"Reckless caution" and other terms of the era

Having seen off the era of irrational exuberance where anything labelled asset moved fiteen fold in value, we (investors, bankers et al) in danger of asphyxiating the economy due to our reckless caution.

In the UK, banks lent £459m in Ocotber in mortgage loans, compared to £1.5bn in September and £8bn in October 2007. They are now in danger of strangling the housing market completely. And next? Will come repossessions which will then prolong the recovery of the housing market without which consumer won't spend meaning economy recession lasts longer.

Stock investors are being so cautious that markets are now finding new lows on a weekly rather than monthly basis.

Still you get the occcassional "foolish optimist" who calls every new market low as the bottom. Some even have new theories about markets being 6 months ahead of real recovery.

Market will only reach bottom when the housing market does.

NSE Update: CEO musical chairs

NSE continues the gentle journey south. There is nothing to suggest any upward movement until Co-op is listed and its volumes settle down. And of course, the usual upswing prior to full year results in March.

Centum saw PAT down 17% for its half year to September vs.. prior year, not too bad given NSE was down. If CEO was still the same, it might have been worth buying at around ksh12, but now its worth waiting to see where it goes. Notice the very negative cash position. It bought Longhorn, but also made some disposals. Still, I now understand why the dividend was postponed to January. James Mworia who takes over in two weeks time clearly has his work cut out especially given Mwangi left due to strategic disagreements and we are stuck into sub-4000 levels for 2009 at least.Its a buy for me if below ksh10, though there are probably better prospects in the medium term.
KRA came up tramps to make Total look good ahead of its expected purchase of Caltex .
Chris Mwebesa was appointed CFC FS CEO (I wondered why the share has been tanking-apart from the interesting 9 month results which I haven't seen). Bamburi's CEO has also left . Looks like its that time of the yr.
Macro-view: Water rates go up in the new year, maize (our staple food) prices seems to have broken the gate and are on an upward stampede and oil prices remain sticky. So looks like the only way inflation will go below 20% in the first half of 2009 is if its revised (I sense it already has) and some items are removed from the basket. We are walking into economic problems with our eyes wide open. 4 key words for 2009. Food policy. Policy dynamism.

Food Policy: There is a great opportunity to start on a new blank canvas. Just copy and paste the polciy on milk.
Policy dynamism: We nrks are often accused of westernism, but if gova could just react a bit quicker for example on the budget deficit (rather than stealth rise in interest rates) or inflation (was already high last yr), we won't be in this tight situation.

Auditors get to do a proper job

Before monetarist economists tookover the world in the early 80s, auditors and indeed accountants were generally just that. Peeps who did audit and accounts. The new economic era saw them downgrade these vital functions and effectively become consultants. They sort of figured there was no growth in just doing their core jobs. So what you then got if you employed an auditor to review your accounts and give you the greenlight to publish your accounts was a

- firm sends its trainees to look at the accounts and ask the questions. Most although they have some accounting knowledge would be very irritating. No knowledge of your business, of your accounts, processes etc. So you would get basic questions like why did your income grow from last year? Why do you recognise such revenue? These would be the same questions every year because they would be new pack of trainees!

-you'd then get a senior manager who'd on the basis of the information gathered pass your accounts but propose a series of improvements or audit points that he/she thinks you should make and further that the firm can recommend ways of doing this very cheaply.

-But it'll cost you for the additional time. This is the consultant piece which most (and especially the big 4) make their revenue from.

However, with a recession and one driven by credit drought, auditors and accountants will need to be careful that they don't sign-off accounts only for the said company to collapse the day after as has already happened severally. But qualifying accounts comes with a rider, the firm could lose that auditing contract. Still at least, they will have to start earning their money....

Year on year fx movements: $ and £

I was puzzling over the present divergence between a weakening sterling and strengthening dollar vis a vis the Kenya Shilling. Basic economic theory suggest that exchange rates between two countries reflect movements in two accounts. Current and capital account. The current account reflects the balance of payments i.e export and imports while the capital account reflects flow of capital. If you imagine that Kenya only imports but doesn't export anything to the US we'd then have a demand for dollars vs kenya shillings and vice versa where capital inflows were only coming into Kenya. Capital flows are assumed to only be driven by changes in interest rates.

Stepping back from boring theory, the big practical drivers today in these exchange rates are tourism, remittances and trade (exports and imports) in that order. In fact for tourism and remittances, US and UK rank 1 and 2 respectively in terms of the fx earned or sent into Kenya. A basic look at the financial news today will tell you that both nations are suffering equally from similar issues. Similarly trade patterns with the two won't have changed so fundamentally in a period of 5 months. So what is driving this divergence?

If the other factors are moving tghe same way, this leaves one player I haven't mentioned. The key driver is in my opinion, the fx market-makers and dealers who trade (sorry speculate on) on fx movements.

Further reading on similarly puzzling fx rate movements between Canada and US.

Is Kenya ready for e-commerce?

Assuming the fibre-optic projects are delivered in time next year (Seacom which is due to be delivered first will land in June'09) Kenya's economy may well see the same revolution as has occurred due to mobile technology (why are guys so ready to put down Safcom which has driven this?).

1. Is our business community ready? Are they utilising IT to modernise the way they do their business? Where is the increased Kenyan-based business content? Why haven't the number of listed firms with a commercial website increased since 2006?
2. Is govt ready? I keep hearing about computerisation project, but why is it still difficult to locate land maps and the like? Will Kibz be able to work the videolink in his office? How about data protection especially as it pertains to publicly-held records?
3. And mwananchi? I know sales of computers, laptops and associated paraphernalia going up massively, but are guys learning e-commerce as a subject? Or html and related languages? Are entrepreneurs queuing up to push aside none ecommerce business models?

Don't believe in God? So what do you believe in?

Many don't believe in God because of misconceptions about what believing in God means. It doesn't mean that;

• You have to be perfect. Quite the contrary.
• You are weak. No. I don't think anybody would say Obama is weak.
• You are a know-it-all. If you are one, I don't think you'd believe in God.
• You have to be religious. Wrong. Believing in God is first and foremost a personal choice i.e. doesn't involve any rules. Being part of a religion can be one way of sharing that personal believe with others and does involve rules.
• You have to give up on those things you love like getting drunk. Nope, its a personal choice based on your believe.
• Its must to believe in God always. God doesn't need you to believe in him.

My believe is simply my way of thanking him for all the many things (good and bad) that he has seen me through.

So if you don't believe in God, what do you believe in?

NSE Update: uncertain search for the floor

The NSE has the feel of someone trying to touch the floor of a 4m deep swimming pool. While shares are still showing strong fundamnetals for 2008, longer-term investors are now turning their focusing to 2009 and beyond. And it doesn't too pretty if one looks at the economy:

• The weight of the budget deficit is now starting to tell and I expect rates to go up slowly if only because CBK is being cautious with t-bill issuance.


• Higher rates mean higher repayments mean higher loan default rate.


• Inflation is not going to come down below 20% before Q1 and only if concerted eforts are made to tackle it. Means reduced investor wallet.


• Diaspora


• Oil companies are showing usual sticky pattern in reducing fuel prices which keeps manufacturers and others expensing higher

And ofcourse western markets haven't hit bottom yet. They'll do this when we get quicker action on assets. 2ndly, GM and other US motor companies are now on the cliff edge. Honda is feeling the effects.

