MarketWatch

[BLUEMONEY]

Originally Posted by hispy99

For market-making to be effective, I believe they will have to get rid of the +/-5% band entirely.

That is very true. since you commented on it Earlier, I have been thinking about the possibility and the new dimension the market will take because the +/- 5% will not make thier impact be felt properly.
but dont you think these guys should be allowed to take baby steps since market-making is still new in the NSE ?????

[BLUEMONEY]

Originally Posted by solainvest

Hmmmm...... Do you mean the shares should find their level?

Will that be wise with the current lukewarm attitude of people to the market? It will be practicable if investor confidence was high and things were fine.

If they remove the band, I can see some shares trading at riduculous prices.

The damage will be irrepairable.....

But that is what Market-Making entails in an Efficient Market.

[hispy99]

Originally Posted by solainvest

Hmmmm...... Do you mean the shares should find their level?

Will that be wise with the current lukewarm attitude of people to the market? It will be practicable if investor confidence was high and things were fine.

If they remove the band, I can see some shares trading at riduculous prices.

The damage will be irrepairable.....

That is the danger, prices could fall to kobos for some stocks . A major goal of market-making is to improve liqudity in markets. If I am a market-maker and I know that I am duty bound to provide bid/ask quotes, I will be concerned about the trading band. What happens if say FBN closed at N30 the previous day and the bank releases very dissapointing results (say a 70% drop in profits?). Most likely, a lot of people will want to dump their stock; as a market maker, I have to provide a quote that is within the +/-5% rule. Of course, everyone will dump their shares on me....who do I sell it to?

[hispy99]

Originally Posted by BLUEMONEY

That is very true. since you commented on it Earlier, I have been thinking about the possibility and the new dimension the market will take because the +/- 5% will not make thier impact be felt properly.
but dont you think these guys should be allowed to take baby steps since market-making is still new in the NSE ?????

True, the concept is new, but I don't know how it'll work with the band. Maybe Ndidi has something up her sleeves, so let's wait for them

[knightofdelta]

Meanwhile I am fast losing my cool with the way things are right now...

[zainabusman]

Originally Posted by knightofdelta

Meanwhile I am fast losing my cool with the way things are right now...

Can u explain?

[Taipan]

The attached commentary discusses the worldwide financial crises with emphasis on the US market. But it does make for very interesting reading and there're quite a few things one can learn from it. I guess in the final analysis, the message is "Things are not as bad as they seem!"

[hispy99]

Originally Posted by zainabusman

Can u explain?

I think he's referring to the Sterling Bank situation. Check his comments on the Sterling Bank thread

[knightofdelta]

Originally Posted by hispy99

I think he's referring to the Sterling Bank situation. Check his comments on the Sterling Bank thread

Very correct...

[knightofdelta]

I have read the executive summary of the report posted by Taipan, that things may not be as bad as they seem. I agree with it to some extent but not entirely, when it comes to the Nigerian market. Inflation rates are not as bad internationally as it is in Nigeria. The rates increased from 6% YoY from early this year to 14% last month, so it is an issue for us.

Quite true that energy costs does not have a serious impact internationally but we all know that an increase in energy prices automatically leads to a tandem increase in everything in Nigeria. The diesel issue has hit the economy hard enough that Dunlop has closed shop as a manufacturer and laid off workers. ABC Transport is fighting hard to keep head above water. The aviation industry is finding it difficult to maintain cost control. Based on doubt, I sincerely doubt that the Nigerian economy has moves forward by even 1% over the year as opposed to the developed world, as purchasing power of the man on the street has been severely eroded.

The economic condition is bleak...

[Monwowo]

The article below may be a good read.......


Surviving the Bear
David D. Moenning
TheBestNewsletters.com

Trader - Know Thyself
As with anything relating to the market, it is important to understand that each investor must utilize strategies that work within their emotional makeup. In short, it doesn't do much good to have the best strategy around if you are unable to emotionally handle the consequences of consistently following the strategy.

For example, I know for a fact that following something as simple as a 50-day moving average will keep you out of trouble during a bear market (defined as a decline of 20% or more in the S&P 500). However, such a plan has its pitfalls as the whipsaws incurred in following such a system will challenge your commitment on a consistent basis.

