Watch the markets - 2020

We all know that September is the time for big market crashes.

 1929, 1987, 2008 - All the doom was in September and October.

This year to date, despite the huge Covid-19 crisis, the markets have been quite resilient, down around 15-20% despite the GDP also being down at that level in a historic reset. 

This has been explained all year by those in the know as due to the the free money printing of the Fed and other central banks, plus the low interest rates meaning stocks with dividends have still proved popular. 

However, today has been a big hit in the markets, the FTSE is down 3.6% today alone. It could be the start of a long week or a re-bound tomorrow. 

With the Covid situation across Europe moving from good to bad though, the idea of a V-Shape recovery and the markets seeing through the downturn maybe over. Instead this could be a rocky time indeed and the start of the deep recession long-predicted. 

I guess we will know soon enough. 

RBS: Government owned until 2020

RBS has another year of losses to add to its list. Eight straight years, it is hard to think of another business outside the Guardian newspaper that can sustain such a dire record.

And not just a small loss either, a £2.5 billion loss. Yes it can be argued that the main cause here is yet more fines and covering for litigation and fallout from the financial crisis, plus the need to plus a huge hole in its pension deficit. On this basis the core bank is making money, is still the largest SME lender and gearing back up in the mortgage market with Natwest soon to top best buy mortgage tables once more.

However, a loss is a loss. The share price is around half of where it needs to be to break even in a Government sale. 50% loss of £48 billion. At least, with a tier one ratio of 16% we can be assured that the bank could survive another recession.

Pity its shareholders though, every year is the promise of Jam tomorrow in terms of dividends and profits. Every year it does not happen, we are far closer to the next recession than the last too; will RBS make it out of Government control before 2020, I would not bet on it.

GKP puts itself up for sale

It's been a while since GKP left the AIM stock market for the main market. Sadly for the company thought, which had a fantastic run in 2009-2011, events have really caught up with it.

Drilling in Kurdistan was always risky but who knew ISIS would be threatening and the whole area would turn into a warzone. Worse, the Kurdish Government has never been able to come to a political settlement with the main Government of Iraq concerning oil funds; so there has been precious little money to pay the Oil companies whom they gave licences too in Kurdistan.

With the large debts built up from exploration, GKP has a hard time paying its debts. As such today the company has put itself up for sale. Moving the shareprice up 50% at time of writing, but still at fraction of where the shares once traded.

Afren, a fellow oil company in Kurdistan with huge problems. also struggling to sell its assets, it maybe a firesale of sorts - it is not like the Global market for Oil M&A is very hot right now.

I have been invested on an off in the company for a long time - it amazes me how much global politics and events have ended up defining one small oil play in end.

Not a happy December

Today so far the FTSE has fallen 1.6% and is not showing much sign of a recovery. True the market has not collapsed in recent weeks; but it has been going sideways for some time. The sickly banks of RBS and Lloyds are well down from their recent highs, in fact RBS is only 30p down from 50p recently. That is quite a haircut.

Why so bad today - well where to start, possible UK ratings downgrade, tax hikes forecast in the tomorrow's PBR, Dubai debt default not as easy to get past as people had hoped.

All in all a horlix - my whole portfolio is red today, not a single winner! sadly, I think this is the shape of things to come next year. We avoided the expected October crash, but I fear the bear will be back early in 2010.

Sea of Red

My portfolio has been tanking this week, over 10% down in total so far and today is another bad day.

Not as bad as the FTSE this morning which is down nearly 2% as I write.

The expected September/October correction has been a long time coming. Share in the US and UK have moved sideways for 6 weeks and now appear to be falling again.

Poor economic news is still everywhere and although companies have beaten expectations on profits, the levels are too low to sustain what has been a huge rally from the March lows.

Noticeably the big gains of State owned Banks RBS and Lloyds are really taking a beating and leading the index down, along with over-bought commodities. Despite the falls, I am not selling out just yet, although stop-losses are in place - here are some of my still hopeful investments -

AST.L - Ascent resources, a small tiddler drilling for oil in Europe, down only a fraction today and lots of good news to come in the next few weeks. I can't see the price collapsing even in a rout.

EME.L - Very similar position to AST.L, but drilling for gas in the USA.

TLW.L - Tullow, a FTSE 100 major, is going to get a bid in when the sale of its Kosmos field partner in Uganda is completed. The Major oil companies will want a big slice of this success story and this will underpin the price (already up so much from its £6 low to £12).

MNR.L - The property company, one of my favourites, will no doubt announced tenants for its newly completed City offices in the near future and the share price will rocket on the news.

Sell in May 2009; no by George

The strategy of sell in May and go away is a city lore that comes true more often that not. Whilst the summer silly season lasts it is hard to see the markets move on low volumes. Just at the minute though, a renewed rally is taking shape. The FTSE was up all last week and the index is up again today, over 4500 to its highest level of the year.

