Friday, 9 October 2015

Samurai Summary: Top Tweets 09/10/2015

The Fed minutes of the meeting for September were released yesterday stating much of what was said in Janet Yellen's speech after the rates decision was announced. The market understood the tone to be dovish and rallied the market higher in a week that has been characterised as the bulls welcome home party.

Much of what was said was known a month ago so the news isn't new but it certainly made it's mark by stamping its authority on the trend. Rates staying lower for longer would be positive for stocks in the short term but we cannot escape the reality that the day will come where it cannot be delayed any longer. The notion of "free money forever" is blinding all realism at the moment.

Just to highlight some of the key things said in the statement. Participants believed that most of the conditions that needed to be met to signal have been reached or within a few months of being reached which doesn't rule out a rate hike this year. They also cited inflation as being a concern due to lower energy prices and stronger dollar.

What we do know is that the Dollar Index has been trapped in consolidation mode for months now given the excessive move it brought on catching the market by surprise and at the end of the day aiding the market to the position we find ourselves currently. The Fed's decision should put pressure on the dollar and it's very likely that we start seeing a pullback which would drive commodities in the short term. But we should not lose focus of the bigger picture here, things do still don't seem as rosy as they once were.

An interesting chart to highlight the divergence between the JSE in Rand terms and then in Dollar terms. The year of 2011 has been bantered around lately and I found it strange how following chart from 2011 the JSE in Dollar terms has really gone nowhere since then.

If you had invested in the right stocks like Richemont, SABMiller, BHP Billiton or British American Tobacco's you'd be sitting with some impressive gains. Where do we go from here? Again I want to stress the importance of the Dollar Index which I have highlighted a number of times.
The probability for a hike rate this year did drop on the release of the minutes which buoyed investors on that we could only see a hike next year. We'll have to wait and see.
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