A plea to protect and preserve Kenya!

Wanainchi, our beloved country is under siege. There’s no question the elections clearly marred in controversy, with strong public perception and evidence that the process was, flawed and rigged with impunity in favor of the incumbent/ PNU. Neither party is however entirely credible because there were also reports of PNU agents being locked out of polling centers in Raila strongholds. However, thats behind us and we are now staring down the path of civil war following the announcement that the incumbent Kibaki is once again our President.

Violence has erupted in various parts of the country, pitting neighbor versus neighbor, friend versus friend. We know where the road will take us if the situation is not contained. Our peaceful way of life may come to an end as the tribal vitriol, riots, chaos and confusion spiral and escalate into war; setting Kikuyus against everybody else.

This is not acceptable. Bloodshed will not solve the problem; it will simply fuel the incendiary and turn us into another banana republic.

I understand the consternation and betrayal felt in people’s hearts, that the democratic process was subverted at the expediency of a few consequently invalidating the wanainchis inalienable right to freely choose their leader. However, my brothers and sisters, Kenya transcends our egos and ethnic affiliations; we cannot possibly allow ourselves to disintegrate and fall because we have chosen to retaliate and let our self importance foreshadow our conscience and love for the nation.

Let us stand against tyranny and clamor for justice. Let us oppose leaders who have no moral and constitutional authority to govern, who have forcibly thrusted themselves upon us. Let us fervently protest and ensure our voice is heard from the hill crests to the valley troughs.

However, let us do so in peace and condemn wanton acts of violence that threaten to rip the fabric of our nation apart.

“Violence as a way of achieving racial justice is both impractical and immoral. I am not unmindful of the fact that violence often brings about momentary results. Nations have frequently won their independence in battle. But in spite of temporary victories, violence never brings permanent peace. It solves no social problem: it merely creates new and more complicated ones. Violence is impractical because it is a descending spiral ending in destruction for all. It is immoral because it seeks to humiliate the opponent rather than win his understanding: it seeks to annihilate rather than convert. Violence is immoral because it thrives on hatred rather than love. It destroys community and makes brotherhood impossible. It leaves society in monologue rather than dialogue. Violence ends up defeating itself. It creates bitterness in the survivors and brutality in the destroyers.”

Let us heed and digest these words of the late great Martin Luther King Jnr..

Brace Yourself !

After the stock market bloodbath which we have witnessed in the last few weeks, why shouldn't an enterprising investor stay away from the markets temporarily?
It appears investors have been spooked by recent colossal write downs reported by nearly all the major investment banks indicating that the turmoil in the credit markets is far from over. In fact some pundits warn that this is just the beginning and forecast that 2008 will be the year of reckoning.

You remember the controversial summer bailouts-when the major central banks around the world infused over a hundred billion dollars into the markets to ease the liquidity crunch? So much for the band aid solution which did not address the underlying weaknesses in the credit markets but instead sought to act as a temporary reprieve and serve as an artificial stimulus!

Deja-vu all over again? After a second run to past 14,000 a few weeks ago, the Dow has since lost over 1000 points, the NASDAQ and S&P are both down as well.
Outside of the financials, fundamentals seem to be sound as of now with some companies like HP who recently reported a 28% increase in profits in the last quarter. This holiday season is expected to be the slowest since 2002 with retail sales forecasted to increase only by 4% compared to last years 4.8%.

Personally, I don’t think that consumption will slow down. Yes, while it is true that foreclosures and delinquencies are at their highest level and home values have adjusted downwards, the American consumer is tenacious and will borrow to the hilt in an effort to maintain the lifestyle.

I managed to rollout of bed and join avid shoppers the queue at Best Buy at 4am on “Black Friday” not to shop, because I had already done so online, but to gauge consumer sentiment. My erudition yielded results that reinforced my opine-that shopping patterns haven’t changed and will not change much and consequently, we can expect retailers to report blow out earnings next quarter. My portfolio is long AAPL and GRMN because I believe their bottomline will benefit tremendously from this shopping season resulting in some nice capital gains when I exit.

However, I would advise investors with a short time horizon to refrain all together, go short or buy put options. Use ETF’s like QID, DOG, SDS, MZZ…etc which short indices. Avoid shorting individual stocks. Advanced investors should profit from the volatility using combination option strategies like straddles, which allow the holder to profit based on how much the price of the underlying security moves, regardless of the direction of price movement.