Bottomline: I still expect the NSE to touch October bottoms before we close 2008.

PS: From last week, Safcom announced worse than expected results for H1 with previously unexpected hits from loan (gave an fx gain but it could be an fx loss another day). Total finally got some bucks from KRA which helped double H1 profits while Marshalls' went the other way.

NSE: Former CEO's real view of the market

NSE is absolutely not de-coupled. Quite the opposite infact. I've charted the table on monthly foreign purchases and sales in Mwebesa's presentation to illustrate this for the year to September. For full presentation, go here and click on the Business Media Development Institute luncheon presentation (its in power point).

Explains alot.

Why doesn't the NSE publish this data even on its monthly bulletin?

The financial crisis: who is next?

IBs, banks, insurers... next has to be

Hedge funds: They hold around a third of credit protection in form of credit default swaps yani they were seller of insurance against credit default by variuos bond providers. And next yr with recession proper, defaults will be high. Luckily for them, most will be able to fold in the privacy of their well polished offices.

Periphery credit financiers: I.e. companies that finance their trade via credit. As unemployment rises, so will default on payments... GM, Ford are already at the front of the queue

Credit card providers: Many had already foreseen the looming crunch, but wierdly were busy weeding out those who do pay on-time a while back. Still limits will be cut.

Airlines: Have survived higher fuel prices, but will they survive downturn in passenger numbers? Tricky, and me thinks a few will succumb.

Supporting suppliers into these industries mostly commission dependant: Already in the last few weeks, I know of:

Estate agents: Closing down. During the peak of the property market some estate agents in our area closed out 2/3 deals per day. Of late they've been lucky to do one per month. Cue redundancies and closures.

Travel agents: Airlines are cost cutting by moving to the net and selling etickets. Travel agents are closing as travel drops off.

Recruitment agencies; Last yr, they were opening at the rate of 1 a month in London. This month they are closing at a similar rate per week.

And who will benefit?

Low-price retailers

Loan sharks such as this one. 442% APR!

Kenya-Ug: 1st chapter over, new bright chapter?

The contract as set out was at best incompetent at worst...By breaking the part where Roy plays the pipe, calls the tune and does the singing; we can see what a more localised solution brings to the table. The deal is still 25 yrs with no real get out clauses (at least to my understanding). Thats not clever.

Clearly two things need to happen in short order insert get out clauses (after two yrs of underperformance as an example) and secondly to have a more robust oversight system that picks up when things are going wrong. This time we've wasted two yrs.

One worry I have about the use local solution providers, it'll be difficult to get them out. They know how to wine and down the powers that be. 2ndly and relatedly, they'll be unable to take the hard-headed decisions that will allow them to make money e.g. rationalising the employee population because they know how to play the game.

Peter Mwangi, formerly Centum, is new NSE CEO

He is an insider so we can expect more of the same...

Pity.

One day, we Kenyans will learn to grab these opportunities to make radical changes.

One positive thing though. That was done quickly...

Ssem seems to have been aware of the green pastures Mwangi was moving to.

Mapping out Africa’s road to success

A nice little article by PM Raila. I think its great that he is paying attention to the role that our infrastructure will play in developing Kenya.

He is probably one of the few politicians in Kenya who understand international PR...

Share Analysing Tools: P/E Ratio

How do you use P/E ratios? If you are looking to buy shares then consideration of the current P/E is relevant for you and should be a useful tool to aid in the decision. If you already hold shares in the counter, then the relevant P/E is the one you bought the shares at.

Firstly P/E stands for price earnings ratio and is calculated as
current share price divided by either
the most recent annual earnings per share
or
forward/estimated earnings per share based on the most recent interim or quarter numbers as per these.

More importantly, a P/E is the premium (fee) you put on a company's earning growth potential. The only other corporate action that should concern you as a shareholder where P/E is concerned would be dilutive moves such as rights issues (which you are unable to participate in) or even the kind of preferred share deals that the likes of Barclays and GS have been doing.

If my average P/E on KCB is 14, it says that I think that all things being equal, I expect KCB's share price to rise to 14 times the price I bought at over my investing horizon. Thinking about that for a minute. It implies that KCB has to in effect double its earnings for 7 years consecutively.

2ndly, P/E also tells you how much goodwill/hype the share has generated from fellow investors in the market. This is an intangible reputational element in the shareprice that can change overnight. And that is why some rank P/E low among their share analysis tools.

Chris Mwebesa, NSE CEO resigns

Interestingly, he had his contract renewed earlier this yr.

I have a couple of ideas about who should replace. One is a very competent NRK who was denied the CMA job for political mathematic reasons.

Its not a difficult job. It’s a plain-vanilla trading book for shares and bonds with not that many deals per day. One can easily monitor positions on a daily basis and be able to give feedback on any funnies the day after. There are not that many brokers, so again doing due diligence on their operations is not back-breaking.

There'd be a lot of very quick wins in terms of changing the bourse workings to bring back investors and especially the all important retail sector.

It'd be an easy job for one to look good in.

You'd have to be very very incompetent to oversee the collapse of 3 brokers in a benign environment.

I am not saying Mwebesa was incompotent but...

Co-op IPO: 70% take up

On the one hand, all subscribers will get full allocation.

On the other hand, price will be down all the way.

Poor marketing and IPO process (I had to abandon my application because the easiest I could buy some was to open a nominee account-which as you know work like a dream for brokers), adversely affected the outcome. And all the drama sorrounding Safcom and brokers didn't help.

Malawi Telcom is a contrast...

UK/US Housing Market & Impact on Kenya's Real Estate

Economic growth in most if not all western economies is fuelled by consumer spending. Consumer spending is in turn fuelled by cash (or more specifically, credit). That is stating the obvious. What doesn't seem obvious to many is that most secured personal and even business loans tend to be secured against properties.

Since the credit crunch started lenders have pulled back credit lines. This means that among other things, first time-buyers can't find affordable mortgages at current house price. Neither can buy-to-let buyers. These two sectors have fuelled growth in house prices over the last decade. This means that sellers have to cut house prices. They in turn have lower deposits for their next homes, cue more price cuts until we get to negative equity. At negative equity,every mortgage borrower has to find additional capital to get a mortgage. Then? Both first-time buyers and those moving homes have to save more. Which means less spending.

This also has implications for Kenya Estate for Diaspora funds that find their way home into real estate. Real estate in Kenya has since 2002 been funded by 3 sources;

1. Diaspora or NRKs (non-resident Kenyans)
2. cheaper and accessible loans
3. and savings in that order. And possiblly NGOs and foreign real estate funds (funded via savings and real estate equity)...

Most diaspora funds used in the real estate in Kenya have been funded from borrowings on housing equity held in their UK/US homes. With most of that equity disappearing (most houses bought since 2005 might be in negative territory by mid 2009), NRKs may find themselves having to not only look for additional funds if they want to invest in Kenya, but also diverting normal savings to cover this negative equity. 2ndly, affordability for resident Kenyans will become an issue.

The only type of real estate that will continue appreciating will be plots...

Kenya @ Crossroads: either a Botswana or a Somalia

I think Standard's Barrack summarises our choice on Waki & Kriegler very well.

