Market FOMO

 

“In the same way that markets sell for reasons that seem strange, they also go up for reasons that seem strange, and market FOMO is as real as having an edge connection with the best sunset ever, and hungry for Instagram likes.”


 

To market to market to buy a fat pig We were not fireballs, rather the market was to borrow some awesome lyrics from Pitbull. OK, I know you are all purists, and like most music lovers they only ever think that their music is the one that is worth listening to. Whether they listen to Otis Redding, Willie Nelson or Johnny Cash, Michael Jackson, Madonna or U2, or whether you can listen to all of it and admire it. Modern music never is as good as past music, yet in practice the artists are quite possibly better and better as each generation passes. In the same way you can’t compare Tendulkar to Bradman (although Bradman did), Messi to Maradona or Roger Federer to Bjorn Borg.

Equally you cannot and should NEVER look at a graph and presume that the market is going to act like X as a result of the graph looking like A. Remember that graph of the 1929 crash and the similarities it showed to a period not so long ago? This is not a “what happened next”, Discovery series in which we have to science it (I dropped the Matt Damon “Mars” expletive). Markets were on fire yesterday, stocks across the globe rallied sharply. I was starting to see headlines suggest, “has the worst passed” or “stocks in recovery mode”.

In the same way that markets sell for reasons that seem strange, they also go up for reasons that seem strange, and market FOMO (Fear Of Missing Out, for our readers with more life experience) is as real as having an edge connection with the best sunset ever, and hungry for Instagram likes. Where is my sunset picture, why can’t you post it? And you can’t even tell the adoring fans that you have an Edge connection as you have …… an Edge connection. Modern day rich people problems.

There was only one story here locally and that was the announcement about the worst kept “secret” in town. The news that Barclays Plc. was looking to sell (some of) their 62.3 percent stake in Barclays Africa was something that most people were expecting, at least the small circles that I mix in. Over a period of two to three years is what the new management team said, Jes Staley is an ex JP Morgan investment banker, old time pal of Jamie Dimon.

The chairman of Barclays Plc. John McFarlane is referred to as Mac the Knife, thanks to his cost cutting measures. Barclays Plc. shareholders have seen the stock in Pound terms down nearly 50 percent over the last five years. Including an 8 percent drop yesterday and a horrible six months (down 37 percent), as well as a volatility trading suspension, triggered by being down over 11 percent at one point yesterday. They, the Barclays Plc. shareholders are demanding action!

Barclays Plc. with no natural buyer of what is a significant Rand value (PIC have indicated they may be keen for some of the stake), have decided to sell the stake through the market. There were many different views on what they (Barclays Plc.) should or shouldn’t do, I wrote down a couple of key points to put it into perspective.

1) If Barclays Plc. were all of the normal daily traded volume (1.9 million shares), it would take them 277 trading days to sell their shares. They obviously can’t be all of the daily trade, even if they are heavily active, they wouldn’t even sell half over two years. By my crude estimation.

2) The initial stake was bought in the second half of 2005 at 690 pence (82.50 ZAR at an exchange rate of 11.95 to the Pound, back then) and the current price is 640 pence at the exchange rate this morning, over a decade later.

3) Don’t feel sorry for Barclays Plc., since the beginning of 2006 they have had dividends of 74.84 Rand a share, even at the exchange rate today that equals 344 pence, which makes the bad taste of their selling at a lower price a little more palatable.

4) Barclays Plc. are perhaps going to keep a slice of Barclays Africa, a smaller and non controlling stake in which they wouldn’t be responsible for 100 percent of the capital commitments of the bank, thus relieving some of their home pressures.

5) This may seem like a big divestment from South Africa, and possibly is in the democratic South Africa the biggest, it was far worse in the mid eighties. I found some “data”. In 1985 we saw 9.2 billion Rand divestment from South Africa, our economy was roughly 67 billion Dollars, the exchange rate (there were 2, that is how broken it was) was 2.40 Rand to the Dollar, the “financial Rand” was between 20 and 40 percent lower than that. Doing back of the matchbox calculations at the mid point of the “financial Rand”, the divestment as a percentage of GDP in 1985 was around 5 percent. This is for a full divestment is 4.68 billion Dollars relative to an economy that is around 350 billion Dollars, over a percent. And not all in one go. The 80’s divestment was ongoing too and far bigger.

After the dust settled, Barclays Africa stock ended the day up a couple of percent after having been down as much as 6 percent at the beginning of trade and up five percent less than two hours later.

Markets locally had a cracking day, stocks closed up 1.8 percent to see the Jozi all share index finish above 50 thousand points, a rare sight this year indeed. Less rare than the mythical national animals of Wales, Scotland, North Korea and even Mauritius (their one did exist once upon a time). Financials were the big winners on the day, perhaps a realisation that the cheapness is just too much to ignore. The stocks certainly look at about the cheapest I have seen them in over half a decade, from a fundamentals point of view. Globally however this is the case and some European and UK banks are trading a long, long way below book value. Meaning that perhaps the market is expecting dilution via capital raises, or expecting further asset write downs. Either way, the market is certainly telling you something about banks and financials.

Across the seas and far away (from here, not the financial capital of the world), stocks in New York, New York rallied sharply. And by sharply I mean up over two percent, in the case of the nerds of NASDAQ up 2.89 percent. Why? An ISM manufacturing survey allayed some of the recessionary fears that Mr. Market has had lately. And as such a broad based rally sent the broader S&P 500 up 2.39 percent. I used the word or an extension of the word broad twice there. Apologies. The Dow Jones Industrial Average rallied just over two percent, these are the best levels since the beginning of the first week of January. Markets in the US, or at least the S&P 500, is only down 3.21 percent year to date. Oil, the prices thereof, rallied sharply and the correlation between the two, which still leads me to scratch my head hard, continues.


 

Linkfest, lap it up

George Airport is set to run on solar generated power. The Airport may be a small one but it a step in the right direction – South Africa just opened the continent’s first solar-powered airport

The title of the post sums up our job at VestactYou Do Not Get Paid for Knowing Yesterday’s News!. Jeff Miller makes some good points about the current assumptions being reflected in the likes of the Apple share price, oil price and global stocks in general.

What is the best way to learn how the body reacts to long term exposure to zero gravity and living in space? Take identical twins, send one to space for a year and keep the other on earth and then monitor both of them – How Scott Kelly’s year in space may have changed his body. Things like how your immune system changes due to living in a contained space for a year is some of the data that is likely to be learnt from the experiment. All the data will go toward the next goal, sending man to Mars.


 

Home again, home again, jiggety-jog. Stocks across to where the sun rises, the East, are also rallying this morning. Japanese markets are up around four and one-third of a percent, Shanghai is up two and a quarter and in Hong Kong stocks are over two and a half percent better. We should expect a better start here today, notwithstanding the “stuff” going on in the background.


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

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