I foresee a continuing onslaught on the financials. Look for more surprises in the form of restated earnings and more write downs which have besmirched the balance sheets of otherwise profitable companies like Citi (C), Merril (MER) and Bear (BSC). These events will foreshadow overall good earnings results reported next quarter and hurt consumer and business confidence which will result in another sell off.

In an effort to mitigate risk and reduce exposure to consumer debt, banks will follow suit lowering credit lines thus dampening both consumer and business spending further; the tighter credit markets will result in a drag on the overall economy which will soon spread beyond housing into other sectors.

If the Fed vacillates like last time, the credit squeeze might spell doom for all and spiral us into a recession. Yes I said the R word.

Fallen from the skies; Maurice Odumbe

I came across a disheartening storo a few weeks ago in the local dailies. The pulse magazine insert in the Standard that was about matchmaking celebrities appropriately titles “soul mates and fall mates.”

Starring in it was Maurice Odumbe, the disgraced cricket star who was banned from the game for five years after allegations of match fixing and book making were finally substantiated by unearthing overwhelming evidence against him.

Forget the matchmaking prediction, the next couple of paragraphs aroused my emotions, causing me to cuss out in angst……I believe my exact words were “you dumb fu**”, which I yelled atop my voice to amazement of my co-workers who were now curiously looking on, probably thinking I was going to pull out a machete and massacre them? Read on and you’ll understand why…..

“Once upon a time in 2003 during the Cricket World Cup, Maurice Odumbe was a sporting superstar with a white wife, Katherine Maloney — a teacher at the ISK, two kids and two white side dishes —Caitlan Patterson and Katja Nielsen.
He traveled the world, played cricket, played white chicks, rented a mansion in Runda and owned a BMW 520i, two other BMWs and a Mercedes Benz.

Then the International Cricket Council came calling, accusing him of bookmaking and match fixing. Hell hath no fury like a white Chiquitta played, and all the three of his women got together, not for a ‘menage-a-quartet’ but to testify against Maurice.
Five-year cricket ban, and Odumbe was sank.

He’s moved from Runda to a flat in Kileleshwa, and sold his three ‘Beamers’ and the Benz (Assuming the show-room cars cost him a total of Sh10 million, why Maurice didn’t simply floss with a Sh2.5 million ‘Beamer’ and invest Sh6 or 7.5 million of his cheddar in his own home, we will never know).

Anyway, our concern is his women and fiancÈes, not his finances. And white chicks aren’t good for our Odumbe lad.”

I don’t care about the white mamaz, my concern is his finances!

I am consternated by how he managed to scupper resources in a relatively short amount of time-a classic case of rags to riches to rags again. Stories like these are ubiquitous and transcend ethnicity, background, sexual orientation and religion. It can happen to anyone, a sure recipe for financial ruin is of course outta control spending without regard for thrift, saving and investing in assets. Odumbe frittered a small fortune away by choosing to keep up with the wabenzi instead. Robert Kiyosaki observed that his rich dad invested in assets while poor dad invested in liabilities. The outcome of both choices is known.

Assuming that Maurice had sought wise counsel from a financial planner, how would he have fared? Lets go back to in time, to the peak of his career and assume he had that 10 million in cash.

There are numerous avenues through which an investor may choose to diversify their portfolio of assets to include but not limited to equity stocks, real estate-land, commercial and residential properties, government securities, unit trusts etc. According to a research report carried out by city villas, real estate is the most preferred form of investment followed by shares.

This would have been my asset allocation recommendation.
4.5 million—Home
500 K—emergency funds stash
500 K—Operating cash
3 million—equities
1.5 million—Vehicle



House: 4.5 million back then would get you a 3 bed house in Kilimani/Hurlingham area or a posh flat in Westlands, Lavington surbubs.
Emergencies: Its always advisable to have 3-6 months worth of living expenses set aside in a savings or money market accounts for emergency purposes.
Moti: Since jangos love to floss, 1.5 M would have got him a used 200 Merc or 5 series Beemer so that he can go toe to toe with the best of them.
Investments: Equities were completely undervalued at the time. The NSE index was roughly at 1500 and although GDP growth was at 2% and interest rates hovering in the 20% range, certain sectors of the economy were still thriving eg Banking.