Since the murder of Pinto, impunity has a by-word for our rulers' actions. And reaction has been getting stronger until 2007. If we can't resolve our issues legally, 2012 won't bear thinking about. Already one senses rising tensions again as these warlords hide behind their tribes.

IPOs: The matatu syndrome

The unspoken matatu rule that used to operate before the "Michuki rules" was that there was always room for one more. If a matatu had 4 seats per row, these were transformed into 6 or 7 passengers not counting children depending on how busy things were.

In the last few IPOs, this matatu syndrome seems to have become the rule of thumb that D&B (how come it goes all the lead broker roles?) applies to IPOs. So where:

• Safarcom would have been a better IPO listed as 2.5bn shares at Ksh20 each; it was listed as a flooding 10bn shares each worth a very cheap-looking Ksh5.
• Co-op could have been listed in a similar manner to Equity at say Ksh30 with fewer shares; it now has 3.2bn shares each worth ksh9.50.

Mathematically it may not make any difference, but there are several problems with this low-rent and myiopic approach:

1. Potential shareholders look for two things price appreciation and dividend. Most can forget about a Safaricom dividend.
2. Capital raising measures: One of the reasons that companies list is so that should they need to, they can raise capital via the stock market. Can you imagine Safaricom doing a rights issue or Co-op? Both would most likely flop unless offered at a Ksh1 each.
3. Administrative cost: Flooding the market shares means you also have to flood it with investors cue admin costs.

Hopefully going forward, IPOs will be done more flexibly and sensitively.

"Base rates are now so low that our margins are desperately small"

The above quote has been nagging me because in the context of normal commerce it doesn't make sense. Its in the interest of banks that the credit market (mortgages, credit cards, personal and business loans) doesn't collapse leaving them with masses of non performing loans. And yet, they seem to have accepted this but not reducing their lending rates. it doesn't make sense...

Unless you compare with stock-led oil industry i.e. crude oil prices and petrol prices. Everytime crude oil prices go up, petrol prices go up almost straight away. But there is always stickiness when crude oil prices go down. The reason is two-fold. Stocks and secondly, pure profiteering.

In the banking sector, the Central Bank interest rate sets the signal for which way interest rates should go. In a perfect market, a 25% fall in Central Bank interest rates would instantly be reflected in borrowing and saving interest rates. If not the full 25%, then at least 15% with the 10% covering administrative costs...

Following the largest interest rate cut by BoE of 150bps (1.5%), most banks are saying that they can't reduce borrowing rates. Last Thursday's 150bps cut and equivalent fall in LIBOR should have led to a minimum cut of 50bps allowing for pure interest margin and administrative bps. Those that have reduced their rates (basically those needing capital from gova), have also stopped offering BoE rate tracker products to new customers. This despite LIBOR falling by a similar margin.

Banks are unwilling on unable to cut their rates by as much (and some not even at all) because

1. Many want to reduce assets. By not offering lower priced lending products, they keep customers away. Also risk-averseness is now the name of the game and lower prices are now associated with growth in assets and risk.
2. Cost of funding: Despite BoE best attempts, cost of funding remains high in wholesale funding market and inaccessible for some of these banks. HBOS, the largest mortgage lender with around 20% of the UK market is now seen as a basket case to which wholesale lenders will only lend to after its takeover by Lloyds TSB is completed.
3. Broken funding models: In the old days before CDS tookover from sensible banking, most Treasury Divisions in a bank had a rolling hedging strategy that involved profiling of the maturity of its various lending products on offer at any given time (say monthly) and finding funding hedges to match that book through the yield curve. These days, doing such a hedging strategy can't be modelled let alone be used as its flout with difficulties because most banks have erroneously sold off loans whose downside somehow still sits with them.

The situation is not unique to the UK. In the US, banks are similarly pulling back from lending leading to a vicious circle in the housing market that is then negatively infecting the whole economy.

That is why I think that despite the mountainous sums given to banks, the end-game solution to this crisis lies in the housing market.

Monday shorts

So did Kenya reclaim Obama? Or did Obama reclaim Kenya? Its a bit of both. Mind you, afadhali Kenyans. The Irish are claiming him on the basis of his great*5 grandpa. We had a Kenyan party for Obama sponsored by the High Comm and Balala's ministry on Saturday. First mistake was to serve the generously supplied free Tusker Baridi and the like almost two before the meeting kicked off proper. Non one was listening by the time the speeches were being done. How is this for luck? US has Obama, UK has Dizzy (sorry Dizzle). Finally, guys are saying that Obama has been elected at just about the worst tine in US history so he can fail. Well, put it it this way, how many gave him a chance when he first stood or went one to one with Hilary and later with McCain?

Interesting piece in the context of politics. But also stock markets. How many of us stock market investors can genuinely confess to not knowing what is going in the market like 50% of the time. Because you see if we did know what was going on even 85% of the time, we'd all be billionaires like WB who does. By this I don't mean that we don't know our fundamentals but there is as I intimated in my simple equation the other day, a lot variables in the market and saying you know how all those players will react to situations or what their strategies are is like saying you know what everybody is thinking. Unlikely...

A cut in interest rates of 1.5% should be seeing many homeowners and prospective ones smiling. But no. While most banks have passed the cut onto any holders of their variable-rate mortgages, they have also withdrawn any BoE trackers thus closing off prospective house buyers. The rest are dragging their feet saying they can't make the margins even wihn Libor falling! Gova's work is really cut out.

Tiomin discovered tatinium in 1995 in Kwale, got a contract to mine it in 2002. Almost 7 years later it still can't get started. Ignoring the idiotic ways of the ex-president and Kibz, can't they just tell Tiomin its not going to happen because we really don't need the jobs. Don't forget there is a ready market for the product (hence the Chinese interest).

In the UK, they have News of the World a scandal-filled tabloid, but I reckon even it won't be able to pull a story like this (so humorously told despite the sad situations that we Kenyans get ourselves into to get makaratasi)... Wakenya aibu ndogo ndogo.

NSE Update: traders vs long-term investors

After the bull, the bear, a creature made in the ATS laboratories showed up briefly at the NSE from last Thursday but came to a screeching halt yesterday. Some are alleging circular trading. Did you see Kenol go up 43% on Wednesday on 500 shares? Others are crediting the feelgood factor engendered by Obama. Whatever the play, I expect the positions to be unwound in the coming weeks.

Who between long-term investors and traders profits more over a market (bull, bear, bull) cycle?

Standard is venturing into Radio.
Scangroup completed the sale of a stake to WPP.

London underground: what joy...

After 4 or so yrs break, I am now commuting using the London underground aka the tube and I now realise what I've been missing. Not...

The tube carries 3million+ passengers a day and you feel like most of them are on your journey to and from work. So what joys have I been missing?

Inconsiderates:

• Morning blues: If somebody is going to throw themselves under a train, is it too much ask that they don't do it at 8 in the morning just as rush hour kicks in? Or even better, do what most do when they can't stomach going to work, just call in sick and stay at home...muppet.
• Water-phobia: Some passengers are principally opposed to washing themselves or brushing teeth. Very painful for fellow passengers.
• The plodders: Those that can't work at 50mph shouldn't bother with the tube. Take the bus to work.
• Potato syndrome: Canada a much younger nation than the "Great" Britain, has double decker trains. A good well planned idea for avoiding being packed into trains like potatoes in a sack. Unlikely to happen in London but badly needed otherwise the "oshiya" are the future.
• Free-riders: Its not funny or clever to bump and grind into your fellow passengers so as to avoid paying for a train ticket. The windy-buses is a better option.

