Many years ago I failed utterly to make sense of the essay topic “History is Bunk” and earned scorn and rebuke from the teacher. Obviously, I have not forgotten the incident and it popped into my head this week when reading about how the current action of the Dow Jones index is reminiscent of the days prior to the 1929 stock market crash. Is a market collapse now imminent? Probably not.
Most market forecasting methodologies depend on looking for historical precedent. Popular tools are price patterns, valuation levels, corporate financial health and overall economic conditions. This data and these techniques are used by professional and amateur fund managers alike, but I don’t think that any of them work consistently. Some evidence for this view can be found in a schedule of find manager performance which was published this week. Not one of them beat the All Share index over the past 12 months. Maybe it is time to have another stab at that essay.
Bears and sceptics are adept at compiling long lists of events and situations that are unfolding right now which in the past have caused markets to crash spectacularly. But so far, none of them are working this time. Very puzzling; but of course every time is different or else this would be an easy game.
As I understand it, one of the biggest differences this time is the massive wave of liquidity provided by our central banks. Who hasn’t looked across at well groomed young lady or grubby old man in the luxury car and wondered; “Where does the money come from?” I don’t know the answer to that question either but I do know that some of it is pouring into markets and until that stops the bears will go hungry. The index record high this shortened week looks set to happen today. Resources are pumping despite the strong rand dollar rate. That’s another shattered certainty!
The work being done by an outfit called the SA Qualifications Authority caught my eye. SAQA can spend three months checking the content of a 1982 degree-course in financial management from the University of Suffolk before deciding whether the holder will threaten the educational standards of this country. Presumably the unscrupulous local employer of the potentially untrained foreign job applicant has already decided that 25-odd years of experience is good enough, but thankfully, SAQA have the final say. The good news is that a 1985 Harvard engineering degree (the chaps who put a man on the moon) takes SAQA only days to check.
Here’s a good one. An application to install an urgently needed 24inch fuel pipeline from the coast to Joburg has been turned down by yet another quasi-government body. The reason they give is that it is their task to implement government policy but that “unfortunately the government has not indicated in a public document what its policy is.” That’s comforting.
Zimbabwe does not come to mind when thinking about examples of sustainable development (unless of course it is presidential tenure). It is therefore odd to see that chairmanship of the United Nation’s Commission on Sustainable Development is about to be awarded to our northerly neighbour. The world is neither flat nor round, it’s crooked.
I wonder what SAQA would feel about a 1977 degree in geophysics from the University of Exeter? How long before they conclude: “Ignore this man’s views on markets.”
James Greener
4th May 2007
