Stock trading in times of credit crunch-lessons so far…

• The greater the risk of huge losses, the greater the risk of huge returns
• In other words, it’s all about marginal returns.
• If you were to buy a share at a 1/10th of its peak price, you’ll get to 100% gain faster than one who buys it at a ¼ of its peak price or the laggard who buys it at half its peak-price.
• Don’t analyse (you’ll get paralysis), trade.
• Ignore brokers' recommendations. If you are cautious and nervous after the getting pounded or seeing the pounding investors took last year, imagine how risk-averse somebody whose job depends on getting stocks right is…Classic, Nomura upgrade of Barclays this week from £1.10 to £3.20.
• Once you buy, volatility will be your biggest enemy. So have stop loss in your order, but upgrade it as you go along.
• Pick nuggets. Of info and all the happenings at your finger tips. There is still a recession out there, so share could still spring nasty surprises…
• Get it right when buying is as important as getting right when you sell.
• Take profits if you think there is likely to be a dip to a place below where you bought . Otherwise, stay calm.

NSE listed firms and information

From a shareholder point of view, out of the 52 listed shares, only 13 (and I'm being charitable with ARM, Pan Afric, HFCK, Express and CMC which only have their 2007 annual report) meet minimum investor information standard. A real surprise has been Sasii Tea. The minimum standard for a share's website should be:

1. Annual report-either as one humoungous file or in chunks. This is has all the information investor needs in one place. Its the company version of its truth and suffices for the best part of the yr before the next is produced.
2. Share price updates
3. AGM, dividend and other corporate announcements
4. News page
5. Products and services menu
6. Org chart showing company structure and leaders

Contrast with LUSE where at least your broker will email you annual reports as they come through and even interim results. I won't even compare with FTSE, but its noteworthy that when I was trading Barclays, I used to get almost every bit of news out there even press cuttings via email.

Companies need to realise that a share is a product and its competing with anohter 50 at the NSE (including bonds); real estate; savings et al. So as a minimum a shareholder should be albe to go the website and find out latest shareprice, eps, where to buy the share etc.

Investor's hopes must be that fibre optic will usher NSE firms into the 21st century, the era of information.

Pigs getting in the way... again

Just as the markets were absorbing and had partially digested credit crunch and the recession and beginning to kick-on, up pops some flu to spoil the party. That combined with the upcoming US bank stress test releases (scheduled for Monday), almost certainly means stepping aside with the cash handy to re-enter asap.

It seems to me that the greater the pressure to feed the growing world population, the greater are the dangers of unseen side-effects of mass production means applied. Animal feed and rearing seems to a particularly dangerous source of manner of diseases.

SARS gave us 0.6% global economy downturn, will get the same from swine? I don't think so, but its spread (which by the way has not been proven in every case), suggests it will be a close call.

PS: Btw, another one in the eye for Tim G. Some of the stress tests have already been leaked. Inevitably its the lousy ones that have found their way to the press. Citi and BoA (poetic justice as it bought the wrong i bank), are the two big fishes without enough water. And surprisingly Wells Fargo,  WB's favourite bank of yrs gone by. Market reaction in states was understated and more so in the UK. Only the swine flu is causing jitters...

The wow factor in life

Your CEO may pay personal complements to you for having discovered a loophole to generate revenue. Your latest stock gamble (for share trading can be thus on may a day), may turn 10% in a day.

But for a real emotional high/wow moment of the day, you can't beat, sitting with your two sons. The older at 2 counting to ten; singing some songs and lo and behold, his younger brother is soothed to sleep.

God does it better.

Well done Samuel Wanjiru...

Kudos. 

NSE weekly catchup

Bourse was up 2.6% on last Friday's close with Kenol recovering its price and post-spilt Equity continuing northward movement. Some prices are still very good so those that think we are well placed for the long-term need to take positions.

Results and announcements:

Konzolo CEO and owner of Unreliable Securities was aligned in court of stealing and resigned from political position ass head of the Broker Association. So that is another broker taken care of.

Everready announced (surprise surprise), 95% drop in half yr profits from an year earlier. I am not sure, but I hope it has a new product strategy because clearly batteries are not its future.

Centum will attempt to raise Ksh4bn (staggered over 5yrs) presumably to cover cash flow shortfalls in the near term. As well as invest.

Maina Mwangi, formerly CEO of RenCAP, will head Equity's IB business which is very good addition to its team.

Macro:

KRA missed its targets for the year. There was already a deficit of Ksh25bn. So is the deficit bigger?