Good part:

1. Keep fit regime: You walk up 100+ stairs in one journey. I've lost 5kgs already...

What is a frontier market?

Have a look at this and see if you agree?

What drives the NSE?

The NSE like most developing markets has drivers that are "localised" as well as the normal drivers that ones sees in every other market. You can do all your due diligence in terms of evaluating the various shares on offer, but if you don't understand these drivers, you'll be left hanging dry like many have been by the current bear.

The normal drivers are:

1. The presence of institutional investors: Specifically NSSF, company pension funds and principal/anchor shareholders who tend to be in the market for the longterm. With the exception of a very few, most principal shareholders are foreign (a key reason for encouraging strong investment clubs). They stablise the market and without their presence the NSE would not attract...
2. Fund managers: Who in the main are target performers given this is the onlyway they can mobilise the funds and fees that go with the business.
3. Fundamentals: The economy, other LEPEST issues pertaining to the country, the counter's industry, the performance of the counter, the future outlook for the counter, peer review of the counter against industry rivals, counter's swot all fall under this category. The two types of investors above will usually invest on fundamentals. Others will use technical charting.
4. Foreign investors: Without proper data from the NSE, its impossible to confirm what proportion these form, but my intuition confirmed by articles such as this as well as the timing of the recent slump is that they play a key directional role especially in the blue chips.

Other drivers that are more common to the NSE and are as important if not more are:

• Brokers: I've said a lot about them, so all that can be added is to understand how the NSE still works, you need to go back to its operations pre-2002 i.e. the New Stanley price setting era. A broker will decide when to execute your buy/sell order (forget about all that jazz about the CDSC queu system-the order has to get into the system first); a broker will decide whether to short-sell or front-run your order. A broker will decide what the allocation in a right issue will be and can also decide when you get your cheque or whether to play with your cash.
• Retail investors: Apart from the other NSE, no other market in Afrika has a higher proportion of investors who are retail. Retail investors mean footfall and therefore broker commission. Furthermore, many operate on rumours and peer reviews or on recommendations from brokers. Others buy in for "divindend".

So to respond to Maishinski, one can do all the analysis, fundamentals and charting, but without being aware of these other drivers, you may need to always go long-term. As an example, I've bought Equity at various prices starting at ksh134 in 2006 and even at ksh300. Even though my average remains low (around ksh126), I was on out of the money last week for reasons unassociated with fundamentals...

So your NSE share capital gains formula maybe summarised as follows:

Cg = F + FI + II + FM + R - B

Should Kenya advertise for a CEO?

We have the resources, the manpower, the plans, the knowhow, but we still can't deliver. Without waiting to reach 2030, its obvious that we won't hit the targets set for this date in the same way we missed the 1980, 2000, 2020 etc targets. Why? Like Obama has shown, to turn the unlikely to the likely, you need

1. Focus: So breakdown the 10% GDP pa target into SMART objectives that everybody can focus on every yr and motivate the people
2. Planning: So that resources are directed to the appropriate areas and bringing together different strands of development so for example no increases in energy prices that impact manufacturing industry.
3. Compelling leadership: That says this what and why we need to do it, this is how we are going to do it, this who is going to do it.

Can you imagine Kibz, RAO, UK, Ruto, Ababu getting us there?

If not, why not hire PWC or some of other executive search companies to get us a CEO who can do the job for 5 years...

If anyone out there doubted...this is your answer

http://uk.youtube.com/watch?v=Jll5baCAaQU&feature=channel

For Mandela, read Obama

I remember the feeling watching the day Mandela walked out of prison in February 1990 and I feel the same now.

Congratulations to the US for showing Kenyans that colour, tribe, race should never be a judge of ability.

Update:
For every black person who has had the direct hurt of racism inflected upon them
For every black person who has had to be twice as good as their white colleagues to overcome his colour.
Today is your day

For me and my family, whatever sort of President Obama will be (and I am sure he'll be a success), today he has done enough.

Obama will give US its humanity back

US is today loathed, looked at in disdain and in triumph at its hubris all in equal parts. Obama can make it universally loved again. The US W inherited from Bill "I did not have relations with that woman" Clinton was a swaggering economic dynamo, military hegemony, political alpha player and listened to by its many friends and few enemies. Today, US is floundering in economic morass, military exhaustion, bereft of leading ideas. In short, a timely moment for a fresh leader.

A US president is important not to all not just for what he/she can but how they do it. Willing to listen to weaker parties when you don't have to is ultimate show of strength. Obama will listen to what the world has to say...

Finally we can't away from it. 53 years after Rosa Parks refused to be treated as a 2nd class citizen on a bus because of her being black, Barrack Obama is asking white America these two questions today:

1. Do you accept me as your equal in America?


2. More important, do you accept that I am equally capable of occupying the White House and leading this great country to a more successful future?

Monday Shorts

We can say whatever, but we Kenyans are very unique and alike. You go to visit a Kenyan family and if the majority of the guests are from one tribe and age, you'll pick up a new language. More enjoyably, you'll eat a traditional dish. You may catch a vcd you haven't seen before, but you'll surely get Koffi Olamide. And politics will dominate conversation as the evening goes on. Very good naturedly.
It therefore hurts when you witness the politicians attempts to keep us from forging ahead together. Some of the idiotic stuff from adults on this has been embarrassing. Charity Ngilu should know that you have to take responsibility for your actions no matter who you thought you were doing it for. As for that thug Ephraim, you should know that if I take your eye out because you took mine out, we'll both be blind and in the wrong. Hopefully all 10 will end up in the Hague or pariahs like Mugabe. In 2003, I remember saying to my cousin that ignoring the MoU was the stupidiest thing that Kibz ever did on many levels. I have a nasty feeling that ignoring the Wako report will mean payback later in a similar manner. Implementing it is the easier option...

The economic downturn has had its positives. Oil prices are slowly dipping below £1 per litre and hopefully grocery prices will follow downwards.
Interesting debate on pesticides. The EEC is proposing to ban a lot of pesticides which have been seen to cause cancer and infertility (note for you NEMA). The UK gova for some weird reason is supporting farmers who don't want the ban and have now started the familiar scary tactics (food prices will triple story)...
Barclays is willing to pay more to private investors than give in to gova?

NSE Update- technical hitch gives way to bounce

The NSE was a one way bet, until the "technical hitch" on Thursday. Even the papers had the quotation marks around the technical hitch. Equity for example had 1 share in demand for every 8 suppplied on Wednesday. On Thursday after the " ", the ratio was the almost the same but opposite. For Equity, this sounds okay given it had just announced very good results, but AK, KCB, EABL and others didn't announce their results on Thursday. 2ndly yesterday was a surprise, because although Equity announced its results on Thursday morning, the 10% rule was lifted yesterday. In any case, my take is the two days rise was aimed at Co-op IPO and investors (as opposed to speculators/traders), should eiether step in slowly or wait for a full week of solid volume rises.

