I would say that the question we posed last week has now been answered by the market. This action is not a mere buying opportunity but the birth of a pretty impressive bear market. So far, just the hair and the claws on one paw are visible. The teeth we have yet to see. And its eyes are not yet open. Almost every share has been wounded. None yet fatally so. The largest one still standing, is PPC. And Krugerrands are at a two and a half year high. If this is the start of a significant market melt-down then I don’t think it will do much for the cabinet’s grand plans for the economy. All kinds of fancy schemes to transfer assets will slip underwater if market prices dip significantly.
Suddenly the GDP growth story has become a mantra with everyone chanting their own favourite number. If only it was that simple. Most of us will have been puzzled by the news that the government this week have approved a “blueprint for 6% growth by 2010”. Why didn’t they approve a “blueprint” like that five years ago? Could we see the current plans please? Will it involve government appointing and paying for more legislators, regulators, inspectors, advisors and consultants? If so then it would seem unlikely that the rest of us will have much opportunity after filling in forms and preparing reports about what we thought of the forms actually to get much work done.
For example, the new National Credit Bill promises to “register consumer credit providers, conduct inspections, monitor compliance and investigate systemic market conduct problems…” Apparently the present system is “dysfunctional”. This view hardly fits with the 18% pa growth in personal credit extension reported last week. It seems as if everyone is already borrowing plenty of cash without even more folk coming along to monitor them.
Reserve Bank Deputy Governor Guma, pitched up at the podium yesterday to deliver the interest rate decision. He was so nervous, poor chap, that he surpassed the previous record for monotonous delivery. I gather that towards the end he said that there would be no change, but by then I was fast asleep. The market was already charging southwards and also paid no heed.
It is tempting also to ignore the JSE’s data on net foreign buying of equities. Do you believe that, with the exception of a very small amount (R22m) of net selling yesterday, every day so far this month the overseas investors have never bought less than R300m worth of shares. Last Friday – when the first signs of panic began to appear – the net buying is said to have exceeded R1.1bn worth! This really does not feel right.
I managed to publish some proper research this week and on the website you will find a discussion of the likely impact of interest rate increases on the prices of the banking sector preference shares. In short, I don’t expect them to decline by very much at all. But now that I have written that down, as well as the view that we now have bear market, you can be sure that I will turn out to be wrong on both counts.
Why does the market collapse only in October?
James Greener
14th October 2005
