All Share Index has done since - Hugo Capital

A Above How low before A 202 to 15 All Share Index has done since. This is a chart

published in June, with slightly adjusted target

Global Perspectives Investors are perplexed and worried. Are markets at last confirming a nice bull market underway? Yet how can markets be anticipating higher earnings and higher stock prices (if prices are saying that)? After all, there are no convincing solutions or prospects of solutions. The twin problems persist: debt increasing to service increasing first world and emerging market debt; and persistently slower or patchy growth. Our view is that while the twin problems persist, we must listen to the technicals that are warning that new highs don’t necessarily make a bull market. Price action may be up based on inflation fears and hopes for the stimulus efforts to be successful, but even the most bullish investor has to admit that fundamentals still look awful. When one looks beyond the terrible twins that are Debt and DeGrowth ( my word), the rest is hype about how efforts at stimulus will pay off. Like Japan from 1989 to now? In the elections I didn’t see much enthusiasm from Americans or the world for the argument that the US’s money printing has paid off. For decades, the US has done a remarkable job in persuading the world to lend the US money based on paper promises; the US has leveraged that money by printing more of their own promises. Such as the US$, US Treasuries and more imaginative instruments, culminating in the Credit Default Swaps that set the 2008 crisis alight. That ability to print money has had benefits to the rest of the world though: such as relative world peace since 1945, remarkable technology shared, generous grants to the third world, and a growth boom since the 1980’s. So when commentators argue about the end of the US as a world power, we are not so quickly convinced. Every empire can decline, but it takes time, as well as a shift of people’s values.

IN THIS ISSUE:

Global Perspectives P.1

Capital protection and growth P.4

JSE Sectors Ranking P.5

JSE Charts P.8

Unit Trusts and Retirement Funds P.9

The Turning Point Letter

Global markets and the JSE are at crossroads. Muddle on higher or reverse. Technicals, cycles and fundamentals may be at a Turning Point. Momentum will soon show the way.

Issue # 896

19th November, 2012.

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What is worrying though is that the pattern of the 1990’s and 2000’s is still playing out: politicians promising nice goodies to middle and lower income people, if you vote for us (the Democrats). The same thing happened in Europe (and South Africa) in the last decade. The politicians forget that to deliver sustainably via growth, the countries should be promising less, not taxing the makers to give more to takers. The Republicans had a good candidate who had the courage to argue for new ways to tackle the US deficits and growth problems. Yet the voting majority chose more of the Obama promises. The Obama boys hope that continuing the printing press will keep the ball in the air long enough to give a window in which growth will revive to solve all the problems. We suspect that this is a recipe for a financial disaster that could make 2008 look like a picnic. Most investors are blissfully unaware that market risks are no better than in the “the Great Recession ” of 2008, 2009. Investment Solutions has just pointed out that global debt as % of GDP is now higher than it was at the end of World War II. Are we in a Financial World War III? The hope is that the printed money stimulus with low interest rates will help the US and global economies to find time to generate real growth. Governments everywhere have found it useful to co-operate to keep insolvent countries notionally viable. It keeps them in power. The real risk is that for some reason a key country or enough countries decide that co-operation is not in their interest. That could start a domino effect and give new dimension to the banking crisis of “too big to fail.” We only need to think of Spain, Portugal, Greece and even France and Italy. I see France has just had another credit downgrade that makes its borrowing costs higher. How do they pay? By printing more money? With this background of increasing risk< we believe it is still useful to investors to choose a strategy and investment mix which has as priority to protect capital in all weather conditions. This is not a bull market until the fundamentals of debt and growth problems improve.

I can hear some readers saying – “But, but, but ... we need to be in the markets because they go up more than they go down; that history proves that the real risk is not being invested because inflation is HIGH and is certain; that downs may be big when and if they come, but they are quick and the up moves are bigger; that we can’t depend on crystal gazers who keep worrying...”. Those beliefs are useful to investors who buy and hold during secular (long-term ) bull markets when company earnings and the global economy are supportive and trending upward . e.g. 1982 to 1999, when US markets peaked in real terms. Since 1999, the Dow has been down in a bear market in inflation- adjusted terms. In bear markets there is a lot of noise, called “volatility” by the media. There are lots of up trends, even lasting months – but they tend to be difficult and anything but persistent. There are plenty of downtrends with plausible rallies along the way. Does it remind you of world markets since 2009 lows? Yet whether the world is in a Bull or Bear market is not that important. What is critical is to invest to handle all weather, such as an extreme bull or bear phase, a crash or stagnancy - while catching enough of the upside. Markets we are in are not only fraught with worries, but are difficult to preserve capital and make money in.

