I think that one of the best medium-term investment decisions that I made this year was not to renew my season tickets to the Wanderers cricket ground. Not only are there distressingly few Proteas’ matches scheduled there but the team itself is tending to become uncomfortable to watch.
On the other hand, my long-standing view that the US markets will lead the way down for the rest of the world is proving much harder to claim as a success. There were several occasions when I was sure it was about to happen in a big way, but only single digit percentage “corrections” appeared in 2007 to tease the bears. I have not been surprised by the nature of the woes that so far have crept across the US financial scene. It never seemed to be a good idea to allow people to borrow money against the collateral of massively overpriced homes. Further, everyone seemed to acknowledge happily that the some of the borrowers had little ability and no desire to repay the loans. But the financial engineers, the propellers on their beanies whirring, laundered and packaged this toxic waste and swiftly sold it on, ultimately to naïve investors living next door to the insolvent borrowers. The whammy was doubled, redoubled and definitely vulnerable. I have been surprised by the lack of any large reaction by the markets to these revelations and now I am being surprised and appalled by the levels of deceit and dishonesty that seemingly pervaded the industry. I claim to have international standards in the skill of cynicism but events in 2007 have left me astonished. Bring me my machine gun.
It is the time of year when forests are sacrificed to the meaningless cause of providing space for analysts to list their predictions for 2008. 2007 will be the fifth consecutive year in which the All Share index has delivered a substantial positive total return. Lengthy and strong bull runs like this are rare, but that in no way suggests or ensures that 2008 will be a down year for the JSE. Valuations are near the top end of their historical ranges but then the infrastructural spending and development that is going on in the country is also at record levels. This might underpin the industrial sector activity and sentiment for a while longer.
Miraculously, the government’s National Credit Act seems to have arrived in the nick of time to reduce the possibility that SA suffered a debt debacle like the ones we see elsewhere. This removes at least one reason why 2008 could be a bad year for the financial sector.
There is no doubt that the world is consuming resources at a rate which is generally unmatched by the coming on-stream of new supplies and so prices of most commodities are rising. However, with many of these products priced in US dollars the rises that have been experienced also owe something to the weakness of that currency. To these two factors, add the movements of the rand and the world-wide corporate activity in this sector and you tend to get the feeling that resource share prices might go up rather than down in the next year.
Please note that no trees were harmed in the production and dissemination of these wild guesses – unless of course you printed it out yourself in which case your carbon footprint has gone up one size.
Whatever happens it will be a fascinating, infuriating and entertaining new year in the markets. For you and your family may it also be a healthy, safe and prosperous one.
James Greener
28th December 2007