Another very easy method of market timing to follow involves selling when the S&P 500 falls by -7.2% from its most recent high and then buying when the market rises by +8.4% from its low. Sounds easy enough, right? And I'm here to tell you that this system is pretty successful too. According to NDR, from 7/19/66 through 9/5/08, following such a strategy would have produced annualized gains that are nearly 50% better than the yearly rate of return generated by the S&P 500 itself (+9.8% per year for the system vs. +6.6% per year for the S&P 500).

But here's the rub; only 53% of the trades are profitable. So, this means that when implementing this system you will feel "wrong" almost half the time. Can you handle that? Can you handle buying high and selling low four or five times in a row - because, that is exactly what happens when using this type of method? Thus, it is vital that you know what you can and can't handle from an emotional standpoint and play accordingly.


Understand the Environment
I have been managing other people's money since 1987 and one of the most important lessons I have learned over the past 21 years is the best way to beat the market over the long term is to "lose less" during the inevitable bear market declines. This brings us to my first point - understanding the environment.

For starters, it is paramount that you understand the type of beast you are dealing with. Cutting straight to the chase, during a severe bear market, such as we experienced in the mid 1970's and then again during 2000 - 2003 "tech bubble bear," the bears will get to everything eventually. So, during these severe bear markets, you must recognize that you, just like EVERYBODY ELSE, are going to lose money - it's just a question of how much. So, do yourself a favor and stop expecting to be the one investor out there that won't lose money in a bear market.

If you can't handle some losses during a bear market, consider moving to a bank-insured (hopefully) CD because the stock market goes up AND down. Thus, investors (as opposed to savers) understand that you need to be able to take the good with the bad.

Therefore, the game now becomes one of survival! In other words, you need to still be standing when the bear market ends (and rest assured that this too shall pass). In addition, it is extremely important to understand a new bull market WILL be born after the bears finish their work. So, if you can limit your losses during the bad times, you will have more money available to work for you during the next bull phase.


Survival Strategies
The vast majority of investors do not follow mechanical systems that, while frustrating, will work over the long haul. Thus, most investors manage their accounts using a reactionary approach and respond to what is happening in the market at the present time.

On that note, by now, almost everybody will admit that we've got a bear market on our hands. The point is that the goal right now is to lose the least amount possible until a new bull phase begins. How do you accomplish this, you ask? Here are a few strategies to consider implementing right now:

Do Less: This is NOT the time to be hyperactive with your investments.

Raise Some Cash: Remember to "sell to the sleeping point" as bear markets are part of the game. And in the immortal words of Robert Prechter, "cash is good because it gives you time to think." There is no need to be fully invested all the time. So, consider raising cash into bear market rallies. Having some cash in your account (I've currently got between 30% - 50% in cash across the board right now) means (1) you are likely to lose less during any further declines and (2) it keeps some powder dry to put to work when conditions improve.

Play Smaller: Make your bear market bets small ones. These are volatile times, so no need to be a hero and bet the ranch.

Don't Chase: There are rallies in bear markets and there are stocks that go up. However, it is a cardinal sin to "chase" (buying after a big run) anything higher during bear markets.

Don't Panic: Check your emotions at the door and try like the dickens not to panic when things "feel" bad. As the gang on CNBC's Fast Money likes to say, this is the time to "buy the dips and sell the rips." However, you'd best be mighty nimble if you are going to play this game.

Don't be Fooled by Dead Cat Bounces: Be aware that big rallies (aka dead cat bounces) occur frequently during bear markets when things become too oversold. These moves are generally short and sharp, and usually give way to another leg down.

Look For New Leadership: Since you may have some time on your hands, spend some of it looking for the new leaders. Remember, the leaders of the old bull market are unlikely to lead during the next bull move. Therefore, stop looking at energy and materials and start focusing on the new leaders such as health care.

Be Ready!
Finally, it is vital that you are ready for the miserable bear market phase to suddenly and without warning, morph into a new bull market. Remember, the stock market is a discounting mechanism that purportedly looks ahead 6 - 9 months. And since, according to Ned Davis Research, the majority of bull market returns occur during the first one-third of a bull market, it pays to recognize when to play the game again.