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Turning Point Issue #896

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Rather than buy and hold, we stick with a strategy to protect capital during a bear phases during known vulnerable times. Overweight the sectors that are rationally bullish ( e.g. food production, alternative energy solutions, technology. Consumer sectors have done well as interest rates stay low and social engineering interferes with the real economy. There are always some sectors that outperform. Buy- and- holders rely on few falls, small falls, brief falls and quick recoveries, plus occasional runs. It doesn’t need us to remind that small falls can become big and lengthy falls. It took the Dow Jones Industrial Average 22 years from 1932’s low to 1954, to reach new highs above 1929’s high. In inflation- adjusted terms, it took until the 1980’s to beat 1929’s high, more than 50 years. So much for index investing if you were a buyer in 1929. There were plenty of opportunities in the recovery though. And don’t forget the Japanese Nikkei which traded just under 40 000 in 1989 and still languishes at around 8600, 78% down from the top. Several times along the way it has doubled or rallied 50%. Yet the trend has been down since 1989. The priority should still be to reduce the risk of significant capital destruction. Our clients have participated in some of the upside as markets recovered after 2009, but they have slept better knowing they are at reduced risk by various techniques, such as diversification and available liquidity e.g. money market near cash to buy into the market when real value is on the table. The climb since 2009 was as a result of the biggest international monetary stimulus cooperation ever in the history of humankind. Cooperation only lasts while it works. That’s the risk now – that a domino effect follows any failed co-operation. Think of the squabble that would follow a Middle East confrontation, or if too many countries in Europe fail to make budgets. The printing of money, debt servicing debt and money market stimulation since 2009 was in the hope of avoiding or delaying a crash. Has it worked? Well, there has been relative stability since the bank failures in 2008 that lead to the threat of global economic implosion. Time will tell if that was a pre-tremor, with a crash to come, or whether 2008/9 were the worst it will be. What we do know is that global growth has little prospect of quick recovery and there are plenty of reasons why it growth can reverse more. Since 2009 the US, Europe and Japan – even Sunny South Africa, have happily spent more and more borrowed more money, in the hope of at worst a breathing space and at best, hoping to avoid a crash altogether, or delaying it so long, that the risks are mostly forgotten. Think of Japan. Japan’s debt to GDP is still at over 240% last time I looked. The US has allowed its debt to grow from less than $1 trillion 12 years ago to $16 trillion now. Obama’s administration are spenders. They have to spend to deliver on promises. So they have to tax more. With no prospect of accelerating economic growth or accelerating reduction of debt, they will be spending on the takers, not on creating the environment that makers of wealth need. The classic debt trap. What about the so called “Fiscal Cliff” – the mandated government spending cuts of $607 billion (according to Bloomberg) that come into force unless Congress agrees otherwise before 1st January? My guess is this is not a major issue. After some politicking and finger pointing, agreement will be reached. They will delay the cuts. Yet delaying deficit reduction is the problem. We will have a bumpy time as traders try to work out what is going on.

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Turning Point Issue #896

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Despite stock prices a bit up in 2012, the risks have not improved. Banks are being propped up by governments. Yet governments are being propped up by each other and they are all borrowing from each other. Pieces of paper are earnestly being held “as security” for debt, are still being swapped. For the nimble and those who want to weather the risks, it is a fund picker’s and stock picker’s market. We think that global markets are still in a bear market and that means many more months of sideways ranges, with risk of a blowout crash or selloffs - and opportunities of explosive recovery along the way. For the next two years the only way to do some capital growth while preserving capital, will be to invest in funds that can handle both good and stormy weather. And have some cash to buy screaming value in mini or maxi crashes. This is not the time to expect massive returns from the markets. The good news is that bear markets don’t go on forever. Those investors who are persistent with strategy and ensure they are liquid enough to buy after prices implode or at least do 20-30% selloffs, can get massive returns and be in the market early enough for the next bull. Our cycle studies suggest that the bull will only start at earliest in 2015, probably 2016. Until then markets can go higher, but unlikely so in real (USD or inflation adjusted) terms. INVESTING FOR CAPITAL PROTECTION AND GROWTH Depending on risk tolerance of individual clients, we are recommending 20-50% in money market until buyable setbacks come. The funds we prefer have a proven track record of handling the bear and the bull and crisis. Often a diversified, flexible, balanced or equity mandate where the fund managers are enabled to be nimble and/or flexible. Not a time to be heroes. See the discussion above. When short term momentum recovers after a decent setback offering value, we plan to increase exposure gradually. Maybe late but better that than early and exposed to serious capital injury. What is a buyable setback? Preferably more than 20%, followed by momentum recovery and an environment you and we as investors understand. Not so easy, but it isn’t meant to be easy, nor is it meant to be stupidly risky. Losing out on opportunities is also a risk though. When improved value propositions present, increased risk will be more palatable than now.

