I was delighted when someone asked me what the theme of Tidemarks would be this week. It makes me feel like a real analyst. The questioner presumably gets the impression that this letter is the result of a week spent in careful and detailed investigation of the investment scene. That’s marvellous and very flattering but actually, the week was spent as usual in combat with the joys and woes of living on the southern tip.
The important but unsurprising news was that inflation is now in double figures. Anyone who has recently filled a shopping trolley or a petrol tank knew this information long ago. And coming soon are some pretty scary increases in the price of electricity – when available – and in even more basic food stuffs. There can be no doubt that the Reserve Bank interest rate wizards at their June meeting will make things worse by increasing the price of money yet again. Do none of them actually have and service a mortgage?
It is obvious therefore why us bears can reel off a list of reasons why share prices should be a lot lower than they are. The overwhelming weight of evidence is in favour of a slowing economy. The prices of essential goods like fuel, food and money are increasing at a startling rate. This is putting pressure on profit margins of all those business that are involved in the supply and production of these things. It presumably also means that consumers will have less money to spend on items like clothes, toys (machinery) and luxuries. Therefore, company earnings will probably decline, and in fact, they are already doing so. Therefore, share prices should come down. But that, they are not doing! So what is going on? The bulls say that investors are smart. That they already are looking through the slowdown to some happy moment, as soon as early next year perhaps, when all the bad news will be gone and life will be good again. That such halcyon days await us somewhere in the future, I have no doubt. It is just that I want to buy cheap shares now so I can have more fun when we get there.
We suffered our share of power blackouts this week. Some functionary carefully selected the load known as Illovo Boulevard and shed it from the electrical network for 4 hours on Tuesday. The computers just hate that! The same evening, he selected my home suburb for similar treatment. This morning, the region between home and office was targeted and traffic chaos ensued. This aspect of the electricity crisis is the perhaps the most dangerous that many of us have to cope with. Apart from lengthy fuel-consuming periods of frustrating and unproductive immobility, the suburban side roads become infested with lawless minibus taxis attempting to avoid the failed traffic light-controlled intersections. Arcane matters like pe ratios and discount rates fade from the mind when faced with an approaching wall of three Toyota HiAce grilles side-by-side.
Yet another impediment to growth must be this year’s arrangement of public holidays. With a theoretical working week of just two days coming up, second quarter productivity will likely set new record lows. Certainly, there will be no Tidemarks in your email next week.
May your back-to-back long weekends be safe and happy. And warm. Shouldn’t we ask for the Nobel Prize back from the chap who said it was getting warmer?
The Lions are making the foot of the Super14 league table their own private space.
James Greener
25th April 2008
