This is a bear market. That means that there are more sellers than buyers and at the moment there are actually quite a lot of sellers and buyers have all but become an endangered species. Every participant has their own array of reasons for adopting their position but I would think that for many of the sellers it is a desire to raise cash as quickly as possible because that would seem to be something that is going to become very scarce. For the same reason, buyers are holding on to their money and are not going to spend it on very much more than paying off debt and surviving as economically and frugally as possible. Jobs and income are disappearing.
In my view the seeds of the current crisis were planted when governments began to believe in their ability to interfere constructively in the way that people lived their lives. The most pernicious and lethal of their activities has recently occurred in the financial realm where they hoped to impress voters by instructing people who have wealth to relax their own standards about sharing it with to those who have less. Here on the southern tip the current form of this scheme lurks behind the word “transformation”. An earlier equally appalling system chose the phrase “separate but equal” to disguise the reality. The political allocation of resources assumes many guises but there can be few success stories. For a short and glorious time it seems that almost everyone is hitching a luxury ride aboard inflating bubbles. But now there is a roar of popping and escaping air.
However, those people with a salary and pension fund paid for from taxes have yet to feel any pain. Therefore they continue to travel and meet and talk and declare that pouring ever more public money into bottomless pits is the solution to restoring people’s confidence about the future. Hampering them a little is the scary sight of declining tax revenues and it looks as if their lifestyles and plans will continue only if they are able to borrow the cash. At the moment there is a happy coincidence of this borrowing requirement and investors’ “flight to quality” in the form of government bonds. This situation may not last long. There is little sense in continuing to lend money at interest rates below inflation. Our own National Treasury think that they will borrow offshore. I sense a foreign road show coming up. What will they answer when asked who the next president will be? The wrong answer could add a few points to the rate!
There is of course some good news in the share market’s pull back. It simply means that one can contemplate taking another small nibble at some of the quality counters that are undoubtedly better value now than they were a few days ago. Have you noticed that Anglo, now only the third biggest share on the JSE (behind BAT and Billton), is in danger of being pushed into fourth place by SAB? Be aware also that the current round of company result announcements is throwing up some disappointments in the form of lower earnings.
Not only are the Indians giving the Aussies and now England a cricket lesson they also won my admiration for sinking the pirate “mother ship” that was operating a little way up the coast from here. Somalia itself might be lawless but out there on the ocean, cannons rule. Yo ho ho. Etc.
I think that I may need to be alone to watch the England game tomorrow. Being in the company of possibly equally outraged and disgruntled fellow ‘bok supporters will be a bad way to spend my last hours in my fifties. Mind you, it might result in SAB securing bronze.
James Greener
21st November 2008.
