KEY POINTS:
Lets's face it, predicting sharemarket movements is a tricky business as anyone who has followed the Business Herald's Brokers' Picks each year has probably learned.
But perhaps analysts and fund managers are just going about it the wrong way.
Massey University academics Ben Jacobsen, Ben Marshall and Nuttawat Visaltanachoti have discovered that analysing data energy and commodity market data "on a daily basis or other shorter intervals, rather than monthly, offers a much higher success rate of stock market predictions".
Stock Takes wonders what analysts and fund managers are doing if they're not analysing data on a daily or more frequent basis.
Nevertheless, the trio say they have achieved "amazing results" with their findings which impressed the Institute of Financial Professionals sufficiently to earn them the institute's "best investment paper" title recently, which is the third time Jacobsen has earned the award and the second time for Visaltanachoti.
So have they made money using their findings? "Personally, I don't use active trading strategies," Marshall told Stock Takes this week. "I certainly do take note of what commodity markets are doing and factor that into my decision making process."
However, the method is being incorporated into the investment strategies of a number of European fund managers "and it's going well by all accounts". "I really don't want to overstate things, I don't want to create the impression that we've cracked the black box."
THE SAME TUNE
The sharebrokers' representative body the Securities Industry Association (SIA) was in damage control mode a week ago after correspondence between it and NZX regarding proposals to set up a central clearing and settlements system and changes to market participant rules was leaked to the media.
As Stock Takes reported, the letters indicated at least some brokers were unhappy with the way NZX was advancing its proposal for a central clearing system.
But in a statement released last Friday the SIA said NZX's strategic initiatives for the country's capital markets had "the unambiguous support" of its members.
Oh really?
There is clearly widespread support among brokers for a central clearing system for equities trading although there are some concerns about the timing and cost of moving to such a system, as Stock Takes discussed.
But beyond this, there is a feeling at least in some quarters that the industry is being steered towards a central clearing system owned and operated by NZX.
At least one and maybe more of the big broking firms simply don't want this.
Unambiguous broker support for an NZX run system is "misinformation that the NZX is spreading", a source who is a senior figure at one of the large broking firms told Stock Takes this week.
"We go to meetings and voice in the strongest possible language our discontent with what they're proposing and it's then later characterised to the next dissenting broker that everyone else is on side except for them," the broker, who did not wish to be named, said.
"The reality is that if you look across the industry a number of the other big brokers as well as ourselves are not happy with what's being suggested."
IF NOT, WHY NOT?
The NZX and SIA between them appear keen to characterise dissent regarding NZX's strategic initiatives as being more about shortcomings in NZX's approach to industry consultation, rather than the actual proposals themselves.
But Stock Takes' source says his firm's misgivings are more fundamental than that.
There is already some concern about the NZX's multiple roles as market operator, market regulator, and listed entity on that market, let alone owner and operator of a central clearing system.
"Our view is that the right party to run the central clearing function is the Reserve Bank," said the broker.
The RBNZ already operates the Austraclear clearing and settlements system.
The source was concerned that a central clearing system, generally acknowledged by most broking firms to be a good thing, should be accessible to a range of potential market operators.
"Government ownership of infrastructure is a much fairer way to regulate access."
THROUGH THE WRINGER
Fisher & Paykel Appliances' woes, revealed this week have, according to a number of commentators, been brewing for a while.
One investment professional told Stock Takes the company, unlike others which faced similar issues, had failed to act quickly enough to tackle their balance sheet problems.
He understood F&P had received what now appeared to be a pretty good offer for its finance company a couple of years back but only started a sales process a year later when the timing was way off, thanks to failures in the sector.
That, with the company's failure to tackle its worsening debt position earlier suggested a lack of strategic thinking and risk management at board level.
Therefore a pro rata rights issue, which is one of the capital raising options being considered, would hardly be welcomed by investors unless it was accompanied by a boardroom rejig.
Others are not so negative about the company though and as is often the case, those with positive things to say are willing to put their name to their comments.
Morningstar analyst Nachiket Moghe, in a note this week reiterated his "buy" recommendation on the stock.
"While we acknowledge the trading performance was highly disappointing, the stock price fall is quite harsh and an overreaction in our view.
"To put it in perspective, the stock is currently trading well below its appliance working capital per share.
"This is an incredible discount to the firm's intrinsic value, providing investors with an immense margin of safety."
Fisher & Paykel Appliances shares closed down 2c yesterday at 62c.
SHADOW OF THE HAWK
Since paying his debt to society back in the 1990s, former Equiticorp boss Allan Hawkins' business activities have been on a far more modest scale.
His Cynotech Holdings specialises in buying loans off distressed or failed finance companies at a discount to face value in the hope that what is eventually collected on them exceeds what it paid.
It's a far cry from the mega deals of Equiticorp's heyday but then again a Cynotech market announcement last week detailed a transaction that brought back memories of the New Zealand Steel deal that helped land Hawkins in one court case all those years ago.
Basically Cynotech used its shares as part payment for the purchase of failed Western Bay Finance's loan book in a deal that gave Western Bay's receivers a put option to sell the shares back to a nominee of Cynotech at a later date.
That option was duly exercised with the shares going to CBD Solutions, an outfit associated with Cynotech's legal advisers Lowndes and Associates.
Those with long memories will remember that Hawkins got into trouble after Equiticorp bought a big stake in NZ Steel off the government, paying for it with its own shares in a deal that also gave interests associated with Hawkins an option to buy the shares back at a later date.
Hawkins was cleared of charges related to that particular transaction.
In last week's announcement Cynotech said the Takeovers Panel had raised concerns about its recent deal, in particular the fact that Hawkins and CBD, who the panel deemed to be his associates, ended up with more than 20 per cent of Cynotech, with no Code mechanism being used to effect the acquisition.
The panel's view, Cynotech said, was that Hawkins and others "may have been knowingly concerned in the possible contravention of the Code by CBD Solutions".
CBD Solutions has promised to sell the shares involved in the Western Bay transaction to non-associated third parties by April 9.
Shares in Cynotech closed steady yesterday at 15c.
GIVING UP GAINS
With balance sheet blues hitting Fisher & Paykel Appliances and Nuplex and any misapprehensions as to the severity of the global economic situation fast evaporating, the sharemarket has been busy giving up its late 2008, early 2009 gains.
Closing 4 points lower at 2616.93, yesterday the NZX-50 is approaching the five-year low of 2575 hit in late November last year.
You may have read them elsewhere in the last few months but the words of late economist JK Galbraith from his account of the 1929 Wall St crash seem disturbingly appropriate once more:
"The man with the smart money, who was safely out of the market when the first crash came, naturally went back in to pick up bargains.
"The bargains then suffered a ruinous fall.
"Even the man who waited out all of October and all of November, who saw the volume of trading return to normal and saw Wall Street become as placid as a produce market, and who then bought common stocks would see their value drop to a third or a fourth of the purchase price in the next twenty-four months."