Results announced in the last week:
KCB- up 69% yoy driven by strong F&C and strong jaw effect between costs and income. Flat vs. Q2.
DTK-up but can't locate its results
KQ-down 63% yoy, but a commendable perfomance in respect of growing revenue in the first half despite everything. It must get its customer service and hedging right to recover. Really needs a new CEO.
ARM-up 15% yoy on similar turnover growth. Cash flow a bit stronger after loan.
Equity- up 277% yoy for the 9 months driven by Safcom IPO and Ksh0.2m higher than my forecasted fall from Q2.
HFCK-up 36%, Equity has a 20% stake and is in my view, unlikely to take a bigger chunk of HFCK for the time being.

Elsewhere, EA Cables appointed James Mworia, a young guy from TC as its new CEO (apparently).

Will interest rate cuts and Keynesian spend haul back Western Economies from recession?

John Maynard Keynes was in vogue almost 100 yrs during the Great Depression when he suggested that because the equation for investment was private + public, if private investment fell, it was incumbent on the government to fill the gap. Later last century, guys like Milton Friedman, Phelps trashed his theory arguing that a market could perform efficiently if rational man was left to hid devices. Now with the banking system in ICU, he is back in vogue again and govts as varied as US, UK, Japan and Germany are looking to spend their way out of the looming deep recession.

But will this do as hoped and prevent these economies from a deep recession. Not if history is anything to go by. In the late 80s, the Nikkei was at around 40,000 (contrast with today's close of 9,000), real estate prices were stratospheric (average house prices in Tokyo were $2m). With such over-heating and everybody putting pressure on Japan to cool its economy, interest rates (that underpinned much of the bubble like today) were raised. And the wheels came off the economy and the Nikkei. The bear lasted almost 14years. This was despite interest rates being cut to and remaining at zero for years; massive gova spending in all kinds of fancy schemes. The main problem was that low interest rates couldn't be passed onto consumers because the banking system was broken with banks saddled with bad debts, undercapitalised due to the same as well as decimated shareholding portfolios. 2ndly, up until this bear, Japan had been a job for life type of economy. Job insecurity made consumers save more despite zero interest rates!

Today in the West, the economies are in the main driven by consumer spending. Consumer spending has been financed by cheaply available credit (in form of credit cards and overdrafts) and home equity financing. Both have now dried up as banks seek to aggressively reduce their balance sheets. Home equity apart from being a source financing, has been a source of security in the same way job security was in Japan. Therefore this is where Western economies must concentrate their firepower.

Co-op Bank IPO: Update

IPO application process kicks off today and closes in a fortnight's time i.e. 13th November. Listing is on 22nd of December. There is no dvp for retail investors.


The prospectus can be found here. Browsing through it, I couldn't help but note that Co-op is just another bank perhaps in the mould of NBK. The young CEO has done a good job so far, but the future is probably going to mean more of the same. The capital raising IPO will fund:

• IT: New core banking system that will hopefully reduce cost income ratio


• Branch expansion


• Mortgage financing: This is capital intensive business


• Re-capitalising its investment arm


• Connecting Saccos-I've always wondered why Co-op doesn't concentrate on creating its own banking network with the Saccos


• Visa card franchise


• Regional expansion: Idea has legs but others are already ahead
  
  Bottomline: Ask yourself the following two questions:

1. Is it the cheapest banking shares (half yr comparison is attached) on a forward P/E (not just 2008, but 2009, 2010 etc) plus dividend yield basis? Don't forget to add in 2% selling fee...



2. Can you, if you want/need to, exit above ksh9.70 (break-even point)?

Football

Argentina have confounded foe and friend alike by appointing the one and only Diego Armando Maradona as the manager of the football manager. A genius as a footballer (greatest ever in my humble opinion), Maradona has been a complete and utter nutcase off the football pitch going thru stuff that would take several legendary hellraisers to do. Cocaine bursts and bans; drug-induced heart attack; shooting at journalists and other more common shenanigans. In other words, not management material. But he is next to God, Mary mother of Jesus as far as Argentineans are concerned. The thinking is that he'll shield the team from vociferous media attacks normally mettled out when the team underperforms. My hope is he and Argentina make to the World Cup.

My local team seats on top of the English league. And for once we the fans are worried. We've gone 18yrs without winning the title so we can do without false dawns. I'll only mention those words if the great Liverpool football club is on the same station come next March...

Wherewith RVR and other deals dragging along?

3 days to go before RVR shareholders have to produce the goods and all indications are that things are thick.
Centum (ICDC) and TC, the two Kenyan anchor shareholders have been battered in the stock markets reducing their leveraging opportunities. The bear markets will prevent all but foolhardy foreign investors coming in.
Hope we are not back where we were two years ago trying to hatch midnight deals.

1. Meanwhile, sugar firms saga drags on...
2. Grainhandling contract at coast when we'll really need effeciency-drags on...
3. Econet-perhaps next March?
4. Is TEAMS still coming on-board next April?
5. Veep house-are you telling me our esteemed VP has been sleeping rough while awaiting his 76-room mansion?

When we'll get procurement and infrastructure deals right?

All about the stocks...

If there is such a thing as Monday blues, stock markets typified jana. FTSE 100 was down 5% at one time and Nikkei closed at its lowest for 26yrs. Our own NSE is now on a free-fall and its painful to visit stockskenya and read all the wailing with some even asking that fella from Nyeri to do something...
They are the not only ones. If there is anybody who feels hot in the investing world, it has to be hedge funds. Most hedge funds actually promise absolute returns on your money (of course they are not an accessible investing avenue for joe public). Many are now heading one way. Down and out. And are behaving oddly too. VW was today ranked as the the largest company in the world by market cap, thanks to hedge funds scrambling to cover their losing short positions. "Some in tears", is not something I ever thought I'd read in the same sentence as hedge funds.
As this guy avers, trying to forecast the bottom (a key entry for many) is an exercise in futility primarily because the market is emoting. There are very few traders out there who are being logical about how they trade. All they know is that they've to cover their losing positions. WB can afford to put his few coins into the market now and watch them flow down. Fundamentally, he has made it. For some of us who are making it now, chasing prices downward is a bit like this annual exercise they do in Gloucester where they chase a big mountain of cheese downhill. Every year, you get many breaking legs and hardly anyone ever catches the cheese.
Interesting the silence on the Co-op IPO which kicks off this Thursday for a fortnight. You'd hardly know it from the deafening silence in all blogs and investment banks. Only AIB sent something via its customer clerks. One consideration is that Safcom IPO despite the all the hype is now trading at ksh3.10.

NSE conspiracy of the day: Was Murigu pushed or did ill-health finally decide for him. The evidence for a push is that practically all the brokers are in the painful grip of losses made when attempting to become day traders. Also as the pioneer of the otc market, he'd surely have wanted to be the launch it. Against that, he has been unwell for a while.

NSE Update- price earnings ratio

Here is a thought. An asset bubble occurs when assets are valued way above their true value normally via lending. However, contained within the asset bubble, maybe an actual rise in value of the asset due to tangible improvements in the assets’ value. Take a house. The price of a house may rise because a general house price rise. Interest rates are low; banks are therefore offering cheap mortgages with high income multiples leading to huge uptake and therefore great demand that can be matched by new buildings. The price of a house can also rise because of improvements for example conversion of the garage into an additional room, addition of a swimming pool etc.