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Turning Point Issue #896

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Tel: 0861- 888 - 987 Int.: +27 28 312 1735

JSE SECTOR GROUPS AND RANKING Resources

We hope our investors will benefit from the recovery of resources shares. Our research says they are basing and it is time to be slowly accumulating resources for long term value. Commodities arguably run in huge cycles of 60 years from low to high. The last low was in 1952. Which suggests that the next big cycle is due to begin. We may have to be patient for a few months though, while basing confirms. A large cycle can easily start with a whimper, not a bang. We know some of the funds we invest in are quietly buying some of the blue chips. On our radar or held: Assore, Exxaro, Kumba IO, Billiton, MondiPLC , Omnia, Pan Africa, Durban Roodepoort Deep, Newgold. Sasol is ranging, not trending. Accumulate. I tcould easily see brief dips to near R 300, even below. Billiton is outperforming Anglo. It may take some months until Anglo persuades the world that all is well. Platinums have been showing tentative reversal to up action, but reversal has not yet confirmed. Like Telkom, please be patient and accumulate Implats R140-R125 or below and Northam at R25-R31.00.

Retail, Consumers

Every time this sector looks expensive in the last few years, the sector just keeps on going as interest rates reduce or stay sideways and social engineering with taxpayer money gives money to those who are keen to consume. We are invested but are willing to be nimble to take profits if confidence reverses. As soon as interest rates have to go up as the Rand weakens and with any accelerating capital outflows, watch investors rush to sell their retail sector shares. It will all end in tears when consumers have to cut back. Hold, accumulate until they become reduce or sells: Mr Price, Woolies, Shoprite, Clicks, Fambrands, Richemont, Vodacom ( outperforming MTN), Naspers-N, AVI, Truworths, Aspen, Netcare, Bidvest, SA Brews. Fixed Development Investment and IT Don’t fight the down trend in fixed development counters. Stay underweight until prospects and trend evidence improve. Global and local builders, engineers and materials suppliers are struggling as government and private sector battle with labour demands and slower exports. Among FDI, there are always outperformers though: Afrimat, WBO, Invicta, Howden, Reunert, Cashbuild. A useful portfolio can be underweight, but needs diversification. IT counters in our portfolios, or soon in our portfolios are EOH, Pinnacle and Datatec.

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Turning Point Issue #896

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Financials and Property These sectors are outperforming the JSE All Share but not trending convincingly up. Accumulate Coronation, PSG, Brait, RMBH, FirstRand, Rand Merchant Bank Insurance Holdings, Old Mutual. Wait for Capitec; we may become buyers between R150 and R175. JSE SECTORS: 52- WEEK MOMENTUM RANKING