How will you know that it is safe to get back into the pool? In last week's report, we detailed one of our favorite bull market indicators - the breadth surge - or what we called "THE Buy Signal." In light of the fact that nearly all bull markets are either preceded or accompanied by a breadth surge, it is probably a good idea to "get ready to buy" when this signal is given. And don't worry; we'll be sure to alert you when the signal occurs.

[hispy99]

Blame banks for bearish trend – Analysts
By Udeme Ekwere
Published: Monday, 8 Sep 2008

Market analysts have expressed the opinion that the downward market trend, which rocked the Nigerian capital market for over four months may be linked largely to the activities of Nigerian banks.

Some argued that the market might not have declined to a worrisome level if the banks had behaved differently.

The capital market had lost over N3.5tn between April and August this year, and a lot of reasons had been attached to the trend.

According to the Managing Director, GMT Capital Limited, Mr. Eby Odegah, the prolonged bearish market was mainly triggered by negative information in the market, which made many investors uncomfortable and wanting to sell.

However, he said the banks were the worst culprits of the bearish trend, as they did not help matters. “The banks acted as if they were outsiders to the Nigerian market system and they did not behave as if they knew the market itself,” he said.

He said calling in loans, extended to stockbrokers and investors, used to purchase shares, the banks caused a general panic in the market.

This, he said, was because people started selling off their shares in an attempt to pay back these loans.

Odegah said that for the market to actually stabilise, the banks had to change their orientation, since they were the ones that could make or mar the market.

Explaining further, he said, “A situation where it took people a long time to buy shares, and the shares are down and you are asking for your money, will definitely push them to sell. And if everyone rushes to sell, the price will come down more, and as this continues, the market also crumbles, which will further lead to a point where the market may crash.

Also speaking on the issue, the Chief Operating Officer, Centrepoint Investment Limited, Mr. Jire Oyewale, said that the recovery of the market depended on the banks.

“If banks give loans to people to buy shares in the capital market, then they should know that it is a long-term venture, and a period of at least a year should be given by the banks to the market operators before they recall the loans,” he said.

Oyewale, however, commended the Federal Government on its recent move to stabilise the capital market, saying that it was the right move, and was sustainable in the long run.

He said it was aimed at ensuring that investors did not incur losses on their investments.

[hispy99]

The bonanza in margin trading
Written by Les Leba
Monday, 08 September 2008
Investors in the Nigerian capital market must have sighed in relief with the gradual return of bullish trading on the floor of the exchange this week.
The downward slide which wiped off over N3000bn from stock values within four months may have been halted by the intervention of the same monetary and regulatory authorities, whom some observers also blame for the market nosedive in the first place.

Several reasons, including the observation by the Director General of the Securities and Exchange Commission that share prices are deliberately artificially manipulated, have been adduced for the huge losses in the capital market.

However, on closer examination, Central Bank’s policy somersault on the issues of margin trading and uniform financial year for banks may be the real catalyst. Ideally, stock market price movements are predicated on investors’ evaluation of fundamentals in annual corporate results and the rate of dividends vis-à-vis the market share price.

However, most investors in the Nigerian market are short term speculators, whose market positions are determined by inadequate information and the ease in raising bank credit for stock acquisition. In this event, some analysts observe that it was inevitable that “the market became significantly overvalued with an average listed equity trading around 40 times its earnings!” Daily Independent 3/9/08-pg C4.

So long as banks were free to lend money to uninformed investors to buy their own or third party shares on the Nigerian Exchange, stocks, particularly of banks which make up over 70% of market capitalisation, began to shine in comparison with market growth elsewhere.

The capacity of banks to continue to sponsor such incestuous growth in the market was strengthened by an apparently inexhaustible liquidity pool constantly sustained with the payment of the huge monthly allocations of the three-tiers of government, and on which the banks could make 50 – 100% margins and comfortably shield their exposure in the stock market like no other business in Nigeria.

The risk of diverting such short term government deposits to long term loans were mitigated by each bank’s unilateral choice of accounting year! Thus, the funding gaps which should have been apparent as a result of such transactions were covered by borrowing at whatever cost from other banks who have different financial years so as to make the fundamentals of their bank more attractive on paper even if dividends paid didn’t correlate the excellent performances published!

