been of the view that legalising and then heavily taxing marijuana is the way to go – Legal marijuana is now a billion-dollar industry in Colorado. Over the last year the state of Colorado has made $135 million in taxes off marijuana sales, not to mention the money they have saved from not trying to fight the industry.


 

Home again, home again, jiggety-jog. There is some company related news on the far out there front, we will see to it that we work on that for tomorrow. Woolies, Tesla and Twitter, some good and some awful, no guesses there!


 

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

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