The politics is and will mess up any serious headway towards 7%+ growth rates. As I've mentioned before, a 42 minister cabinet is not going to grow the economy. A grand coalition added on top of that mix makes for a good headache.. RAO has made one mistake time and time again in his dealings with Kibz. He thinks he is dealing with a gentleman. He is not. For Kibz, he is not astute enough to realise that if you undermine or build mistrust, you'll be paid with the same coinage soon enough. 2ndly, he is not observant enough to notice the talker no action PM in front of him and just give him this head of HBC role. Look at the unga fiasco, Mau forest and even RVR. So far, the 2nd term is going as per the 1st except this time there is no economic or stockmarket growth.

FTSE:

Volatile this week. Plays on Barclays are now limited to taking the odd 10% gain every other day. Some other shares are looking playable though.

Q1 results for NSE Banks

Q1 results will shortly be upon us. In bullish times, you tend to get pretty much every MIMS listed firm releasing some form of quarterly update. However, the opposite applies during these times of the bear. With the exception of banks which have to do so due to their mandate, I expect to see very few quarterly updates. In any case, for the banks, I am predicting near flat results of several banks with the usual exceptions. Loan defaults will be a feature of every earnings release this year from any bank and one should expect nasty surprises on the P&L depending on how well the particular bank has provided for npls so far.

Equity up 40% on Q1 2008 just because it has a bigger loan book compared to last year. I think its Waterloo moment will be Q2 when I can’t see it going higher than its Safaricom quarter of last year. Will start benefit of push in Ug by Q3 and beyond
KCB up 20% though I am expecting it to surprise in a positive way given its larger book vs q1 2008.
NIC, DTB 20% and 40% up respectively.
CFC down on Q1 due to the insurance business. Think link to NSE via its broker as well insurance arm.
BBK and Stanchart-I am expecting one of these to be down on Q1. Only, slightly but down nevertheless.

Was Jomo Kenyatta a British agent?

Evidence for

1. Kapenguria trail and jail time: It seems strange that despite being recognised as the supposed leader of Mau Mau, Kenyatta was given a fairly comfortable jail term on strange inept and so obviously trumped up charges. Dedan Kimathi on the hand was hanged without much ceremony. Could it be the case that Kamau was a sleeper who was to go to jail so as to emerge a Kenyan hero fit to be president? The man was married to an English lady was fully anglicised. He would take of British commercial interests, protect Brits wanting to continue living here and would be anti-communist.
2. Mau Mau: for someone who was apparently a freedom fighter, his treatment of the Mau Mau was abhorrent. It is notable that he never ever recognised the group say in the way he even recognised the Nyakinuyua dancers that used to entertain him. He never ever once invited General China (who he at least gave a job) or any of other to join him on Uhuru day. He of course gave them so many days to come out of forest before pursuing the same. It wasn't until one of his mentors became president that Kenya honoured Dedan Kimathi.
3. Coexisting: Bruce Mackenzie who was a M16 agent was given command of Agriculture one of the most important ministries at the time. After Finance, and possibly constitutional affairs, getting Kenya's agriculture moving was seen as key to its growth as an economy.

Against this:

• no smoking gun: in this case, one would expect to see some mention of Kenyatta in the British records. In a similar manner to the Mckenzie dude.

NSE weekly catch up- out of step

NSE has in the main been tracking western markets this year. With the odd variation here and there. And this week's 61pt is one of them. I suspect a portion of this is driven by the 25% post-spilt Equity drop. My own estimate was that the inflexion point for Equity spilt shares would be Ksh10, but Friday buy and sell volumes were not that different. So it appears that for now, principals are not reducing stakes.

Results:
ScanGroup-now with a stake owned by WPP one of the world's largest ad firms announced 29% PAT uptick on 2007 driven (translating to 20% in EPS), by 21% growth in turnover. DPS is 0.75, a little lower than prior yr. ScanGroup has a huge market share in Kenya (53%) and a third in TZ and Ug. And these markets are growing. Forecast for 2009 is 10% yoy growth. Btw, I predict ScanGroup will be fully/majority owned by WPP within next few years.
EA Cables was first off the block with quartely numbers. PAT was down 19% on turnover falling by 3%. One of the reasons given for this is a bit ambigous to say the least. Apparently LME prices fell. LME is ofcourse London Metal Exchange. So why would falling copper and aluminium prices be a bad rather than a good thing for a company that uses these are raw materials? I don't recall mention of any hedging in the annual results.

Macroeconomy: World Bank projects 2-3% growth for 2009 while Africa Development Bank projects 5.5%.

Other markets: A nice study in contrasts with USE by Bankelele.

Taking Mungiki down: Kenyans start reclaiming their lives

I've really been waiting to read or see something like this. Mungiki like our dishonourable wabunge are parasites preying on the poor who need to increase and keep all they earn from their long daily hours not be told to support idlers. 