Once the bubble bursts, assets reveal their true value. The question is which of these two value are true for the NSE index shares. If the true value is the one we are seeing today, we are in a bad spot. However, I am more inclined to think that most companies' true P/Es are in the middle somewhere anchored by the growth in their profitability. The question then moves on as to whether in the face of a global slowdown (shrunk markets for our products, lower remittances, more expensive imports), their profitability will be sustainable in '09 and 2010.








Bottomline: Based on the above ,I predict that the NSE won't touch 5,000 before June 2009.

What should you look for in a prospective employer?

Most of us when preparing for a job interview tend to concetrate on the role and rarely on the employer (unless its just to get some small background). However and this is true in any industry, the employer should be equally as important.

Financial perfomance specifically cash flow. Is profitability revenue or cost driven? If its cost-driven, you are likely to suffer redundancy under the first in first out rule. 2ndly, getting spending of any type approved will be a beaurecracy nightmare. If its revenue driven, is it sustainable?

History of financial scandals: If it has been involved in scandals, this will be repeated. This is very true especially in the finance industry. UBS (the one with the largest amount of write-offs currently), has been a victim of LTCM, hedge funds and now credit crunch. Similarly Lehmans.

Does it try to get you take a paycut? They don't value you as highly as your employer. 2ndly, they don't care if you leave within 12 months for a better paid job.

What is its position in its sector i.e. is it a niche player, a big player or declining?

If you value work-life balance, try and set your interview before 8 in the morning or after 530 as that will give you a good idea.

And your prospective boss:

Does s/he understand the firm and where its going? If s/he doesn't, chances are s/he is unambitious and won't be staying long in the firm.
How long has s/he been in the company and has s/he progressed or any inkling of ambition? 5 years means s/he has experience, 10 years that s/he knows everybody and will stay there unless redundancy or retirement claim him. If he has been doing the same job for 5 years, worry. If s/he is new then you get to learn the firm together.
Does s/he ask the obvious questions i.e. about any gaps between jobs; fast-changing between firms? Job related queries?
Does s/he answer your questions properly? Remember your prospective boss is also trying to sell him/herself to you.

Wednesday Shorts

An on-going discussion on the DSL/NSSF scandal has made me recall Shah Munge. Upto the Euro Bank scandal, Shah Munge was a very strong broker and pretty much on par with D&B at the time. It was then caught when it pushed NSSF to invest Ksh256m through it, which then disappeared with the collapse of Euro Bank. And that was that for Shah Munge. DSL in effect did the same thing with NSSF (yes there still no confirmation as to the lose incurred), but on a much larger scale. Does that mean that CMA/NSE regulatory regime is worse than 4 years ago?

Who gives Kibaki/RAO the authority to forgive their henchmen for crimes they didn't commit against the two?

The credit crunch impacting the banking system seems to have been largely been slowed down with sovereigns becoming the counterparties (the 3m LIBOR is down though not that significantly). However, global stock markets will continue to take punches because there are as yet no plans to slowdown the erosion of home equity as house prices fall in US/UK in particular. One of the more innovative ways would be to lengthen the period before repossessing or auctioning homes. Another, now being discussed in the UK is for gova to encourage councils to buy up more homes and utilise them for welfare housing. Either way, capitalism now needs a helping hand from govts otherwise the recession will be deep and long.

Mark Mobius' enthuasism for emerging markets is still going strong despite decoupling now being seen as another failed theoritical model. What he doesn't mention is that risk managment is now the number priority for many banks in the West (and one of the few areas that is doing new hires rather than replacement hires). Add to this, these institutions are ordinarily supposed to take a bigger capital hit for all non-OECD business. Draw your own conclusions. For sure emerging markets remains more attractive and funds will be poured in. Not this side of Xmas though.

Actions without consequencies: Kenya's way

Even if you are not a vengeful person or have no compassion for your fellow human being, there is no way you can read the Waki report or excerpts such as this and not be moved to demand justice for the lives needlessly lost earlier this year. Most of the "prominent" persons named will probably be able to drag the whole thing for years, so I actually think that going the Hague is a better idea so that those named will escape Kenya's but not international justice.

82 nominee accounts for one client with the same broker! And peeps wonder why brokers are collapsing and insider trading (front-running, short-selling) is rife at the NSE? By being able to assess this amount of funds and shares from NSSF, DSL would straight away start trading using the shares. However, most dealers just like the rest of us have no idea which way the market will blow and are inevitably caught out when NSE goes through a bearish session (such as March 2007 when FT collapsed and the current one). So why is NSE keeping DSL open for business? Beyond losing their jobs, will the NSSF board be punished if funds are lost?

Roads are once again a major life-taker. The reason is that Ndarathi Murungaru and Ali "Koffi Olamide" Makwere are not Michuki and hence haven't been able to maintain the good work he started. Will Makwere lose his job?

NSE Update

NSE closed the week at 3,716, the lowest its been since 10th of June 2005. Yes, that is before any of the present run of IPOs that started with KenGen in 2006. Had you invested long-term at the NSE in these stocks, you'd be back to square one or losing.

-BAT, Crown Berger, Kakuzi, Kapchorua, KQ, Kenol, Limuru Tea,
Rea Vipingo, Sameer, TPS Serena, Total, Unga, Unilever, Williamson Tea-

So what is going to turn around the NSE?

1. The global fear factor: is obviously something we can't really do much about. Those thinking that investors will switch into frontier markets are dreaming for the time being.
2. Inflation-Means less disposable income therefore less to invest. Unlikely to go below 20 (key-level in my humble opinion), this side of 2008.
3. BS broker shenanigans: This week's announcement at least shows somebody understands the impact this has on the NSE. Trust us Kenyans to know problem, its cause, its cure, and still sit around like lemmings. It'd help if us investors highlighted issues encountered openly. That way, those affected will be a smaller number.
4. Supply: Okay CO-OP we've known about, but it might be nice to postpone any pending IPOs or supply increasing corporate actions for at least an yr.

CO-OP Bank IPO

Application dates: 30th October to 13th November
Listing date: to be confirmed
Price is: ksh9.50
Minimum number of shares: 1,000
Retail allocation: 66%
Shares to be listed: 701m
Float: 38%
Valuing Co-op at: Ksh17.5bn
2007 EPS: 0.84
Historic P/E: 11.31
Average NSE Banks Historic P/E: 16.9
Annualised 2008 EPS: 1.35
Forward P/E: 7.06
D-v-p: to be confirmed

Recommend: First chance to get full subscription

How to do a resignation letter, or not as the case maybe...

Apparrently this guy's hedge fund made 870% return last year so maybe he can afford to offend a few peeps on his way out.

Harambee Star Coach

I know some (okay, most) of our politicians fear competence in another person, but why can't they for once be happy we have a good KENYAN coach and give Kimanzi the licence to try and take us to the World Cup? He talks sense and is clearly doing something well given he has gotten the Harambee Stars near to qualifying while still doing a day job at Mathare United. Think of the feelgood factor of

• Qualifying for first time and having a chance for most us to see the games down in South Africa.
• Having an indegenous Kenyan (rather than a foreign mercenary so beloved in other countries) take us there.

How will Safcom shareprice dive affect Equity?

Depending on what you read, Equity lent out between ksh20-35bn of loans for the Safaricom IPO as Kenyans went for margin trading in a big way. Margin trading is attractive for banks especially in an IPO where the shareprice is usually guaranteed to rise on listing as this means that the loan is fully collateralised (covered).

