Considerable excitement has been caused on Wall Street by the news that the Coppock Index has given a buy signal. This allegedly nearly infallible technical indicator is brewed from a mesmerising mix of market momentum metrics. Only time will tell if the signal is correct but in the meantime two prices that are definitely soaring are oil and long term money (long bond yields). Both these factors are bad news for consumers and are going to interfere with the programs that most governments and central banks are pursuing in order to get the wheels turning as fast as they did before. I remain totally unconvinced that the 2009 bear has been banished.
A professor from the Harvard Business school is reportedly very keen on negative actual interest rates (that is where you pay the bank to keep your money) as an incentive for people to spend cash rather than save it. With negative rates there would presumably be no need to pay off debt because your credit card and mortgage balances would magically decrease each month – but I might have this bit wrong. And what about those stubborn savers who try and keep some money under the mattress? The professor is proud to announce that one of his graduate students has got a plan for them. Once a year the authorities would announce a digit between 0 and 9 and all bank notes ending in that digit would be declared valueless, so imposing an instant 10% penalty on the prudent. Of what discipline is that student a graduate? Has he mentioned this idea to his grandparents? Where will he get a job?
Designers of our ominous new National Health Insurance must have graduated from an equally suspect local education facility. When it was suggested that collecting R100bn to fund this scheme via a new tax might be a tad difficult they replied that there were plenty of other options for raising this kind of money. Minister Manuel would definitely not be able to call these people cowards. He did however, use that term to label SA business leaders who, he thinks, don’t stand up to the labour unions forcefully enough. I hope that the speechless apoplexy brought on by this challenging comment does not cause any business man so accused to seek National Health care.
Value investors should consider the following choice. Would you like to own all the shares in a successful local fast food chain (Spur) on a pe of 8 and a yield of 5% pa or would you prefer to buy the services of the world’s most expensive soccer player (Ronaldo). Both will cost you around R1bn. The talented hoofer carries a hefty maintenance contract as well, so if he keeps on playing for even 8 more years, the chance of getting your money back is slim. I guess the yield must be the kicker – or is that vice versa?
News emerged of yet another scam where decidedly not cowardly folk fell for the “to good to be true” trick. This again shows that private money can be just as badly used as public. The main difference is that the private fraudster goes to live abroad. The public official gets promoted and moves to a better suburb in the same city.
Soccer fans travelling to Confederations Cup matches in the next couple of weeks will be delighted to find their taxi drivers attired in natty uniforms, knowledgeable about local landmarks and trained in first aid. The latter skill presumably is for treating unwary foreigners unused to the excitement of travelling in the emergency lane and through red lights.
James Greener
12th June 2009.