So its good to see this community in Ndia saying enough and going after some of these idiots. Imagine someone coming and telling you they have your husband's head. 

Equity buying NBK... What for and how much?

JM has apparently expressed serious interest in NBK as GoK looks for a strategic partner for it. Why would anybody be interested in NBK? From the chart, the following stands out:

• Ksh34bn customer deposits (primarily GoK parastatals and GoK), but would only be accessible with a full or controlling stake. GoK and NSSF together hold 71% of the bank, but it'd be unusual for GoK to surrender such a huge stake in one go.
• Branch network: 26 well located and distributed branches would be a real boon. If you were a bank seeking to enter the Kenyan market. Equity has 128 branches throughout the nation and in some places will there definitely be duplication. Can it go against its customer ethos and close some of these to reap cost synergies?
• And that is that unless you can count in the low cost/income ratio.
• And unless you count any npl skeletons still rattling within its loan book, its a small bank to swallow.
• Equity needs 50%+ stake to enjoy the above benefits (I am fairly sure it'd seek to retain the GoK deposits by agreement at least for a few yrs otherwise it'd be a dud). At Ksh31.25 a piece, that would make the stake worth just over Ksh3bn and then you add 10-25% premium to entice GoK.

Dambisa Moyo articulating her message

With others...on this very opportune time in the debate.

Essentially, these are the questions.

1. Would you dance all night to the same song? As Einstein/Benjamin Franklin said "insanity is doing the same thing over and over and expecting different results".
2. If you were 45, won't be ashamed to be asking for aid for the same reasons you did when you were 20? Maybe not, but for sure you'd want to have tried doing things differently ala Equity and microfinance; CDF; commercialising agriculture; increasing trade with local economies
   
3. What is the underlying message of aid? That Africans can't do it for themselves, they are at war, poverty and disease ravages their continent et al
4. What about humanitarian aid? Even this has changed form the days where bales of wheat would be dropped at the airport for gova to distribute. Now, NGOs spend $4,500 per hr on helicopters distributing the aid. Its harder to raise the funds these because of donor fatigue...

Time to think out of the box.

Think investing in banks is dangerous? Time for a reality check

With a few exceptions, buying bank shares is currently associated with buffoonery in the west after the banks brought us the credit crunch and deepest recession since 19twendia waru (the year we sold potatoes). With hindsight, what has happened in the last 18months should not have come as much of a surprise. That banks don't fail more often is a miracle given the role they play in economies. Banks in essence bear an economy's risk. And because, of this owning a bank's share is a handy way of keeping tabs on an economy's direction.

A conventional bank borrows for short-term and lends for the long-term. When you deposit money in the bank or your employer/contractor pays your salary into your account , a large proportion of it will have left the account by the end of the month. Now a bank working on the old assumption that only 10% of its account holders will access their deposits on daily basis, lends the other 90%. It can lend to credit card holders thus matching monthly spending patterns. More importantly for the economy, it can lend for much longer periods than a month to house buyers, businesses and even to govas. This phenomena of taking short-term deposits and using the same to lend long-term is known as maturity mismatch or transformation.

Even if banks didn't do anything but be conventional, this would make them dangerous and risky.

NSE weekly catch-up

NSE saw a mild week with index slightly down on Monday's opening. I suspect we've seen the best of this rally and may even head south for a spell. There was also opportunity to shoot itself in the foot via usual funny price plays.

Results:

CFC Stanbic disappointed (down 8.5% in PAT and won't be the last time, even the old CFC used to frustrate because its universal banking model seems to be just a cover for a weak insurance associate). Universal banking has defeated even banking giants (UBS and Citi recorded the highest credit-crunch related writedowns) and the only successful that I know of today is Barclays Plc. The reason? Varley the CEO is an ultra-cautious accountant who can handle retail banking and insurance while Bob Diamond the head of Barcap is an alpha-ib type banker. This means both businesses perform well. Equity's supposed hire of Maina Mwangi of Rencap should be seen thru this lens.

Jubilee performed credibly 9up 3% on prior yr), especially compared with volatile listed counterparty, Pan Africa.

Corporate actions, announcements and wonders:

Following Kenol's results announcement, the 10% allowed what looks like a circular trade to be carried out leading to a 33% drop in price which nobody will sell at. CMA waited a couple of days then opened the 10% rule hoping to push guys upwards. This nonsense has gone on since the Stanley Hotel days and awaits the injection of new blood into the bourse.

Equity got suspended and suspension was revoked the same day apparently because it owed CDSC Ksh47m from the Safcom IPO and other levies. CMA revoked the suspension as unprocedural. Sounds, looks and smells like the old "patel" file over again. Apparently, even though Equity has a custody licence it somehow earns more of the 2% transaction fee that the brokers. At a time like this with anaemic volumes, brokers are naturally aggrieved. Equity now has to factor in reputational and operation risks. Brokers need to look for other jobs. Its a plain vanilla bourse that shouldn't be seeing the kind of stuff investors have put up with for so long from brokers.

