Tag: Trendlines

The Confidential Report – December 2019


America

The strong upside break of the S&P500 index above its previous cyclical high at 3025 shows that the potential for a “triple top” formation is now behind us – together with October month. Consider the chart:

S&P500 Index January 2018 to December 2019 – Chart by ShareFriend Pro (Click to Enlarge Image)

There had been some concerns among investors that the rising triple top (with tops in Jan 2018, September 2018 and July 2019 shown above with the red circles) would predicate a new bear trend potentially from October 2019. October is traditionally a scary month for investors following the collapses of 1929 and 1987.

We never had that opinion. We always thought that the underlying power of the booming US economy would drive share prices higher in a continuation of the great bull market which began in March 2009. The S&P has powered ahead and is more than 4% above the last of the tops in a strong new upward trend. On average, the S&P has gained about 1,7% in December month. While markets tend to have lower volumes because of the holiday season, once October is past there is usually a relief rally through to January of the new year. Read More

The Confidential Report – November 2019


America

Whenever considering a chart of the S&P500, it is important to put it into its historical context. The situation that we are in now is the result of an extended history that actually goes back to 1929 and before. More recently, in the past ten years, the S&P has been in the process of the longest bull trend since its inception. Experts are confused by this unusually long bull trend because they have not studied the history of how the S&P arrived at this point. In the chart below you can see that the bull trend is marked by a clear upward channel going back to 2009:

S&P500 Index November 2008 to November 2019 – Chart by ShareFriend Pro (Click to Enlarge Image)

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Omnia Breaks Up


On 12th July, 2019, we carried an article about Omnia. The essence of that article was that Omnia was a large blue chip chemicals company which had dominant positions  in agriculture, chemicals and explosives throughout Africa.

This company took a significant risk by buying two companies, Umongo Petroleum and Oro Agri for around R2bn – which over-extended its balance sheet, loading it with excessive debt. To bring its debt levels down, the company was forced to conduct a rights issue of 100m shares at R20 a share – substantially below the price that the share was trading for at the time in the market (which was closer to R30).

The rights offer is now unconditional and fully underwritten. The nil-paid letters of allocation will begin trading alongside the ordinary shares on 4th September 2019.

The execution of this rights offer clearly demonstrates that the gamble which the board of directors took has now paid off. They have managed to persuade shareholders to inject the necessary funds. Read More

The Confidential Report – August 2019


The Rand

For most of June and July this year, the rand was strengthening as international investors became more confident of the reforms which the Ramaphosa administration was implementing. Now the battle between Ramaphosa and the Public Protector has become sufficiently aggressive and dangerous to unnerve international investors – causing some of them to withdraw their funds from our government bonds with the result that the rand has fallen 7,5% in the last two weeks.

The yield on our R186 long bond has increased by 6,3% to 8,46%. Overseas investors are now willing to forgo this relatively high return because of the increased political risk in the country. Clearly, this trend is not good for South Africa or private investors. The fight within the ANC comes on top of the problems of financing Eskom and lower tax collections to indicate that the government deficit is probably going to widen substantially. Moody’s is under mounting pressure to follow the other ratings agencies and downgrade us to sub-investment.

Unfortunately, it is very difficult to ascertain exactly what is happening behind closed doors. We can only watch the markets, especially the rand and the yield on the  R186 for clues – and right now the news on that front is not good. The markets are communicating that there is a chance that Ramaphosa might lose his position of power in the ANC – and if that happens then the economy and the stock market will be in dire straits.

A new concern has arisen with RMB’s John Cairn’s saying that there is a high probability (47%) that the rand will fall by as much as 30% or more once the US begins a new cycle of reducing rates over the next year – simply because it always does that when interest rates are falling in the US. Against this, it seems that the recent cut in rates in the US is just a “mid-term adjustment” and not the beginning of a new trend of lower rates. Read More

Omnia


Omnia (OMN) is at an interesting point. The share price has been falling since its peak of R242 made in September of 2014. It is currently trading below R30. This should be seen in the context of its net asset value (NAV) which was R105 on 31st March 2019.

The question that private investors should be asking is, “Does this represent an opportunity?” On the face of it, this is a massive blue chip company which has fallen on hard times. But it has dominant positions in the three major markets which it serves throughout Africa:

  1. Agriculture – where it supplies fertilisers and related products.
  2. Explosives – where it supplies the mining industry with all elements of their blasting requirements.
  3. Chemicals – Where it supplies industry with a variety of chemicals and polymers.

All of these industries require substantial capital investment and have the usual problems of working capital management. So Omnia’s business is not an easy one (such as the service industries which require almost no working capital) and requires a high quality of management. From a private investor’s perspective, this is a negative, but it also means that the share is much cheaper. Read More