Let’s just get the inevitable bit of news out of the way: the All Share index set a new record high today. The bull is completely in charge. It is not only polar bears that are in danger of extinction. Share market bears are endangered too. Prices will never go down. Company profits will always grow. Investors will never again suffer losses. The drought is broken. The receiver of revenue is to close down. The Proteas are right on track to bring home the World Cup. Only one of the above statements is true.
Against all expectations it seems as if the JSE will deliver a positive return in March which will be the eighth month in a row that it has done so. Just four weeks ago, we were watching a sharp decline in prices and I for one was committing myself on paper to the view that the end was beginning. Wrong again.
I do, however, ask you to note one price that really does look sick and is not showing any signs of recovery. And that is our currency, which since the beginning of 2006 has lost more than a fifth of its value against all major currencies except the yen and the US dollar. The rand is down only 15% versus these two because, of course, they are suffering their own private troubles. Tthe latest inflation indices, published this week suggest that consumer prices have risen less than 7% in the same period. That’s good, isn’t it?
From time to time I have described my theory of a data-quality pyramid in the money business. At the apex of the pyramid are just a few numbers whose reliability is as good as it gets because they are prices which are set by large, liquid and transparent markets. In my opinion only a very few major foreign exchange rates and important commodities prices will qualify for this top rating. Most market prices are to a varying extent open to manipulation, adjustment and influence under certain circumstances. Their quality and reliability is certainly not undoubted and I rank them in the body of the pyramid, way below the apex. The base of the pyramid is huge and is filled with almost all the published financial and economic data that emerges from companies, governments, and institutions. Particularly suspect are data where the publisher has an interest in the levels and trends of the numbers they produce.
One reason why forecasts are usually so awry is that firstly, they are based on these dubious historical numbers and secondly they attempt to predict outcomes which are prepared by people who have already noted the predictions. The phrase “beat analyst expectations by a penny” comes to mind.
The expectations of sign writers in Limpopo province were smashed this week when it was decided that Louis Trichardt could not just choose a new name for itself and order up the green boards and white paint. It seems that full consultation of all the stake holders did not take place. On that basis, the sign writers should prepare to move down here to Johannesburg, which recently lost the name of its airport without stakeholder approval.
In the meantime, I hope that someone is explaining the concept of run rate to the Proteas. I know it involves long division and five is the largest digit to appear to the right of the decimal point in the “overs” column but please guys, have a stab at it. Your stakeholder approval is waning. So too is the ranking of SA sides in the Super 14. Will we look foolish in April?
James Greener
30th March 2007