How would he have fared using this approach:

Property values have since sky rocketed. According to the national property index report, some areas in Nairobi have seen 100% price appreciation due to rising demand and short supply. Three bedroomed flats in Kilimani, Lavington, Westlands are now going for 6.5-11 million Ksh!

The NSE has been one of the world’s best performing stock exchange. According to Standard and poor’s, the Index rose 787% in dollar terms from 2002 to 2007. $1 dollar invested in 2002 would equal $787 at the beginning of 2007!

Odumbe Then>>>>>>>>>>> Odumbe Now
4.5 million House>>>>>>>>> 7.5 Million
3 million invested in the NSE >>>>>23.61 Million

Change in Net worth:


20.61 + 3 = 23.61 Million!! The idiot would have had a net worth of 23.61 million!! Today, he close to nada.

In the words of Ben Franklin, wealth is created by industry and frugality. Save, Plan ahead, buy assets which grow in value or produce income not liabilities which loose value and reduce income. Unfortunately for Maurice, the lesson is a bitter pill to swallow but what better way to learn than from experience huh mate?

The Parable of Diversification

He that resteth upon gains certain shall hardly grow to great riches; and he that puts all upon adventure, doth oftentimes break and come to poverty: it is good therefore to guard adventures with certainties that may uphold losses. -Sir Francis Bacon

Diversification is a portfolio management strategy designed to hedge against risk by investing in different asset classes such as stocks, bonds, mutual funds, real estate and precious metals, which are negatively correlated i.e unlikely to move in the same direction. Because different classes of assets move up and down in value at different times, the goal of diversification is to reduce exposure to risk in any one asset class which allows for less volatility and more consistent performance under different economic conditions.
Systematic risk, the risk inherent in the market due to factors we can’t control can never be diversified. On the other hand, diversification eliminates the other kind of risk, unsystematic risk-the risk specific to an individual stock.
Granted that spreading your eggs limits both the upside and the downside potential; a diversified portfolio will however ensure a sustainable long term growth strategy and benefit investors over the long run over holding individual stocks.

It is not just enough to diversify; an investor must ensure that their portfolios are optimized by picking securities that have the highest projected rate of return for their given level of risk. This philosophy is derived from the modern portfolio theory that is widely in use today by money managers.

The parable of diversification.

In early 1975, a man called jack wins $200,000 in a lottery. He decides to invest his windfall conservatively because 1973 and 1974 were terrible bear markets, he opts for purchasing long term government bonds.

In 1979, interest rates skyrocket, and the value of his bonds plunges to $144,000. Well, he decides, I’m going to get out of the bond market and cut my losses. But what to do now? He remembers that gold was selling for $35 an ounce in 1972; today It’s almost at $800 an ounce. Moreover, he just heard someone on the radio predict that it will soar to $2,000 an ounce so he decides to buy 180 oz of gold with his $144,000.

Now the year is 1982, and gold has fallen to $300 an ounce. Jack sells his gold and has only $54,000 left of his lottery winnings, but this time he’s going to be smart. In the early 1980’s, he knows, the only investments that have performed well are oil & gas and real estate. As jack sees it, only one investment makes sense. He decides to buy a condo in Houston. He locates a $200,000 condo and puts $54,000 down and takes out a mortgage of 146,000.

The years pass and it’s 1987. He’s paid his mortgage down to $110,000 but Houston’s real estate prices have crashed and his condo is only worth $120,000. jack decides to cut his losses. He sells the condo for 120,000, pays off his $110,000 mortgage and moves out of Houston with his remaining $10,000.

It’s now 1995 and jack is living in Silicon Valley. Everyday, he hears stories of this thing called the internet. He decides to invest his remaining $10,000 in a mutual fund, the extremely aggressive all internet fund.

By early 2000, we find jack thinking early retirement-his mutual fund is up 50% just in the past month! Given very strong returns, his fund is now worth $80,000!! But then the dot com bubble bursts and his fund looses over 95% of its value in the next two years. Jack has just $4,000 left. But he keeps telling himself: all I need is one good investment”

The moral of jack’s story: diversify, diversify, diversify!