Thus, any disruption of the spurious comfort zone created by the twin factors of shares purchase loans which, according to the CEO of Intercontinental Bank, yields stupendous margins of between 50 – 100% (Punch-2/9/2008, pg 15) and staggered financial year for banks would reveal the underbelly of the strength of the Nigerian stock market.

The CBN may not have fully realized to what degree the market rested on these two factors when it failed to quickly respond to what it subsequently described as an unfounded rumour that margin trading was slated for abolition as an engine of growth for the stock market.

Even before its belated approval of margin trading, the CBN further compounded this faux pax with its circular of 15th May 2008 addressed to all banks and discount houses on the adoption of a common year end; “the apex bank directed the Directors of banks and Discount Houses to, as a first step, pass a resolution to that effect…” and “threatened to deal with any bank or discount house that failed to submit its accounts three months after December 31st 2008 or three months after the prorated year.” Guardian 20/08/08, pg 34.

CBN’s memo practically set the cat amongst the pigeons as banks immediately set out to recover their debts, so as to present a healthy picture by 31st December 2008.

The implication was that many beneficiaries of margin loans were forced to sell their stocks to repay their indebtedness. This drive for fund consolidation was complimented by the haste of banks to seek deposits and funds at unreasonably high rates.

The desperation for funds triggered a ripple with rising impact on commercial lending rates which soon exceeded 25%. Some analysts have described the acceptance of deposits at unreasonably high rates, as a symptom of underlying distress in those banks and debunked the claim of banking consolidation creating stronger and healthier banks.

The respected UK Economist Magazine in a recent report suggested that Nigerian banks which post huge profits in a depressed economy are generally overvalued by up to 56%, and scored these banks low on transparency, citing “the UBA fine of $15m by United States regulatory authorities for ignoring anti money laundering regulations despite several warning” as an example.

In a belated realization of the impact of its order for a uniform accounting year, the CBN in paid half page adverts in the print media, confirmed that the commencement of the uniform year end which had been postponed to 31st December 2009 as per its circular of July 31st 2008, as a result of its unraveling impact on the financial markets had been rescinded at its Monetary Policy Committee meeting of 5/8/2008 (less than a week after the earlier policy statement!).

“Consequently, each bank and discount house is now at liberty to adopt its own accounting year end as it deems appropriate and inform the CBN accordingly.”

Meanwhile, Standard and Poors, an international rating agency has insisted that “the move by the CBN to ensure that all banks had a similar financial year end would promote transparency…, and would be of benefit to the investors in the long run, as it would enable them to easily make their comparisons of the banks that are performing well and those that are not." The Punch, 18/08/08, pg 22.

All said and done, it seems the CBN’s desire is to protect the banks and not the economy in its policy somersaults in recent months. There is no serious attempt to truly install transparency in the affairs of the banks in the stock market.

It would seem the reduction of daily downward share price movement from 5 to 1% and the retention of upward movement of 5% is an attempt to continue to rig the prices of shares and divorce them from the financial fundamentals of each bank. The 20% shares buy back is also likely to be abused under our ‘liberal’ regulatory framework.

The subsequent backlash that would inevitably follow such attempts to cover banking malfeasance may bring down the edifice in the end! This column is one with the observation of the EFCC Chairman according to a report “who tacitly referred to ‘some’ banks who connive with State Governors to launder over N100bn in high interest deposit accounts as Nigeria’s worst enemies today.” Vanguard 1/9/2008-pg 6.

The EFCC’s image maker, Mr. Femi Babafemi even goes a step further when he observes that “you will notice that some banks are suddenly awake to the necessity to establish branches abroad. Go and check how much they are able to mobilize from such countries. Majority of money there is Nigeria’s money laundered money!” Vanguard report under reference titled “How Some Banks Aid New Money Laundering Tricks.”

We passionately commend the EFCC for setting up its Monetary and Intelligence Unit (MIU), and look forward to seeing the faces of the enemies of our country very soon!

Save the Naira, Save Nigerians!