Yesterday the All Share index closed down compared to the previous day, bringing to an end a sequence of nine consecutive days when the index had closed up. Such a long series had me reaching for my copy of the Bear Markets Control Act of 1987 (As amended) to see if there was any legal remedy for the harm being caused to my views by this run. The sole advice was to buy put options, but in the fine print was something about good money being thrown after bad.
Talking of good money, the Anglo results were announced this week and I’m sure you also marvelled at half year profits of $1.7bn. This is equal to about 15% of the current level of South Africa’s gold and currency reserves. Perhaps this is not a very meaningful comparison but it has been a bad week for those of us who use numbers. After a huge revision to the official retail sales figures, the head of Stats SA warned that we must all be “ready to ride the wave of continuous change (to statistics coming out of his organisation) over the next 18 months.”
As a data analysis geek from the natural science world I have often argued with practitioners of the dismal science that many of their conclusions and models seem to rest on pretty rotten foundations. Perhaps that is why so many of the predicted effects never seem to follow the apparent causes. The numbers are just no good. [Maybe the models stink too]
I do think that in this business the numbers which most reliable are prices, especially those that are set by a balance of substantial numbers of buyers and sellers. By this criterion the rand exchange rate comes out at the top of the local heap. It is probably just about the most genuine economic number of all. Now, you may not like the rate and you may harbour suspicions of “intervention” and “manipulation”. But the fact remains that a large number of players both here and overseas watch that market and are able to buy when they think it’s cheap and sell when they think it’s expensive. This so-called speculative activity sits alongside a much larger market of demand for dollars or rands by people who have proper jobs. An odd consequence of this liquidity is that no one can ever know, in real time, why the market is moving in its current direction.
I would categorise the soundness of the prices of many of the liquid shares and bonds perhaps a notch below the rand. And so on, spreading out like a cone from its apex, each level being less dependable and containing more members than the layer above, until at the base we have the fictional figures that we really shouldn’t use to make decisions. Forecasts of most things – including the weather - fit right in here. As do retail sales figures and rules of thumb like “the market never goes up nine days in a row”.
Have a wonderful long weekend.
James Greener
6 August 2004