This is what would have happened if jack had diversified his winnings. If jack had invested in :

25% real estate
25% Gold*
25% small cap stock
25% long term bonds

For the period from 1975 to 2000, his portfolio would have been worth $3,245,524

*Gold index inception: May ,1985

Siasa mbaya, maisha mbaya!

I recieved this foward from a friend-The author is famed columnist and management consultant Sunny B. The article presents a rather clear illustration of the malefic political time-warp we are bound in, even without analyzing the ulterior motives which drive the rampant political horse trading that charactarizes the murky game of politics ultimately feeding on the gullible and oft venerable mwanainchi.

Let's have a history lesson for the youngsters this Sunday.

In the 1980s, Daniel arap Moi and Mwai Kibaki led the same government. In the 1990s and in 2002, they were on opposite sides, and vociferously so. In 2007, they are together again, praising each other's statesmanship. In the 1980s, Moi and Kibaki were leading the government that was routinely> locking up Raila Odinga. In the 1990s, Moi, Kibaki and Raila were all on different sides.

Before 2002, Raila was with Moi against Kibaki. In 2002, Raila was with Kibaki against Moi, endorsing him with his famous 'Tosha' cry against Moi's chosen successor, Uhuru Kenyatta. In 2005 Raila led the constitutional referendum vote against Kibaki, with Moi's support. In 2007, Raila is Kibaki's main challenger for the presidency. Moi is on Kibaki's side. In 2002, Uhuru Kenyatta was pitted against Kibaki and Raila. In 2005, he was with Raila but against Kibaki.

In 2007 he has left Raila and looks set to join the Kibaki camp. In the 1990s, Kalonzo Musyoka was firmly with Moi and Uhuru, fighting Raila and Kibaki. In 2002, he was with Raila and Kibaki, fighting Moi and Uhuru. In 2005, he was with Moi, Raila, and Uhuru, fighting Kibaki. In 2007, he appears to be fighting Raila, Kibaki, Uhuru and Moi. In the 1990s, Musalia Mudavadi was firmly with Moi, Kalonzo and Uhuru, fighting Raila and Kibaki. In 2002 he was with Moi and Uhuru against Raila, Kalonzo and Kibaki. In 2005 he was with Raila, Kalonzo, Uhuru and Moi, fighting Kibaki. In 2007, he is with Raila, fighting Kalonzo, Kibaki, Uhuru and Moi. Do I need to carry on? You get the picture, young ones.

This is the matatu race called Kenyan politics. Every so often, a few leaders climb aboard a matatu together and paint it in bright colours. They join other equally loud> and garish matatus in a race around a circular race track. The music begins. After some time, the matatus come back round. Race viewers now note that some leaders have jumped to a different matatu with different fellow passengers. Nevertheless, they are waving at you with great gusto, and you are waving back. Why should they be doing this? There is one reason, and one reason only. There is no principle at work here. The only thing driving every one of these people is the need to take power. Why do you pull other people onto the matatu with you? Only because they can help you win the race. If they can't, you push them off, or jump onto another matatu yourself. When you are thrown off, you run alongside, throwing stones until you get tired. Then you sit down and wait. Another matatu will be along soon.

I wrote last year: 'Our parties cannot even be called institutions in any sense. They have no structures, no procedures that anyone respects, no elections that they bother to hold, and no vibrant membership that puts any pressure on them. They are matatus, decrepit vehicles that carry the ambitions of a few bigwigs whilst not caring two hoots for legality..The people on the party political matatu do not own it and do not care for it. They do not invest money in it, and they do not maintain it. They have no idea whether its engine is sound, or if the electricals are working.

They couldn't care less. It's a mere vehicle, a quick ride to riches.' If ordinary human beings behaved like this, we would consider them fickle and lacking in character. Do you make friends, drop them, befriend them, dump them when it suits you? If you did that, you would get no respect at all from society. When politicians do it, we say 'that's politics' and> accept it as normal behaviour. It's time we set our standards higher. It's time we began judging politicians by their strength of character and adherence to principle. Who has said the same thing, had the same allies, stood on the same platform and upheld the same agenda? The development race, which is not the same as the political race, is not won by loud people in loud matatus. It is won by preparing sleek and sturdy vehicles that are kept well-oiled and are maintained by the same people.

Different race-cars may take the lead at different times; but all are serious contenders and are in for the long race, not the individual lap. We can't do much about the quality of our contenders, but we can do something about the way we judge and reward them.

