The markets were a terrible place in which to try and keep calm this week as they whipsawed mightily in all directions when each different news story emerged about the status of the so-called US rescue package. Fear and greed way overpowered valuation and analysis. In fact there was little local economic news bad enough to fret about anyway.(Political news was of course a very different story!) Nevertheless the roller coaster continued its runaway journey and at one stage the all share was more than 30% below the May peak.
Nowhere in the material that is provided for students of investment analysis is there anything about the economic impact of selling rubbish to the taxpayers. The next editions of the textbooks will certainly need to cover this subject with whole chapters devoted to “pricing junk”, “bequeathing debts to the next generations” and “the wisdom of allowing the experts who created the mess to fix the mess”. It seems as if the whole world is waiting for the US Congress in the next few hours to pass legislation that will magically and omnipotently repair the balance sheet, confidence level and wealth of everyone in the world. I can assure them that it is not worth the wait. Before Halloween, the USD 700bn will have vanished like a ghost and the moaning will be louder than before. Quite simply the money is going to go to the wrong place.
Even a fanatical liberationist like me will concede that if there has to be a rescue package using taxpayers’ money it should be used to buy the delinquent and underwater mortgages. In this way, even if after all kinds of clever rescheduling, foreclosure is unavoidable, the taxpayer at least ends up owning a property that will one day likely be worth the price paid for the mortgage. The toxic waste that the current plan expects him to buy from the remaining solvent (?) banks will never be worth what he is going to have to pay for it. Much of it doesn’t even have certificates that can be perforated and rolled up. And on present form the banks will use the money to pay executive bonuses before selling the whole business to the taxpayer anyway!
I have scant sympathy for the poor saps who failed to understand the real cost of the loans that they were being offered in order to buy hugely overpriced houses and flat screen TVs the size of Boksburg. Education should devote more time alerting pupils to the brutal truths of compound interest and venal officialdom than to encouraging them to demand non-existent rights for themselves and polar bears. It is tough out here especially if you can’t read.
I was delighted by the picture of the EU big-wig holding up a candle while announcing the decidedly dodgy reasons for whacking Sasol with an extraordinarily large fine. Presumably the citizens of Europe need to be reminded what a candle made from wax looks like. Even if there is no escape from the penalty, Sasol shareholders can seek amusement from this splendid illustration of pained official indignation.
The internet lit up this morning with the collected wisdom of anyone with a word to say about the very large Impala Platinum deal. The main impetus for the deal seems to be the desire to get a hold of a great mining asset. Unfortunately there is a secondary driver which arises from trying to satisfy the government’s racist policies about asset allocation. This will undoubtedly cause wealth destruction in due course. This is an unhappy sector where apparent mouth-watering valuations have to be viewed through a veil of state interference. The health sector is another one. Maybe the new minister understands this.
James Greener
3rd October 2008.
