I think that I have cracked the secret of the market. It will move in a direction that will cause the greatest embarrassment to the largest number of people foolish enough to offer an opinion on what it will do. Can the bear market, that I was so sure was going to get deeper and nastier, really now be over? The All Share Index is almost 20% higher than the low point that seemed so vulnerable just a week ago. And it is a mere 10% lower than the October peak. With up days of 5% plus like today, that record is a simple hop skip and a jump away.
What has happened to bring the buyers surging back again? In the US, a plan to rescue the economy from recession has been shifted into a very high gear. The Federal Reserve has slashed the cost of money and the government has decided to reduce and even repay some taxes. I have already seen some commentators who think these measures will work and that soon the US consumers will flood back to the shops and resume spending money they don’t have on things they don’t need. Are we really in an age where deficits don’t matter and debts don’t need to be repaid?
Back home, Governor Mboweni with great reluctance allowed his fingers to be prised off the Interest Rate Up Lever, but refused to go anywhere near the Interest Rate Down Pedal. Rates remain unchanged for the time being, and this has rejuvenated the bull. On the other hand, it has done nothing to help the rand which was already rather wobbly. Against almost all currencies, except the rather sickly US dollar itself, the runt is at levels last seen five years ago. Against the euro, it is at an all time low. The yen is 20% more expensive than it was just a few months ago. This has been a fierce reversal of fortune for our currency.
The story goes that it is non-resident investors who are selling the shares which are so eagerly being sucked up by locals. That would explain the currency weakness. The catalyst for the fleeing foreigners is presumably the extraordinary developments in the electricity generating business. TV pictures at the weekend showed that coal stocks at the major power stations were almost zero. The skills of Eskom’s staff are being equated to the ability of the man who failed to arrange a party in a brewery. The big difference in this simile is of course that the beer-less buffoon did not get to award himself a huge performance bonus. And presumably, he was never again asked to organise anything. I hope you saw the advertisement for home-sized emergency generators which a motor dealer is offering for sale. Buyers are being tempted with a free car to accompany their generator.
Meeting rooms around the country are thronged with complacent officials and enraged consumers being told to save power by switching off their shops, factories and mines and by going to bed early and taking cold baths. I hope that everyone obeyed these instructions and left the TV off and so avoided seeing the ignominious departure of Bafana Bafana from the African Cup.
There are pieces of evidence cropping up to suggest that growth is slowing. Cement sales have decelerated and brick stock yards are overflowing. Car sales are reportedly rather dire and second hand car lots are becoming as numerous and as large as game farms. The frequent and unannounced disruptions to the electricity supply are very hard to cope with. The only reason to be aggressively buying the market now might be to acquire rand hedges positions. Real pessimists might also be looking for protection from possible hyper-inflation but even I can’t go that far.
Good bye Polly. Thank you for all the entertainment, excitement and days of delight.
James Greener
1st February 2008