Stop applauding when a matatu is resprayed and appears with different passengers. Stop laughing when you see a collision in the race. Take your eyes off the political free-for-all run on the cow-field. Focus instead on the race that will take the country to second- and first-world status. The race that improves our education, our health, our livelihoods and our knowledge base is the only one worth cheering. Everything else is an irrelevant side-show. The sooner we realise it, the better.

Don't rejoice just yet....

The Feds decision yesterday to slash the funds rate to 4.75% from 5.25% was applauded by many and buoyed the indices sending the Dow up 336 points!
The funds rate is the rate at which depositary institutions lend money to each other and oft used to control the available supply of funds thus influencing interest rates on both commercial and consumer loans.

That the decision by the FOMC was anonymous tells us that they finally realized making a preemptive move to forestall a recession was much smarter than waiting for the worst then using a series of financial fibulators thereafter in an eleventh hour attempt to jolt back the economy to life. What difference a month can make, during their last meet, economic weakness took a back seat to inflationary pressures which they still have to deal with now that they have loosened up the supply of money.

I expected 25 basis points and a statement littered with fed jargon that leaves room for more cuts in future meetings based on careful introspection of the now manifest hazards borne from careless lending standards whose effects we are reeling.

In cutting the all important rate, the Fed choose to deal with the larger evil, thwarting a recession that was caused by lenders with loose credit standards who primed their balance sheets by charging high rates and packaging exotic mortgages to the hoi polloi borrowers who were plagued with poor credit and otherwise afford homes. In my opine, it is not the job of the central bank to bail out speculators and greedy banks but rather maintain sound fiscal and monetary policies with an aim of ensuring growth while balancing inflation.

I guess since the credit mess was going to trickle down and start nibbling away at the economy, especially since consumerism is the key driver for growth-Well, when people are at risk of or loose their homes, they can no longer use them as ATM’s or feel comfy about future prospects, budgets are ultimately tightened and that lack of spending will eventually hit most sectors of the economy hard thus slowing growth rates and earnings. Alarm!

In the short term the rate cut will help the hoi pollioi, who took out ARM's, breath easy because payments will adjust downwards in tandem with the interest. in the long run, housing still remains weak. Individual home builders say it’s too soon to know when conditions will begin to pick up again. On Tuesday, the NAHB reported that its index of builder confidence fell in September to the lowest level on record! At an investor conference on Tuesday, Robert Toll, Chairman of Toll brothers (TOL) said its too early to call a bottom just because of the rate cut. Ultimately, the governors have provided a much needed psycological boost for consumers and investors but housing fundamentals still remain weak.

So giddy up Uncle Ben, but be careful of the “moral hazard”. This is a condition economists attribute to chopping away at the rates too quickly which would lead to a re-pricing of risk and consequently incubate favorable conditions that led to this credit squeeze.

To our own, Manu Chandaria. Businessman & Philanthropist extraordinaire

Don't ask me how I knew who Manu Chandaria was when i was just 10 but i just did. His family has been involved in various forms of trade ever since Sir Micheal Macdonald, Kenya's white governor bestrode our lands like a collossus and when Johnstone Kamau wa Ngengi was a little known Kikuyu activist.

His name commands attention and utmost respect in business circles not only in Kenya but in all the 40+ countries where his company, Comcraft has a business prescence. The Comcraft Group is a $2.5 billion conglomerate that was founded in 1929 and now boasts over 200 companies that stretch across all the 5 continents. In Kenya, it includes Mabati Rolling Mills Ltd, Galsheet Kenya Ltd, Booth Manufacturing Africa Ltd, Eslon Plastics of Kenya Ltd and Kaluworks Ltd among others. In Uganda, it has Uganda Baati Ltd, while in Tanzania, these are Aluminium Africa Ltd, Metal Products Ltd and Tanzania Chesemen Ltd. Chandaria has been thrice voted East Africa's most respected chief executive, an honor he downplays.

