This investing business is utterly fascinating but also completely frustrating. It makes me wonder if there is any real value in those serious books and courses in finance and economics that many may have innocently and eagerly read and attended. Dutifully one absorbs the wisdom about the seemingly logical interconnectedness of the colossal amounts of data that our civilisations churn out. There are literally millions of prices, exchange rates and economic statistics that claim to record pretty well everything that we have done with our money. We think we know and can measure how much we have, where we store it and how we use it. The numbers are aggregated, averaged, collated and sorted into every imaginable category and type. Fortunately, the advent of computer memory has preserved numerous forests from being sacrificed to provide the tomes full of numbers with which we used to fill our shelves. Then we pore over these presumed facts and try to detect patterns and trends and relationships that we hope will enable us to foretell what will happen tomorrow. And you know what? We are hardly ever right!
Take, for example, the terrifying flow of apparently negative data that has issued from the USA in the past few years. According to most theories and many pundits, the huge debts and impossible imbalances that that country is supposed to have, should long ago have the caused widespread calamity and destruction of the US currency. However, this time it must be different. Nothing bad has yet happened. The Dow has set new record highs. Bond yields are falling. The US dollar is still the paper money of choice in many parts of the world. What happened to those theories?
The rand, on the other hand has few fans, and even the Reserve Bank may have been exchanging them for dollars, if the latest foreign exchange reserves figures are to be interpreted correctly. Does that imply that they also do not think we will see a stronger rand anytime soon? The SARB is looming large in our lives these days with the Governor reportedly expressing dismay about the outcome of affirmative action. He has also been in the press with hawkish pronouncements ahead of the main event next Thursday when he tells us just how much interest rates will rise. The ECB pushed their rate up this week and the Fed has been muttering that they may not yet be done either. The sole argument in our markets is about how much we will be stung, (my guess is 100bp) and yet our own stock market also remains unconcerned by this theoretically bearish development. The banks, which I am told should be particularly adversely affected by rising rates, are among the better performers of the moment. Bang goes another model.
I wonder if there will be any bears left standing and able to croak: “I told you so” when it does all finally collapse in a large smouldering heap. Which, if one popular view is correct, will probably not occur until after 2010. But that’s probably wrong too.
Another thing that surprised me was the headline today that a political party has called for corruption to be put on the parliamentary agenda. Surely, this is not necessary. Is it not implicit in every piece of legislation that someone, somewhere will find a way to use the law to tap the public purse?
I hope the Suzuka GP this weekend will be as exciting as the last week’s one, and that the Bulls will give WP a hiding.
James Greener
6th October 2006