Should the opposite occur (post IPO-price falls below listing price), that is where it gets interesting (or not);

• The loan book: Assuming the system worked perfectly, Equity would have received all the refunds from the 25% oversubscription (I have increased this because Equity lent to Safcom employees who had a much higher subscription), and 2ndly, assuming that the loans were not extended for other purposes, then the loan book that we are concerned with is between ksh5-9bn. Of this, good speculators would have disposed at a profit and paid back their portion-lets assume 20% were able to do this i.e. we now have between ksh4-7bn. Then those who panicked once share started falling so as to avoid having to find the bucks from elsewhere, I'd say another 30%. Thus leaving us with around ksh2.5-4.5bn. Of this, I'd say you have those who are more than happy to pay-off the loan and hold onto the shares for the long-term. This would probably be institutions or the high-net worthy. My estimate of the loan that Equity would effectively have to account for would be around ksh4bn as a worst case scenario. This then its holding in Safaricom. However, do note that is a big assumption to make i.e. that so many investors couldn't find the money to pay their loans. And also that this doesn't represent non-performing loans in the strictest sense of the word.
• Income impact: Equity is likely to see loss of interest and commission from selling Safcom shares. Using Ssem's interest rates, we have ksh0.5bn of lost income. However, the income from Safaricom IPO was always one-off (and hence why many have discounted it for Q3 and Q4).
• Capital impact: In accountancy terms, any unrealised gain or loss on assets never touches your P&L, but goes into your reserves. However, the unrealised gain or loss is counted as part of your capital. Equity would therefore take a hit on its capital equal to the reduction from the ksh5 listing price i.e. ksh1bn if shareprice is ksh4 on 31st of Dec.

Bottomline: Income impact relates to one-off downside, but there is a definite capital hit.

Bull vs Bear, the cash/asset paradox

During a bull season, those who already hold assets reap big time. This is not limited to specific assets but applies to diverse assets such as:
1. skillset/qualifications that you have because during a bull season, there will naturally be a scarcity for those skills
2. raw resources because economies grow/expand and consume more of all kinds of resources
3. shares, properties and more liquid forms all rise

During a bear season, those who hold cash plant big time as they are able to pick assets at throw away prices literally. So the paradox is essentially that during a bull, you have to amass cash and during the bear season, you have to buy up assets.Translated correctly, you have to get out of the bull at an opportune moment and effectively keep that cash handy for when the bear comes along. Hence WB's famous saying about being greedy when others are fearful (i.e. during bear) and vice versa. It does mean that;

• a successful investor needs to be able to spot the peaks and troughs
• in which case, selling off and running away from the bearish markets is counterproductive because it means you can't spot the turning pts
• a better strategy is say if you have a particular portion that you set aside for saving and investing, you half or say go to a 1/4 of this portion as investing amount. You therefore keep tabs on the market and have the cash you'll need when the bear hits the trough
• spread your buying during the bear season and only invest one-off lump sums during the bull

Discount Securities Ltd was naked

Just over 2 months ago, I did a little post looking at how leveraged NSE brokers were. DSL stood because as at the end of 2007, it had done 300 times as much business as it had capital which was just asking for trouble.

Lo and behold, today "its under management of KPMG" an euphism for being under receivership. I still worry about Apex because of its leverage and AIB because things are not good.

Seeing many say its good to diversify, moving brokers or having more than one broker at a time is not a bad strategy.


The title alludes to WB's famous saying about only being able to tell who was swimming naked when the tide goes out i.e. when markets fall.

Monday Shorts

So was this last week's sharp policy the moment Gordon Brown halted his disappearing chance of winning the next General Election? Maybe, but unlikely. In the event that UK has a full blown recession next yr and house prices continue at this pace, he'll get the blame for getting us in this mess in the first place. The idea is good because it reassures taxpayers that their bucks won't just be given away for free to wheel-dealers with no scruples.

They say loose lips sink a ship. No soon as a US offical started ruling out adopting the UK policy than the US markets dived downwards before Poulson quickly reassured that this was not the case and they recovered.

So will MS fold given the Lehman-like pattern its followed this past week? No. US govt has now learned that Lehmans was a "tbtf" investment bank so it won't be allowing any others to fall.

Kudos to the BBC for doing a full week featuring the Maasai Mara. Lakini I wish it would also focus on other aspects of Kenya that are good.

Ati there are 44,000 evangilical churches in Kenya? And two applications for new ones per day. Is this what is known as prosperity gospel? Church and money. Infact, church and vices now seem to run together.

Kenyatta day is named thus because its supposed to remind of sacrifices made in the past in which case why not call it something relevant like Freedom Fighters day? Na m-o-i day? What is it all about? Ama Kenyans just love these days off? Wish we had half as many in the UK.



"Unataka soda ngapi?", this guy seems to be asking. I remember last yr, a KBVL truck overturned near Karatina, guys camped by the roadside overnight with cups getting sozzled.

NSE Update

These are anything but serene times at our bourse. Fundamentals have now been taken off the table and investors and traders alike are indulging in fear. The thing is contagious so we need not feel like we are the only ones who can't think straight when all around us everything is going stupid. We breached the 4,000 line without a whimper and depending on this weekend's G7 talks may even drift (or is it hurtle?) towards 3,500. Thanks D&B for your clever float of Safaricom.

Safcom continues to be the victim of our so-called NSE foreignisation policy. Some muppet at D&B thinking only of the commission to be accrued never realised the other side of the coin i.e. decoupling can be good for a small stock exchange such as ours. So will the NSE be taking up the new fad of halting trading for hours if not days? It all depends on how much the brokers will put their selfish interests before the wide market. If commission is king (as I think it tends to be), then there is no chance of us copying the "take a break" route. My preference would be we continue trading and even bring in CO-OP. I might be tempted to widen my net and look at other stocks in such a situation. I have price targets below which some stocks become too cheap not to buy. Imagine even BBK is now becoming tempting if it goes below Ksh40. ARM though remains impervious to any of the bearish stuff and I think it will rise next week following this announcement which will scale up its cement business.

Speaking of Coop, with a week or so to go before its due start date of October 20th, nothing much has been heard. I received a questionnaire some time back from D&B, but that is all I've heard. I really hope its floated now as it might be the only chance we get of a full subscription.

You think we got it bad?

This lady might be the next Vice President of the US.

Huge day in the banking sector: not the last...

UK gova has effectively given the banks the option of taking up capital in exchange for govt ownership. Note that these are politicians so they'll be reacting emotionally to the issues of the day.
2ndly, this is a retrospective step mean to cure known toxic stuff in the banks balance sheets as of now. It like the US zillion game doesn't tackle the underlying depreciation in assets which is the main cause of the toxic stuff. We won't get to the stage that we have a normal banking system until lending and deposit holding is behaving normally.
Finally, we still need some of securitisation for the mortgage market to grow. When will this happen?

UK Stockwatchlist: RBS, rbs. Goodwin will deliver some upside...

Tuesday Shorts

I was thinking I was the only who was daft enough not to understand how this zillion bail-out would help the US. Seems not. I mean once the Fed buys the cds/cdo instruments, what happens to the banking system? Will it be fully captilised to start lending again? Even to the sub-prime?