To date that would have been the right as per usual, the FTSE drifting from 4414 down to near 400 over the summer; but since last week things have changed. There is definitely a change in sentiment, even the dreadful business that is CIT has been handed a lifeline today.

The FTSE is now back up over its May high and heading North. With all the positive vibe, this rally may well last into August. The index is currently over its 50 and 200 day moving average if it closes at this level today then there will be a sustained rally.

Moreover Lloyds bank has been buoyed by the news George Osborne may not break it up. How much of a signal is that the government is finished, when comments by an opposition politician move a share price by 5%+!

So far so good: Guido up 34%, Cityunslicker 150%

I note Guido has a post today on his investment performance year to date. he has done pretty well, as he is a very shrewd chap when it comes to bonds, less so on gold.

Gold is much harder to predict this year though with all the monetary stimulus, I have given up on it too for trading purposes this year, even though last year it saved me in the crash.

Guido' strategy has been to invest in bonds, mainly going short on gilts. Given the UK's parlous financial position, this is very sound, hence his returns.

My strategy was to invest in bombed out banking and resources stocks for the most part. I bought RBS at 10p, Lloyds at 50p, for example and sold out at well over 100% up on each. I also bought Barclays at 70p and sold at 85p - ouch, they are 300p now!

On the resources side, investments in heritage Oil and Tullow have done well, and then currently I have a plethora of minnows, such as EMED, ACU, AFE, PPA which I have high hopes for, despite some current big paper losses amongst that lot. Finally my single biggest investment is the property company Minerva - bombed out due to its huge debts, I have faith that the banks will roll this over and also that the major City developments are going to be in demand. The shareprice is currently 14p, the company has traded as high as 400p. Should be a fund ride.

Small "Cap" Corner

Some of my recent trading has been into smaller caps than I used to try with. These are much higher risk investments than others, so I try to keep the sums down to a few hundred in each one. My worst one managed to lose me 75% of money money in a few days!

On the other hand, African Copper made 300% in a few days a month or two later, so what goes round comes round.

Most small cap stocks on AIM or the FTSE main market are total dogs, the key is trying to find the few who are not. In addition, because of the very small amount of shares available, there are big pump and dump operations built up to screw private investors by persuading them to buy into an already overpriced stock.

Finally, the market makers hold a whip hand with so few shares and little volume available; they can to some extent manipulate the price of shares for their own profits.

All the above should serve as a warning that investing in small caps is just gambling, hence the need to keep stakes low. However, below are some of the companies I have either investments in or are on my watch list:

African Eagle Resources - This company has discovered a huge mine in Africa and is looking to confirm in the near future its potential. Plus it has the benefit of being well connected to transport which makes the mine viable, unlike many other African projects. The share price is currently 9p, although this week has been very volatile as investors await news on the quality of the find.

African Copper - An African company that owns a mine which it is looking to try to re-open after flooding, it currently has secured financing and if and when the mine opens the shares valuation will be much higher than the current 6p. This share has been pumped and dumped, so maybe wait until the price finds its new level before buying in.

Braemore Resources - This company has run out of money developing mining technology and could well go bust. Hence a share price of 3.5p. However, there are known to be several suitors for its leading technology - will they buy the company or just the technology from the administrators? One for the very brave only!

Heritage Oil - OK, so this is quite a big company now, but it was not a few months ago when i looked at it. With a huge oil find in Iraq, plus production too, this a a stable company. A recent announced merger with Turkish company Genel could propel it into the FTSE100. A share price of under £5 is a bargain.

Addax petroleum - Lots of M&A in the oil sector and this is another not so small firm about to get gobbled up by China or Indian state businesses. The share price has risen aplenty, but in my view there is still a decent premium from the £25 per share to an offer which should be roundabout £30. Short-term bet only this one.

Minerva - Property company with £600 million of debts, trying to re-finance and there should be an annoucement this week. At 13p per share it is priced to go bust, if they get the refi away then the share will go on a major rally, if not then it will head toward zero. Another one for the brave.

Right, I am always open to offers - anyone care to share their tips?

Is the FTSE going to tank now?

Friday and Monday have seen over 4% wiped off the value of the FTSE 100. That is a nice reminder of how things were back in Sept-October last year.

With this fall, there is much commentary in the finanical press about the end of the bear market rally and the next big dip.

What I think is less noticed is that the FTSE100 is still 8% down year to date, and that is after a year where it fell 30%. This is not exactly a great time for investors. If the FTSE falls now it is likely to be by a few more percent, not decimation.

As much as the comment now is that the rally is overdone, it is possible that the opposite is true too.