INDEX W 16 Nov 12

JSE-AUTM 6.11 J335

JSE-MEDI 4.82 J555

JSE-HEES 4.19 J453

JSE-HEAL 3.98 J540

JSE-PHAR 3.74 J457

JSE-PERG 3.73 J376

JSE-LIFE 3.51 J857

JSE-CONS 3.44 J550

JSE-FORE 3.44 J173

JSE-TECH 3.43 J590

JSE-FOOR 3.05 J533

JSE-NLIF 2.51 J853

JSE-GERE 2.41 J537

JSE-IND25 2.32 J211

JSE-INDT 2.27 J277

JSE-CONG 2.08 J530

JSE-BEVER 2.07 J353

JSE-TRAV 2.03 J575

JSE-ASIN 1.77 J257

JSE-FIN30 1.65 J213

JSE-ALEX 1.31 J250

JSE-REAL 1.17 J863

JSE-GENI 1.10 J272

JSE-MTEL 0.96 J657

JSE-PULS 0.95 J256

JSE-HOUSE 0.83 J372

JSE-PCAP 0.69 J254

JSE-TELE 0.60 J560

JSE-SAPY 0.52 J253

JSE-FOOD 0.42 J357

JSE-FINA 0.26 J580

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Turning Point Issue #896

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JSE-IIND 0.11 J520

JSE-ALS40 0.03 J200

JSE-INDE 0.02 J275

JSE-OVER 0.00 J203

JSE-FIN15 -0.11 J212

JSE-SMLC -0.17 J202

JSE-MIDC -0.18 J201

JSE-FLED -0.58 J204

JSE-PRUT -0.78 J255

JSE-CHES -0.93 J135

JSE-DIVP -0.98 J259

JSE-GENF -1.00 J877

JSE-BANK -1.69 J835

JSE-OILG -1.71 J500

JSE-OILP -1.71 J055

JSE-METM -1.77 J154

JSE-ELEE -1.87 J273

JSE-RES20 -2.60 J210

JSE-ALT15 -2.68 J233

JSE-RES -2.70 J258

JSE-BASM -2.76 J510

JSE-MINI -2.87 J177

JSE-SUPS -3.28 J279

JSE-CONM -3.75 J235

JSE-ALTX -4.51 J232

JSE-VENC -4.64 J231

JSE-GOLD -4.67 J150

JSE-DEVC -5.21 J230

JSE-INDM -5.78 J175

JSE-PLAT -6.05 J153

JSE-COAL -6.95 J151

JSE-FTEL -11.45 J653

Well, the colours say it all. Resources, Construction and Materials have been underperforming and are relatively cheap. Engineering counters are performing near market. Financials and Banks are slightly underperforming. Life Companies are doing well but that is loaded a bit by Old Mutual, a Rand Hedge in these tough times. Consumers and Defensives such as Pharmaceuticals are outperforming, but are expensive.

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Turning Point Issue #896

www.HugoCapital.com

Tel: 0861- 888 - 987 Int.: +27 28 312 1735

THE JSE ALL SHARE INDEX – WEEKLY ( J203)

The JSE All Share Index on near 37533. A Make or Break point or crossroads for continuation upward or reversal. The horizontal blue lines show projected ranges and time pivots that are calculated from key pivot points. Each gold box describes past or potential trend ranges relative to calculated cycles. The RSI is a momentum indicator called the Relative Strength Index, tilting down. Persistent action above or below the 37533 area would tend to favour scope for persistence of trend to well into next year: candidate pivot dates shown. The trend is up until it turns. Yet it is useful to know that the JSE is at a candidate Turning Point until momentum resolves up or down. Intermarket analysis and very long term wave counts suggest that the Turning Point reversal scenario is somewhere between now and Q3 next year.

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Turning Point Issue #896

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THE JSE ALL GOLD INDEX (J150) - WEEKLY

Price wave counts describe behavioural or belief patterns that motivate markets. The short term picture shows momentum favouring some downside while action persists below 2350. Not time to be buying gold shares until trend and momentum are more supportive.

Your Unit Trusts and Retirement Funds

We are continuing with our process of contacting our clients to assess their needs and to gradually implement adjustments for bigger exposure to the market, keeping some cash to buy more aggressively in dips or dumps when they come. The problem is that although the risks are still awfully high and the downswings will still be big along the way, inflation is also coming as the Rand weakens and our country’s inefficiencies cause havoc with prices. Even though new highs or market strength may only be in nominal terms, markets and dividend yields can go some way to protect against downside and the inflation monster. So we are increasing equity exposure and appetite for risk in downswings and in corroborating up trends. Yet we will still keep some cash in money market for liquidity needs and for switches into equity in any dumps or crashes that come.

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Turning Point Issue #896

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If despite the risks and global growth problems, the international community does enough synergy and cooperation to avoid the dominoes game for sovereigns - and to avoid market crashes – there could be an “unreasonably” big run. You can hear we are lukewarm on this scenario, but we would not want our clients to miss out if a run comes. Of course the funds we prefer should have the necessary resilience and tools to handle storms. Fund selection and allocation must also be appropriate to each investor’s individual risks and to his/her return goals. We try to achieve this balance in our one on one attention to our clients. We wish you a peaceful holiday season and lots of energy in 2013! Thank you to our clients for their support. Best regards

Victor Hugo

HUGO CAPITAL

[email protected]

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Hugo Capital Genometry Fund Managers Personal Portfolios ( we can manage a portfolio for you).