Withought a shadow of a doubt, most Asian businessmen in Kenya who run mega enterprises have achieved their gargantuan wealth through unsrupulous deals crafted in association with exceedingly corrupt power barons and members of the political elite who have fleeced treasury coffers with impunity for decades. Think Naushad Merali, an accountand with Ryce motors in 1984 who rose to dizzing heights of success in a relatively short time frame and now sits at the helm of The Sameer Group of Companies which has a heavy prescence in every sector of the economy, construction, agriculture, finance, IT, transport, communications etc...you name it and Meralli is there. People like Ketan Somaia, Kamlesh Pattni, The Kamanis and many others whose names were synonymous with underhand ventures that evolved into monstrous scandals involving shady contracts were billions of dollars went up in smoke only for the said individuals and their collaborators to walk away scott free and enjoy the spoils of their ill gotten loot publicly!

Not Dr Chandaria. He has never been remotely associated with any dubious deals nor have his businesses benefitted the economic mileage that political patronage bestows. Here's a man whos wealth dwarfs the Ndegwas and Kenyattas, eschews publicity, has been honored worldwide for his contributions to commerce and charity work and hobnobs with world leaders; a true enigma.

Said he, " Back in the 1950s we heard about the Rockefeller and Ford Foundations and what they were doing in America. When my brother and I came back from America we thought of starting The Chandaria Foundation. This was in 1954. "The idea was to help people without waiting for them to approach the Chandaria family. "We thought that with a foundation there would be a focus on our giving and over the years this has proved true,"

Today, the cause of his charity work has been geared towards the disabled, children and the sick. It is said to whom much as been given, much will be demanded. Chandaria, through his deeds has truly embodified compassion and selflessness by making a difference in the lives of the less unfortunate.

Only in America is the culture of giving back ingrained among the creme de la creme. Both corporations and individuals. It was just the other day another hero of mine, super investor, the oracle of Omaha Warren Buffett was announcing his $31 billion dollar pledge to the Bill & Melinda Gates foundation. Going back in history, like Chandaria alluded to, You will find that nearly all fabulously wealthy American families going back to the robber barrons donated large sums of their monies to charity and set up foundations that advance human achevment, fight poverty and injustice and promote social respondibility.

This is in sharp contrast to Kenya where magnificent wealth achieved through sheer plunder of public institutions and through political connections is repatriated to foreign countries with very little of it trickling back to the economy and worse yet, none of it is given back to society except in small sums through political harambees and counterfeit public displays of sympathy.
Always dream and you will be-I aspire to be like Chandaria someday. Not in the monetary sense because my parents never started any business that I could take over and grow into a billion dollar corporation but more so in the humane aspect. The world is filled with abundance through right application of thought and effort I will have my share of it and hope to use that blessing to help the downtrodden and be remembered not for my fortune but for what I did with it.

The Fed acts, or did it react?

Headliner of the week is the decision by the Fed to cut back on the discount rate by 50 basis points from 6.25 to 5.75. The discount rate is the rate the Fed charges banks to borrow funds from it.
In doing so, the Fed said it was "monitoring the situation and is prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets." It also added that "financial market conditions have deteriorated and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward."

Just earlier this month, they had emphasized that fighting inflation was more of a primary concern than focusing on economic weakness which had been accelerated by the sub prime fall out. We should question the sound judgement displayed by this team of highly revered economic pundits. It comes as no surprise anyway since previous boards have also shown the tendency to lag between monetary policy decisions and the changing economic dynamics.

This move will not impact consumer interest rates, a reduction in the more important federal funds rate will do that trick and it is now widely expected that the Fed will trim that rate by at least 25 basis points from 5.25 to 5 percent when they meet on September 18th. Friday’s decision however did give a lifeline to many businesses facing credit and liquidity crunches, chiefly mortgage companies which have been hamstringed by severe lack of short term financing needs.

The markets, as expected, ingited on the good news sending the Dow back up to close at above 13,000 but still more than 1,000 points off its July 20 closing high of 14,121. The S&P 500 index rose 2.5%, the most in 4 years to 1,445.94. Bond markets were calm, the benchmark 10-year note closed at a yield of 4.68 percent.

I am of the conviction that the Feds belated move will calm the storm and investors will go back to focusing on fundamentals and buying earnings. I have since bought back into the market through my 401K and allocated as follows.

• 28% Tagret 2040
• 30% international
• 10% S&P 500
• 20% Fixed income
• 2% Small Cap
• 10% Value

Year to date return is a measly 6% but could have been worse if I hadn’t fled to the safety of bonds when the market begun its downward spiral!

