This has been an astonishing week for the markets. It is not as if anything especially material happened except that a larger cast than usual of politicians, central bankers, analysts and other assorted talking heads chalked up some satisfying headlines. This obviously encouraged many people to think that the bear market has ended and on Thursday the JSE challenged all kinds of records for turnover, points rise and other statistical trivia. Mind you they did have to make up for Monday when The JSE systems failed completely for most of the day. I trust the suits in Maud Street took note of the little fracas that erupted at the Pakistan Exchange when investors used rocks to express their opinion of developments in the market.
Among the more spectacular local stories was nothing more than a reheat of an old chestnut that the official inflation figures are incorrect. This time the twist was that they are too high. Most of us are probably unable to judge accurately if the annual increase of the pain in our pocket is 10% (the official number) or 8% (the suggested number). Actually, my inclination is that even the higher number is missing the target. I suggest that a test of the analyst’s work would be for his employer to demand that he immediately refund all previous salary and bonus increases that they have paid him in excess of the adjusted inflation rate that he has so carefully calculated. His biggest challenge may come when he explains to his wife and children about the revised housekeeping and pocket money amounts.
Traditionally, yields on the bond market are supposed to be sensitive to inflation. The way the yields fell in response to the news of a possible glitch in the numbers was rather startling and means that this supposed relationship might be less precise than many would like to think. The owners of hundreds of billions of rands worth of bonds substantially revalued their portfolios following a suggestion made in a single report. What will take place when an opposing opinion is published or the first chap admits to making an error? Curious.
Fed Governor Bernanke spent a tedious couple of days telling the US legislators everything except the truth that it is now time for the US to accept that there are very large debts to be repaid and juggling with interest rates will do little to make them go away. Market commentators sifted through the tens of thousands of words for anything that might be taken as bullish and for a while succeeded, but the underlying reality remains that the country and its currency are facing some big financial headwinds.
Back home again, any number of organisations have been queuing up with hard luck stories and demands that unless taxpayers money is forthcoming, a dire future awaits the country – or at the very least their staff and management. The national airline, the electricity generator and the trade union movement all had something – in fact a great deal – to say, but my favourite idiocy of the moment came from Safety & Security Minister Nqakula. He told parliament that the recent wave of economic prosperity had resulted in many more cars being bought, which in turn simply provided more targets for the hijackers and thieves and hence the increase in these crimes! A close contender, however, was the fund manager who told his audience that “It is not time to panic on the markets”. This may be useful advice but does seem to imply that eventually there will be such a time, presumably only after he has first taken a graceful exit.
Last week’s ‘bok victory in Dunedin was magical and a follow through in Perth would be fantastic. The Protea captain on the other hand seems to like “follow ons”.
James Greener
18th July 2008
