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Last year December I told colleagues that commodity prices were going to rally in 2016. This was when everyone was still really, really bearish. Around March / April people started believing it and mining stocks have a really great run. I'm astounded by the price gains in iron ore however, because that is a dead commodity if ever there were one. Coal prices have also surprised me. With every man and his dog loathing coal, and renewables making great inroads into power generation, one would have thought Ol King Coal was finally dead. And yet China and India are buying the stuff like there's no tomorrow. This last week has seen coal prices move from the mid-60's to around the mid-90's i.e. USD/ton. You will probably see the stock market wake up to this fact in the next day or so. Expect counters such as Glencore and South32 to do quite well in this regard.

But, being the contrarian I am, I am now quite worried. The coal market is easy to squeeze and manipulate. Certain Swiss based trading companies spring to mind. With Hillary most likely to be stepping into the power seat, I can't imagine that US coal demand is going to go back up. That really leaves Europe, India and China as the major buyers, with China the big swing factor. Next year China gets their High Voltage power network properly up and running. This means that their Hydro Power (of which they have loads) can now easily be transported to the big demand centres on the coast and the SE, where the coal plants are. So, with oil prices remaining rational at around $50 and gas and LNG prices also still quite bearish, I can't see coal being supported at these insane prices for too much longer. Having watched this market for over 18 years now, I think this is the final "Hurrah" for the coal industry. In 5 years time it may only be Eskom buying coal from the Guptas. Enjoy the price rally while it lasts....

It is estimated that around 95% of the volume traded on the NYSE is now done through algorithmic trading / black boxes. See https://en.wikipedia.org/wiki/Algorithmic_trading

Traders are now just essentially order routing humanoids (e.g. from client to PC) with the bots essentially making all of the crucial millisecond execution decisions. (I'm always amazed at how people perceive traders to be the Hollywood alpha male types when in reality they are really more the IT geek beta male type). Anyway, I wonder how this relates to volumes on the JSE? Does anyone have any firm numbers for how much volume is coming from bots and how much from actual human executed trades? Of course I realise that most trades are still almost 100% human originated i.e. client or prop originated, be it pension fund, prop trader or individual stock clients. I just wonder how much of actual execution has shifted to the bots on the JSE, and associated trading platforms?

Also interesting to note how Chain has now developed an OS for the block-chain and that the major US banks are looking at how they can use this for private block-chain networks. Don't think cash is dead just yet but unless SA pulls up our socks our banks might soon be left behind....
http://www.bloomberg.com/news/articles/2016-05-02/inside-the-secret-meeting-where-wall-street-tested-digital-cash

All of 2014 and 2015's stock market gains have been wiped off the Dow....

Yellen spoke yesterday and underwhelmed the market.... this feels very much like 2007 again.... could see imminent bank failures.... Deutsche Bank on watchlist...

first I imagine the investment bankers and lawyers all get their pound of flesh as they cobble the actual mechanics of the deal together..... then submit for CompCom approval around the world.... going to be interesting, wonder what happens to SAB's BEE and employee shareholder scheme?

Nice. Are traders always taxed at 28% or does it depend on your earnings?

Of course it depends on your personal circumstances. But I had to choose something right..... I also only assume annual brokerage fees of R5,000 which might also be a bit advantageous for traders, although I assume only around 5 trades per year on something like the SATRIX40.

Hi Patrick, thanks for another interesting post and congrats on the whole wedding thing. Remember that weddings are not expensive but divorce is quite possibly the biggest financial loss you will ever incur. Good luck for never having to go down that particular black hole.

With regards to these old long-run market analogies, I think we must also realise that the world has changed. Yes, shares will most likely present a very viable long run financial return. But crashes are going to become more imminent and market timing is going to become more important to maximise your returns. As an example, I can switch my Allan Gray retirement annuity funds in and out of equities whenever I choose, typically making a cost-free move once every couple of months. I typically do around 3 to 4% better than their Equity fund as a result i.e. I switch into hedged funds and cash when I suspect a sell-off is coming and then switch back into pure equities at a lower price.

I say the world has changed because 1) permanently low returns in bonds and elsewhere are forcing equity prices up unrealistically, keeping zombie companies alive and making others more expensive; and 2) there are now more bot-traders in the market than human traders.

The problem with 1) is that value is being eroded. Fundamental value investors are struggling to find real value anywhere based on tried and tested valuation methodologies. The markets are simply rallying because everyone knows that equities are the only place to find returns right now. Every man, his dog and shoe-shine kid is in the market. It's a very dangerous situation to be in. The problem with 2) is that bots are happy to make money from being short just as easily as from being long. Previously the market used to follow a right-angled triangle approach i.e. the bull walked up the stairs 80% of the time (the hypotenuse) and the bear jumped out the window 20% of the time (the upright of the triangle). I for one have noticed that this human tendency to want to buy and see the market rally is starting to break down. The sell-offs are happening with greater frequency, are more sustained and thus, although less ferocious in intensity, are probably starting to do more damage to long-only portfolios.

Although hedge funds have been largely ridiculed and seen major cash withdrawals of late, I suspect we will start to see star performing hedge funds emerge as average volatility in the market starts to pick up over time. Equity historical volatility has typically only been around 15-20%. Watch what happens when equity volatility starts to become more like 30-40% and equities start behaving more like commodities. I don't predict this trend will fully emerge for at least another year or so but watch this space....

And breathe out and relax.... if we rally from here it looks like a nice bubble-bath is on the cards for next few weeks. I don't get it myself but the market wants to rally. So be it.... Go long, be strong.