Having said that, I am preparing stop losses and positions generally for a renewed collapse in September/October of this year. We will need to see sustained improvements in many of the economic figures being published to say that we really have hit a bottom. Counter to this though, I expect inflation to kick-in next year and in an inflationary environment the stock market will be your friend

My new love: African Copper

I posted on FT Alphaville, during their excellent Markets Live ( a must read for any traders surely), on Friday of my investment in a company call African Copper.

Now I had done this on the basis that the company had seen off a bid and so in the background this suggested that it must have some re-financing arranged. As I said in this post last week, I have been looking to invest in companies that are about to announce a refinance.

Beyond my wildest imagination though something happened yesterday, the company announced a large investment which will secure the financing for the foreseeable and actually allow the company to mine.

The net result, I bought at 4p on Friday and have just sold at 12p on Tuesday morning. My best ever trade by some distance. Lots of luck for a change!

Now to look for some more companies about to announce refinancing....

Everyone has Rights these days

Recent moths have seen a phenomenon virtually unknown in UK history. Massive numbers of UK companies have engaged in Right Issues; that is, raising more capital from shareholders and others.

As with many recent economic developments, it started with the Banks, but RBS and Lloyds did not take enough and ended up having to go back for more. So much that shareholders left it to the Government to take up the slack.

This weekend has seen two very different businesses tap the market. Lonmin, a solid mining business affected by the collapse in demand for metals on the one hand. On the other Debenhams, a solid and dependable UK retailer. Debenhams was one oft he companies saddled with huge debts after a private equity buyout. Luckily its 3 main directors all made £50 million each when the company re-floated a couple of years ago.

Here are he reasons I think Rights issues are now very interesting and somewhat unpredictable:

1. They are nearly all to pay back debt and obtain cheaper finance. They are Ocean Finance adverts for larger companies.
2. Share prices are reacting strangely, Sometimes jumping because sentiment says the company will survive after all, sometimes falling as shareholders seek to avoid dilution.
3. So much money is on the sidelines in the stock market, that oddly there is plenty of capital for rights issues; it can be seen as a cheap and simple way back into the market.

Currently I am looking for more opportunities for companies seeking to re-finance their bank loans through rights issues. As long as this rally continues, the companies that take this route see their bombed out share prices recover strongly.

Trading the Budget 2009: Update

See this post from last week. I havebeen a bit slow to update as I have been travelling since Thursday afternoon (when I closed all my positions). Somehow the sun of the continent seems better than that of England, certainly there is not the air of despair that I sense on landing at Gatwick. Perhaps not having such incompetents in charge helps the atmosphere.

Anyhow, trading the budget, despite making the right calls the pesky markets did not react as planned, funny that. i guess that is why we are not all millionaires:

PDG - This car company benefited from the scrappage scheme. A full week before I bought it no doubt! I was in at 16.75 and out at 15.75 - so a 6% loss. Just as well I did not leave this until Friday, it ended the week at 14.50

LBUL - Long on gold to fight the fiscal collapse of the Government, in at 33 and out at 35.8. Would have been better if I had stayed in, it ended the week at nearer 37. -(8% up)

XUKS - Short the FTSE in a week of dire news, surely a gimme? Initially, this rocketed and I should have closed the position earlier, ended up only 1% above break even as the index started rallying for some unknownable reason later in the week.

PFC - The idea was that PFC would gain from the oil tax giveaway. Did not really work out, as the share bounced around in the week, I closed at 585 which was just under 1% up on the week.

Overall my conclusion is that after G20 and The Budget, trading the news is a good idea. I am quite up, more so after the G20 but not so much after the budget. Only one call has lost out and that was on a dodgy car dealer so I should not perhaps be so surprised.

What is the next political/financial event that I should look at?

Tradin opinion for the week ahead

Friday's meltdown in the DOW and S&P suggests that the recession has a way further to go yet. Stocks and shares may recover first, but the end does not seem to be insight yet. Still most of the weekend has gone and we do seem to have had Bank of America or Citigroup nationalised yet.

On the UK front, the FTSE is quite near the lows of last November, but not as close in the US. This is likely because there has been some comeback in commodities and this has helped the index to trim its falls.It is easy to see the only way is down at the moment.

Gold has breached $1000 in no time at all, even though the dollar is still strong. Normally Gold rises as the dollar weakens. I think it likely that Gold has risen to quickly, even though I remain a long-term gold bug. Quite likely there will be a r e-trace of $100 or so in the near future.

On the home front focus will be on the banks again at the end of the week. But the insurers are also looking sickly. RSA, Aviva and mainly L&G took big hits this week. In the febrile atmosphere of the markets there is big overshooting. I think L&G, which is not faced with any real issues, has been massively oversold compared to its peers, even though Insurance as a sector will suffer in this year of recession. Equally, Aviva is generally gets a big rebound whenever it dips below 300p. Worth looking into those for a short-term horizon. I don;t currently have a position in either of these or gold at the moment.