Of Politicians and the bid to scuttle the Safaricom IPO

We know that the proposed Safaricom IPO has generated droves of interest from various parties.

Gargantuan investment banks like Goldman, Merrill, and Law firms like Clifford Chance are seeking to establish investment banking and advisory relationships in this formerly unexplored market, local investment banks & stock brokers are jostling it out amongst each other to win favored spots as lead brokers for the transaction, institutional investors hope the allocation is weighted heavily towards themselves, Safaricom employees can hardly wait to be rewarded for their efforts and lastly there is the general public; salivating in anticipation of the huge monetary gains, a possible repeat of the Kengen scenario where a few were lucky to their triple loot in the first day!

Ah but wait....., there are those that want to halt the machinery even before it starts. These opportunist naysayers aka our politicians want to throw a spanner in the works because of one small unresolved issue. Mobitela. That is the name of the mystery company registered in the islands of Guernsey that reportedly owns 5% of the gravy train that is Safaricom.

I have, for many reasons, been eagerly awaiting this IPO since the government announced the intention to float its 25% stake to the public a few months ago. My intent and desire to own a piece of this wonder cannot be measured numerically, only emotionally and that’s why I shuddered the other day when I read about the parliamentarians intention to block the sale until the shroud on the mystery ownership veil is lifted.

These pompous imbeciles whom we voted to represent their interests and whose only legacy in the 9th parliament shall be their gluttonous appetite for awarding themselves CEO like perks at the expense of the Mwanainchi and fanning tribal politics now want to block the planned privatization of East and Central Africa’s most profitable company? In doing so, consequently denying the government revenue to fulfill its budgetary allocations and the people of Kenya the chance to partake in the growth success of this local wonder whose services we use everyday? Not!

The web of complex transactions between Vodafone, Telkom, Safaricom and Mobitela, play out like exactly like the famed Kansas city shuffle, a classic con twist in which a combination of distraction and subterfuge cause the mark to turn their attention away from the plot which proceeds in the opposite direction move.

That Mobitela pulled a fast one and duped Kenyans is a fact. Someone (read the Moi-Kulei axis of evil) is getting dividend checks of 800 million plus a year, a fact that Micheal Joseph, the Safaricom CEO vehemently denied when he came out strongly other day to discredit claims of the existence of a third leg in the ownership structure.

Mars Kenya has written extensively on the issue and fact is that yes, Mobitela did acquire its position by strong arm fraud tactics and manipulation but we cannot change that now. The government has nothing to do with Mobitela since it’s seeking to divest its 25% share to the public. The Parliamentary Committee Report on Public Investments wants the Director of KACC to immediately institute investigations on the circumstances and manner in which the shares were transferred to Mobitelea with a view to taking appropriate action against any persons found culpable. The PIC also wants the Director of KACC, to include a progress report on the investigation in the Commissions quarterly report to the House for the next immediate period. What will this accomplish?

Raila “the Hummer” Odinga, who once claimed that the NSE was infiltrated by drug money proceeds has now found a new issue to politicize for political mileage. He and the ODM camp allege that there was no privatization commission to formulate and implement a programme to ensure transparency and accountability hence the privatization proceeds will find their way into the “election gravy train" Since when did these narcissistic MP’s look out for the interests of others besides their own? Have they suddenly had a fit of morality and bought back their conscience from the devil in this last minute bid to scuttle the largest IPO East Africa has ever witnessed?

If those egotistic scoundrels really want to protect investors and the general public, a good start would be to cough up the billions of shillings they have looted from coffers in the form of dubious allowances and benefits…and perhaps pay up all the back taxes they owe. Instead of political witch-hunting marked by staging euphoric tribal rallies where hate and propaganda is fanned by incitement, how about attending parliament to debate on legislative matters and enact good laws reflective of the people’s collective aspirations which are the fundamental cornerstone of our nation.

You morons, Leave THE SAFARICOM IPO ALONE!

Weekly round up

Tuesday’s Fed meeting left investors with more questions than answers, which they had the Fed would provide through its policy statement.
Wall Street had hoped that the central bankers would focus on economic weakness especially with the sub prime fiasco that has rattled the markets in recent weeks. Instead the Fed continued to emphasize on inflation, while only acknowledging that “credit is getting tighter” like we didn’t know that!

