The Top 40 index this week came within a whisker of topping the record of 20 260 that it set on 11th May. Whether or not it will soon actually break out into new territory and whether or not that will be significant I shall leave for real analysts to say. My observation is that this bull seems to be quite determined to erase the memory of the meandering trip of the last few months that took him to the edge of the bear-filled abyss. My view is that he may not yet be able to do that.
With probably indecent delight I comb the media for stories about how the US consumer is starting to feel the pinch. Apparently the future of the world’s economic growth depends to a very large extent on that fellow spending money. However, for a few years now, most of the money he and she has been spending has been borrowed and not earned. Moreover, it is seems that the US housing market has been the supplier of the credit. But now that market is showing signs of melt-down with all those statistics like “housing starts’ and “new home sales” and “existing homes inventory”, changing direction rapidly and emphatically.
Now the connection between the Top 40 index and the plight of the man in Michigan with a monster mortgage is not obvious. But this bear believes that it exists and involves links such as Wall Street, inflation, commodity prices and indebtedness. I expect, however, that I shall need a bit more patience to see if my belief is true.
In the meantime, I can think about our own statistics like the second quarter GDP growth of 4.9% pa. Total GDP in the last 12 months was R1 606bn. Government expenditure in the same period was R434 bn or 27% of the GDP. At present rates of growth of both these figures, the ratio could be at 28% by the end of this year. Three years ago, this ratio was 24%. The trend is clear and alarming. Government’s share of the economy is getting far too large. Isn’t this another negative for the Top 40?
I believe it is; especially when they spend our money on lunatic ideas like holding an “International (!) Conference to Address Gender Equity in Transport Policies and Planning”. Billed to last three days and boasting a dubiously incorrect logo of a male astride a hermaphrodite bicycle, this is a clear piece of nonsense. It makes about as much sense as declaring that Pluto is not a planet when we all know it is Mickey’s dog. It will be more distressing than usual to send in the provisional tax payment next week knowing that some of it will be used to support “rural freight logistic interventions”.
However, a proper analyst should be focussing instead on all the company reports filling the pages of the paper each morning. Most businesses are steaming along very nicely with earnings and dividend growth in double figure. One of the more interesting facts to catch my eye is that BHP Billiton’s earnings are running at R27.3bn for a pe ratio of 12.2. Anglo American, which is 44% larger by market cap, earned just R25.6bn for a pe of 18.7. The price of the latter has been running as the result of whispers that a deal may soon take place – but that difference still seems too wide.
I am looking forward to a pleasant day at Loftus tomorrow, provided my hosts allow me to stay at the bar in the marquee and not force me to watch the rugby. And there’s the Instanbul GP on Sunday. I wonder what Mr Ecclestone would have to say about gender equity in Formula 1?
James Greener
25th August 2006