Technology is a wonderful thing. This weekend I was having a look on google earth at some of the maps they've put together and you get can some places in some very good detail. I was surprised though that you could see Nyeri well, but not Ngong or Karen. Googlemap isn't much of an improvement on this.

So how many banks will be nationalised (fully), by the time we are through these seismic shifts? Practically every EU country now seems in the throes of panic about whether this or that bank is going to have a depositors run on it. Many of these banks are going under because of serious neglect by regulators during the sunny days. In the UK, the regulatory regime adapted was to only visit the so-called strong banks every 3 years. So why can't they just leave them to the same neglect now?

And how is our banking sector doing? I have concerns about NPLs (given the background of high inflation and the Jan issue). However, Fitch is surprisingly perky about the sector. Still would like to see consolidation, but thinks this unlikely in the short-term. One thing I agree with it, we need to see the likes of BBK and Stanchart listing more of their shareholding.

GoK will now do away with the 30% requirement for the telecom sector. I guess it probably doesn't matter that much given the sector is pretty competitive, but I hope this isn't changed for other sectors.

Foreigners are however running back home to preserve their flanks against the global tsunami.

Won't it have been easier if GoK had thought about removing this VAT charge before raising the electricity bill?

Mmmh sort of day

What a day at the markets! Its like every major stock market had set itself a 5% fall target for Monday...To cap it all, there was some investment pundit on CNBC howling "take any money that you'll need in the next 5 years out of the stock market!". Talk about adding fuel to the fire.

The issue is simply this. The wholse funding market has pretty much collapsed as banks don't want to lead to joe blogs bank ltd which then collapses tomorrow. So far, the collapsing banks are those with high dependancy on such funding. Hence why why all the big ibs have either collapsed or changed model to allow deposit-taking. And why mortgage lenders are also on the rack. Again, many are merging or collapsing.

Next comes other economic sectors. Iceland banks for example have use wholesale funding to fund Iceland business which have then come to buy retailers in the UK. You couldn't make up what is likely to happen next...

Another IPO

If you don't fancy the bloated Co-OP (Kenya) and TNM (Malawi) IPOs, the ZANACO one in Zambia might suit your purposes. Zambia's economy is benefitting from the current commodity boom, not to mention staedily improving and stable governance.

Brief details:
Application dates: Sept 29th to October 23rd
Price per share: 470 kwachas (around Ksh9.50)
EPS: 38
P/E: 11.75
Minimum application: 1,000 shares
Shares on sale: 229m + 25m for emplyoees = 25.8% of total
Allocation announcement date: Nov 17th
Shares listed on: Nov 17th

Its not the best of Zambian shares on offer perfomance-wise. Zanaco is majority owned by Rababonk (A Dutch bank) and this its major selling point because it now has steady and banking-wise management. Prospectus to follow shortly...

Can you discern the seasons?

The preacher in our church yesterday spoke on something which I think is very timely. He talked about how we all need to know when it time to plant; time for watering and finally time to harvest. He also pointed out that the most difficult season is the planting season. You have to till, possibly manure and of course you have no idea if the rains will come. Many of us love the harvesting season. The problem is many of us are only interested in the harvesting season. Others try to go through the various seasons, but don't know when the season for planting is and thus end up with maize drying up before its ready to harvest.

Likewise the stockmarket.

So you can discern the seasons at the stockmarket?

Which would be your ideal town to work in Kenya?

Our economy being what it is dictates that you if you are looking for a decent career or job in almost every field apart from maybe tourism and maritime jobs, that you be based in Nai. However, if I had a choice in the matter, my 3 preferred towns to work and live in would be Nyeri; Malindi; Kericho. And I think that if these 3 towns were to start thinking of themselves as economic units in compe with Nai, it would not only be good for the growth of our economy, but would also slow down some of the political venom we are currently living under because of skewed economy growth. So for;

Nyeri: A good starting point would be to avoid getting sucked into the unplanned growth and expansion that plagues Nai. The growth of slums and posh estates arbitrary needs to be controlled before the population gets to 1m or more. For a provincial headquarter, the town is a laugh and reminds me of those small towns you see in the US/UK all with same cross-shaped two roads one always being called "main street" (and "high street" in the UK). In Nyeri's case, you get one tarmacked road that winds its way in and out of the town. The town should go for a fully-fledged university based around the Kimathi Institute with supporting industries perhaps based on plans to build an internet or electronic village. A mzungu's view of the town (complete with mispronunciations). More impressively, the town now has a website though lacking in any useful content.

Malindi: The tourism is the main and growing industry but this town has a lot more potential than even Mombasa and could again act as an economic growth hub. The Mombasa-Malindi road would need to be improved and widened as would utilities around the town. As with Nyeri (ok and possibly every other town in Kenya), it suffers from a lack of planning such that this will have an effect in long-run if not contained.

Kericho: Before the recent happenings, I had seriously thought of buying a plot in Kericho town. If you haven't been, make sure you drive through this town. It really is one of the most beautiful places for me and very calming too. This is the only half-decent video I could find.

At a macro-level, if you shouldn't put all your eggs in one economy, neither should our economy. One of my biggest wishes is that given the dearth of planning in Nai, GoK, councils and indeed the local population in various towns and villages.

Another Safaricom-type of IPO Fiasco?

1.2bn shares @2kwacha does look like a catch-all approach similar to that adopted for Safcom. Hope the Malawians don't suffer the same fate with TNM's IPO. At least its a much shorter period.

Anyway here is the prospectus.

The secret of corruption: bad accounting

Reading this summary of the audit of the GoK accounts, I am shocked by the sheer incompetence in the way our accounts are done. The one figure that sticks out is the Ksh200m in unacounted for staff expenses. Wierdly, it seems that if I turn up and say I spent Ksh50k on a field trip in Ngong, the cash just gets sent to my account. Other highlights:

Revenue collected by KRA doesn't tally with what is recorded as having been received at the Treasury.
A lot of the spend from the districts is only noted at the bottom of the accounts with no back up receipts or invoices.
The accounts as recorded don't agree to bank statements for most of the ministries.

And on it goes...

The overflowing in-tray awaiting Obama

As luck would have it, the first "black" president will need FDR Roosevelt’s kind of leadership to make his mark on the US. Briefly this is what awaits Obama on his in-tray come January 1 2009:

1. Economy in Recession: According to experts, the recession may last as long as 2 years i.e. roughly the time it'll take for the housing market to stabilise and start rising. In which case, most will have forgotten that this was Dubya's handy work and blame Obama. Unless he can do the radical surgery in his first 3 months aka the honeymoon period.
2. Useless wars: 5 years ago, the war in Iraq made sense(mainly because Americans were frightened into thinking it did). Today, with 4,000+ dead and $1trn spent (another cause of the current downturn?), I doubt if many give a care. Ditto Afghanistan where Osama is still unaccounted for.
3. Emerging Rivals: China and Russia will continue to challenge in the economic and military spheres respectively. US needs to be a lot more intelligent about how it deals with both and especially Russia.
4. Nuclear proliferation: It’s difficult when you make yourself the authority on who should hold nuclear bombs. It requires consistency which is clearly not there e.g. why India and Pakistan but not its neighbour Iran?

Future TV Mogul: Venture capitalists beware

I am surprised nobody would want to help fund this guy even for the pure joy of getting involved in something so fresh and original. If anybody has his contacts, let me know.