The marked dropped sharply but then recovered to end the day in positive territory. A lot of investors will however continue to remain bearish on instruments that are tied to mortgage backed securities.

On Wednesday, Cisco (CSCO) reported- not only did it post impressive numbers but it raised guidance for next quarter. John Chambers was quoted as saying that he believes that this was the strongest economy he had seen in years. This bullish sentiments and guidance for raised the technology sectors overall outlook and all boats were lifted by the Cisco’s rising tide.

Bond yields have dropped further, lifting prices. The 10 year yield is now down to 4.75% as investors flee to safety.
Looks like the Yen carry trade is unwinding as the yen continues to raise. Investors who scooped up the Yen on the cheap and reinvested in higher yielding markets across the world are forced to unwind as the yen rises, consequently drying up liquidity. Remember back in February, unwinding of the Yen carry trade was a one of the factors that caused a slide in the Asian markets.

On Thursday, news of the suspension of withdrawals from three funds at France’s BNP Paribas did not angur well with the markets. Apparently, those funds valued at some $2 billion cannot be valued due to the mess in US credit markets.

This week saw the largest cordination effort by central banks worldwide to inject liquidity into their money markets in an attempt to soothe ongoing woes. The ECB alone dished out $131 billion to aid troubled firms with the Fed adding $35 billion in reserves to buy mortgage backed securities in an attempt to divert the looming crisis.

Friday: US stocks still closed higher for the week albeit the volatile run.


Heavy week ahead: Major reports expected to signal the health of the US economy. Retail sales, PPI, CPI, housing starts and initial jobless claims all being reported. I think the numbers will indicate that the mortgage crisis might have slowed down the US consumer but not stopped them. Watch out for the CPI & PPI data which are a good measure of inflation trends and might provide some clues to the outcome of next months FOMC meeting.

Recession or just another correction?

The last two weeks has seen US stocks suffer their worst loss in nearly 5 years!
While Some reassuring economic data helped lift the market earlier in the week, the market ended the week with a broad based sell off. The Dow has lost over 800 points since it flirted with 14,000+ a week ago! The flight to safety following this massacre has lowered yields but lifted bond prices. The yield on the benchmark 10-year note fell to 4.71% from 4.96%. Good news for fixed income investors.

This sharp drop isn’t inlike others we have witnessed during this 5 year bull run. Afterall, February saw a 6% decline, sparked by an international sell off and there has been at least one decline of 5% or more each year since 2003.

This drop however was driven by different forces than previous market declines. Continued trepidation facing the mortgage industry specifically sub prime lenders has sparked credit concerns thus causing a liquidity crunch among lower quality issuers. As mortgage defaults and delinquencies rise in tandem, investors are worried that this liquidity problem will eventually spill over to larger mortgage companies and banks as consequently affecting the whole stock market. Summer trading volumes are traditionally low so this will intensify the volatility problem with uncertainty and fear dominating the hearts and minds of many.

Synopsis:

The worst has yet to come. One sub prime lender American Home Mortgage (AHM) announced on Thursday that it was shutting down its doors and laying off several thousand employees in the process. The stock lost 90% in one day! Expect many companies to follow suit. Top on my list is Accredited Home Lenders (LEND) and Novastar Financial (NFI). Also Look for shares of housing companies eg Tol Brothers (TOL), Centex Homes (CTX), DH Horton (DHI) and businesses that tangentially rely on home sales such as improvement companies like, Home Depot (HD), & Lowes (LOW) to be negatively impacted by ongoing woes in this sub-prime fall out. I am short LEND.

Overall, the outlook isn’t rosy. Weakness in lenders and homebuilders extended to the other 10 economic sectors with the materials and financial sectors performing dismally.
On Financial stocks, I expect the downward trend to continue in the summer. Of particular concern in Bear Sterns which has been overexposed to sub prime lending through one of its Hedge Funds. Lehman Brothers (LEH), Bear Stearns (BSC) and Merrill Lynch (MER), have all recently dropped to below their 52 week lows! Base fundamentals haven’t changed significantly but expect credit risk concerns to overshadow corporate earnings news.

Busy week ahead- the Feds open market committee convenes and investors will be all ears seeking guidance on the state of the credit markets which the Fed is likely to touch address on its statement. Productivity and consumer credit economic numbers will also be out this week.