alastairjohns:

Lovely writing. Provst!

Originally posted on Alison Westwood:

Blest Brewery, Bariloche

Last weekend there was apparently a big craft beer festival in Bariloche, with more than 40 kinds of craft beer to be tasted. Or it could have been beer from 40 craft breweries – my Spanish is still hazy on fine points, and besides, I kept getting distracted by the girl with the squint and the guy who looks like the Australian Top Gear presenter on the poster:

Bariloche Beer Art Poster

Slightly odd poster for the beer festival. (Bomberos means fire station. Hmmm, lots of potential there, I think.)

I say ‘apparently’ because I didn’t need a beer festival to encourage me to try a large number (and quantity) of the multitude of artesanal (that’s Spanish for ‘craft’) beers brewed in Bariloche. Anyway, I am too disorganised to do anything on a pre-arranged date. So my personal beer festival started a few days ago when my friend and I were hitch-hiking on Circuito…

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The Financial Crisis: Staying Alive as a Bond Investor

These days, the facts change fast. When the facts change, the view tends to change. However, at PSG Asset Management, we pride ourselves on being able to make long term investment decisions based on inputs that change less frequently than the views expressed by the market.

We reserve the right to alter critical assumptions that influence the valuations of various fixed interest instruments in the blink of an eye. However, the parameters that are changing are filtered through a fixed interest process that has been fine-tuned over many years. As a team, we debate our inputs rigorously on a monthly basis. We discuss the relative importance of many statistical, economic, market and financial variables in our models, and once we have reached consensus, we take decisions. Make no mistake, though, as we watch the financial shrapnel flying through the prism of our dealing room, we strategise and we act. We run various fixed interest funds with varying risk tolerance and return objectives. Certain low risk funds are targeting Cash returns. Others are targeting Cash + (1% -3%), and yet others are targeting Cash + 5%. Some of our fixed interest funds are blended into low risk products, and other funds rely on cash and near cash investments as a parking place in between bouts of risk aversion and over-valuation of equity investments.

When Governor Gill Marcus delivered the statement of SARB Monetary Policy Committee (MPC) on the 24th of May 2012, we were struck by three things. Firstly, at no point was there a discussion of whether or not interest rates would be changed at that meeting. Secondly, there was an emphasis that the SARB would not hesitate to act by either hiking or cutting interest rates, as required by the rapidly evolving global circumstances. There is now a very real possibility that the SARB might go through the entire up-cycle in inflation without having to hike interest rates. This would mean that the impact of rising inflation will be felt through a steepening yield curve. Once the peak of inflation has been confirmed, the yield curve will start to flatten again, and then long dated government bonds will start to offer value. At that point, we will look to start increasing the weight and duration of nominal government bonds in our bond portfolios.

In the background, however, we must not reduce the chaotic global backdrop to mere White Noise. Greece has defaulted and will likely default again. We are now treated to regular, inconclusive elections on a monthly basis, and we have seen regime change in Ireland, Spain, Italy and, of course, France. “Merkozy” is no more, but regime change in Germany will send shock-waves throughout the world and global financial markets. How does a South African bond investor invest when Europe’s debt capital markets are busy imploding? South Africa has an equivalent / better credit rating than several European Sovereigns, and lower bond yields than many. The ZAR is free floating, unlike the relatively homogeneous Euro which has not weakened as much as the European PIGS require, and is not as strong as the Germans demand. Thus we should buy short end SA bonds (or receive short rates) and look to accumulate longer dated SA bonds (or receive longer rates) into weakness. If the prices of oil & gold fall off a cliff due to a global recession and deflation, then we take our cue from the ZAR. If the weakness in the currency is less than that of oil, bonds become a buy. More simply put, watch the ZAR price of oil and gold. If the SARB is forced to cut again, the same applies. Look for value in the real rate space – inflation-linked bonds offer value anywhere from 2.25% to 3.00%.

Volatility will rise, and with it, opportunities for those with a strategic long term plan.

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South Africa: A Refuge from the Financial Storm

The world is in the process of moving from a Debt Based Monetary System to what will likely be a harmonious hybrid of the gold standard & reduced / sustainable debt system – which we can term the New World Order.

What exactly do I mean by this? The Shadow Banking System, the true representation of all that is bad about the excesses of Capitalism continues to deleverage itself, at the expense of Labour in particular, and Global Society in general. The rapidly rising populations of recently (and permanently) unemployed militant individuals is a worrying sign that all is not well on planet earth. The Old World
Order has, of late, been characterised by excess, by greed, and by arrogance. It is time for a New World Order, one built on the age old store of value, good old fashioned Gold. I am postulating that Gold remains the one precious metal that governments will never have enough of, that they will not be able to duplicate and over-supply the planet with. What other “store of value” can one choose in a world where money supply increases at such an alarming rate? Not even the United States Constitution, with all the wisdom and foresight of the Founding Fathers, could protect the United States from the age old enemy that is human nature. Fear & Greed stalk the capital markets at present, and rightly so. Any financial system built on an oversupply of a Fiat Currency is destined to
collapse. The present scourge of greed, nepotism, political indifference, ignorance and arrogance emanating from the US Senate and Congress rightly cast shame upon the nation whose currency the World used to trust as the global Reserve Currency. This is no longer the case.

In such a world, one needs to exit the Fiat Currency and return to Gold. South Africa, once the world’s largest gold producer, still has many an ounce under them thar’ hills. Not only that, South Africa and Zimbabwe are awash with Platinum. It takes extraordinary market conditions for the price of Gold to exceed that of Platinum, and yet, this is presently the case. Therefore, I would contend that South Africa is a nation that once was built on easily accessible gold, and still remains a viable, significant producer of the
reserve currency of choice. Furthermore, the ZA Rand is backed by, amongst other things, Gold. The Dollar Reserves that have been accumulated by the South African Reserve Bank are already being converted into Gold. South Africa’s markets are deep and liquid – and the strength of the ZA Rand,
notwithstanding the crisis bears testament to that.

Flee to quality, and flee to Gold. Right now, quality is, in my humble opinion, hard to find. Quality with high yield is even harder to find. A growing, relatively stable country such as South Africa, with real yields of 2.5%, a strong currency and Gold & Platinum certainly should not be overlooked at times like these.

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Alastair John Sellick discovers WordPress

Welcome to alastairjohns.wordpress.com. This is my first post.

I can assure you that my second post will be more entertaining.

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