This week the All Share index soared almost to levels last seen before the March slump and technical signals flared like rockets at an opening ceremony. The bull is showing no mercy towards us cautious pessimists who can’t understand why one should pay more than before for shares in companies whose earnings are going to be lower in the future than they were in the past. Presumably bulls think that they can see beyond the present rather tough times to a period when the economy will recover and jobs and profits will again become plentiful.
I have no doubt that such a recovery will indeed happen one day. But I don’t believe that it is remotely soon or that there is great value on offer at these levels. Of course high liquidity is unappealing in the current tax and inflation environment but so too is the act of buying shares at the wrong price. My approach of taking small bites during periods of weakness – like the March low – remains my recommendation. In my view we are not currently in such a period.
Considerable excitement and plenty of envy is being caused by the quarterly results being published by the Wall Street investment banks. Without a shred of shame or embarrassment they are boasting of the return of massive profits and wheel barrow sized bonuses. This is a clear demonstration of what can be achieved when the taxpayers ply you with bail-out money, buy your toxic assets from you at the wrong price and accept your staff layoff programs. It will surely incense the majority of people in the USA who are still suffering mightily from the collapse in house prices, the disappearance of jobs and the desperate need to pay off debt. Mortgage records indicate that the next season of interest rate resets is about to start and probably another cohort of borrowers will find themselves with higher repayments and less valuable homes. My guess is that the bull will soon start to display the symptoms of bear flu.
The cold spell that reached even our small corner of the southern tip this week caused torrents of hot air to flow. Acres of news print were devoted to reporting speeches that made lavish use of the phrases “We need to …” and “The country must…” Ministers and officials of every stripe were eager to list the remedies for putting the country back on to the road to peace and prosperity. Unfortunately the latest plans seem to take an even stronger line than previously that government is the best and sole agent for getting things going. This requires that even more of the national cake gets eaten by the state, which leaves ever fewer private concerns to bake it. This is even less sustainable than generating the nation’s power with wind mills.
A possibly fake but definitely scary email did the rounds this week warning drivers that traffic cops have adopted a no lee-way policy of enforcement. Broadly one must of course support that program, but the rest of the letter lists the spot fines that will be levied for every infraction and one soon realises that one is looking at a determined revenue collecting program. Presumably the local fellows have seen how the state of California is paying salaries and accounts with IOUs and are very keen to avoid anything like that here. Actually, I think it is a great idea, but only for the plutocrats who spend their days warming parliamentary benches or first class aeroplane seats. The IOUs can be converted to rands when the promises are met and the plans complete!
The sardines never pitched up, the Lions got lost and Brawn were gored by Red Bull. Only Mr Ponting’s face after 5 days provided the week’s cheer.
James Greener
17th July 2009.