More changes at TC where it seems all the guys who came in with Tony Wainaina have now moved on. Group possibly took hits from the RVR-debacle and the bear in the NSE, EA Cables its prime estate had a high of Ksh104 in October 2006, but closed Ksh24 today.

Our role in promoting diversity

Diversity in employment is a key indicator of a society's progression and greater promoter of equality. While many in the diaspora complain about the lack of diversity at our work places, we also have a key role to play in changing this. Namely, once we get into these positions, proving that Kenyans/Africans/blacks are not just as good but due to the fight to get their, are better than many of their peers. It doesn't involve turning oneself into an uncle Tom or a coconut i.e. losing one's identity. Merely understanding that in a meritocratic system, delivering on your role is more than half the battle.

Risk and Uncertainity and impact on investment

Risk is a quantifiable probability that your investment will go bad. Uncertainty is an unquantifiable probability that your investment may make or loose your money. When you know the risk, you’ll adjust your investment adjustment strategy appropriately. You'll be able to take long and short positions as appropriate to the investment instrument.

Where there is uncertainty or ignorance about, the investment strategy takes the option of a short in the dark or following somebody's opinion. Somebody’s opinion could be an expert or a gossip. And sometimes the two are indistinguishable. You’ll in turn impart the same to another who regards you as an expert and so forth until you get herd mentality. Which is good in a bullish market as the positive sentiment ("aka animal spirits") push investments upwards. And destructive in a bearish market as a negative feel devours itself.

Bottomline: your knowledge of your risk appetite, understanding and quantification of risk allied with certainty in SWOT analysis will improve your success in equity investment and investment generally.

Martha Karua next step: President of Kenya

Martha Wangari has never done things by half. She is a Kenyan of the generation that is only now getting into corporate ladder. She has done her woman juggling career and motherhood thing as a lawyer and magistrate. She has brought up two kids as a single mother. She took care of her in laws despite divorcing from her husband.

As a politician, those who have the unKenyan habit of remembering things beyond one year, recall her walking out on the former presidential reprobate who was feared throughout the land when he deigned to disrespect her in her constituency. And of course her defense of the slumberer one in statehouse in Dec 2007.

Martha Karua has admirable human qualities one doesn't normally associate with Kenyan politicians:

• Loyalty-she one of two or three long-serving MPs who can show allegiance to less than two parties
• Integrity-I don't know of any corruptions acts even by association. Wamugunda was not married.
• Courage-I think I saw a cartoon with akina UK, Kalonzo et al hiding behind her skirts during the 2008 negotiations. And of course resigning where others would rather die does take courage.
• Reformer-water boards were her creation, and she played a huge role in the so-called 2nd liberation.
• Intelligence-Again in short supply in our bunge but her debates in parliament and elsewhere tend to bring some balance.

I think her as president of Kenya would be a fitting way to close 2012.

NSE weekly - gently recovering

Equity pre-uploading of the extra 9 shares per account is almost up 90% from its Ksh9.3 low a month ago and as of yesterday close the index is up around20% from its low of the year. Still...how does one take a long-term view on the NSE given the econo-political side of the equation?

Results & Corporate Actions:

Kenol announced first results in its merged form and went up 20% on a 12 month basis. Note the ballooning finance costs partly due to the hostile business environment in Kenya. Generous DPS of Ksh3.50 payable in June. Oil industry can expect another tough year as it clears old stock and due to the economy.

Total its rival in the market, seems to have dealt better with its financing needs. PAT is up 34% on slight improvement in gross margins. Usual Ksh2.50 DPS will be paid in June.

ARM was up a disappointing 19% (and underperformed its budgeted Ksh442m), though fertilizer and its non-cement products are growing very well. Fuel and other input costs clearly played their part. DPS is Ksh1.25. Cement share in Kenya remains low so there is room for growth.

TPS had a terrible yr as expected with PAT down 46%. Notably however, turnover was only down 11%. Methinks 2009 maybe a flat yr owing to global crunch.

Centum confirmed writedown on RVR investment as well as effects of NSE falling (index fell 71% yoy to end of March). I suspect part of the problem looking at its portfolio is that it has a lot of filler i.e. stock that a good fund manager won't hold. A bit of a hospital pass for James Mworia from current NSE CEO.

PS: Are we going to catch up technologically in the NSE now fibre is here? Today you can't find one website where you can chart even the Index.

FTSE: breached psychologically important 4,000 mark.