* Individual own account, allocated client portfolio accounts * Mandate to Hugo Capital Asset Management (Pty.) Ltd (Victor Hugo) authorised by

Genometry Fund Managers (Pty.) Ltd. Financial Services Provider #FSP 31677. * Mandate from investors to buy, sell and monitor private portfolios as a discretionary

portfolio, using active strategy, long only, no leverage. * Strategy will pursue value in conjunction with momentum- based ranking for a medium-

and long- term time horizon, investing in JSE shares and ETF’s or CIS funds that are outperforming the JSE All Share Index, dividends reinvested.

* An advantage we have is managing liquidity according to market environments and time in money market or for temporary capital protection.

* Shorting may be used to achieve some downside protection, provided that they will not be leveraged more than 1:1.

* Money is invested at the securities division of a registered bank in a separate account per investor.

* Minimum investment R500 000, top-ups of R100 000 * A choice of Absolute Return Objective, or to pursue a Relative Return Objective to

outperform the JSE All Share Index. * Both objectives position risk at below market risk. * The structure you will invest through will provide tax efficiency for an active strategy and

also when in money market. * Access by internet to view portfolio daily, quarterly statements reporting.

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Please consult with your financial advisor. Further details are available on request.

DISCLOSURE, DISCLAIMER AND INDEMNITIES Victor Hugo is an independent market strategist and asset manager, manager of Nexus Portfolios which may invest long and short. His information is published in South Africa and in various global media. Janet Hugo is a Certified Financial Planner with specialist knowledge in life assurance, estate planning, retirement - and long- term investing and offshore products. Victor Hugo, Janet Hugo, Hugo Capital, and their associated companies, subscribers, owners of Internet sites on which information is published and portfolios managed -- will often be invested in shares, strategies and products recommended from time to time. Other than advertising revenue referred to below or normal commissions paid by service providers to whom we introduce accounts or where we appear as partners at www.HugoCapital.com, Hugo Capital does not receive nor would expect to receive any commissions or other type of remuneration from the companies whose shares are recommended, unless stated explicitly. From time to time, $Gold mining or other companies may advertise or provide information about their operations on www.HugoCapital.com, or on other sites on which Hugo Capital's information appears and in complimentary and paid-for subscriber publications. Information published and recommendations made are for information purposes only and are not intended to constitute investment or trading advice. Due to the practical constraints of publishing and research, we cannot guarantee that our information is complete or accurate or current and we do not provide all information that may be relevant to your investment profile and needs. Opinions expressed to buy or sell are often motivated only by technical factors which have inherent limitations. Fundamental factors and risk should be considered by each investor in the context of individual investment strategy. Before investors embark on aggressive trading strategies or act on information and recommendations, they should be aware of the risk implications of active strategies and should obtain professional advice from a registered financial advisor or stock broker in connection with inter alia the following issues: whether the advice relied on and intended investment is appropriate to the individual's circumstances, risk profile and financial goals; whether the investor is aware of and appreciates the true risks of stock market related investments and leveraged investments; whether the investor understands that whatever recommendation is given in good faith may not be appropriate after publication in fast changing market circumstances; that recommendations are liable to change without notice; the need to be aware of the taxation implications of active investment strategies. Research capacity constraints prevent us from analysing all the information that is relevant to our recommendations before publishing. Technical factors are emphasised to generate advice and recommendations. Persons who act or rely on the information and recommendations we publish, do so at their own risk. All forecasts and recommendations are based on opinion. Markets change direction with consensus beliefs, which may change at any time and without warning and information may become inappropriate between publishing and being read. Sustained success on the stock and futures markets is closely linked to capital management, protecting capital and profits and following a strategy according to individual risk profile. By subscribing to or reading any Hugo Capital information service published on the Internet or otherwise, the reader indemnifies and undertakes not to litigate against or claim from Victor Hugo, Janet Hugo, Hugo Capital and any of their associated companies, publishers and employees in respect of any losses or damages incurred, whether as a result of reliance on opinions expressed, forecasts, recommendations made, or otherwise. Our information, strategies and software may be a useful investment or trading tool, but the trader/investor remains responsible for the outcome of his/her decisions and none of the information published and systems or software used -- offer any implied warranty or representation as to effectiveness. This is information intended for the addressee only. COPYRIGHT: Please obtain our written permission before publishing or distributing this material - and then only with full credit and links published to www.HugoCapital.com. Contact us at [email protected] [email protected] or at Tel.: 0861 888 987 International: +27 28 312 1735. Postal Address: POSTNET Suite 545 Private Bag X29, Gallo Manor 2052 SOUTH AFRICA.