The “sell in May and go away” period has passed but perhaps it is meant to apply only in the Northern hemisphere. Some voices, however, are suggesting that “flog everything and flee” is still the best strategy for equity investors – particularly in the USA. Their views rely quiet heavily on the patterns and pictures they claim to be able to see in the charts of prices and indices. Apparently they all point sharply downwards. In fact there are also some worrying fundamental facts which suggest that the US especially may be about to experience another wave of mortgage defaults which could lead to a further fall in property prices and liquidity problems for the banks. Thereafter follows the familiar lament of declining investor confidence, job losses and economic contraction. While there has been enormous support for the Dow whenever it tries to break below 10 000, I think the bear will win that battle but hopefully not as far as the 3 000 level that one opinion has offered. The dread phrase “double dip recession” is popping up again. The Rand Refinery reports that demand for Krugerands has soared 50%. People are definitely seeking insurance.
Like most other share markets the JSE is jittery and unable to develop a trend. Buyers are around but are unwilling to pay up to get their shares. A disappointing number of companies which have reported recently have chosen not to pay dividends, but those that do have mostly increased their distribution compared to a year ago. If there is a genuine and sustainable business recovery taking place it is very patchy and hard for investors to profit from.
Surely the state-owned near monopoly business of generating and selling electricity should be staid, unexciting and financially predictable. Their market is captive, their suppliers are amenable and the technology well proven. Nevertheless Eskom is never out of the headlines with stories about boardroom putsches, operational calamities and ridiculously volatile results. One suspects sadly that corruption and incompetence are probably dominant features of that utility. The much trumpeted news of their return to profitability appeared alongside the Durban municipality announcement of a 23% increase in electricity tariffs. That is a huge number and will undoubtedly have a big impact on consumers’ future spending patterns. It is hard not to think that the economic recovery is up against some very strong headwinds.
No such problems however face FIFA who are delighted to announce that they have increased their income by 50 percent since 2006 in Germany to 2010 in South Africa. Helping them reach this wonderful milestone are two sleek grey warships which as I write are cruising past a few miles offshore keeping a keen watch out for pirates. South Africa has ignored all suggestions that it should take an interest in helping to counter the rampant piracy around the Horn of Africa. Now we see why. Our forces are assigned to the far more threatening brigands who are clustered at the traffic intersections selling world cup paraphernalia that has not been blessed by FIFA. Is everyone involved in the beautiful game really happy with the plan to destroy tons of t-shirts in a country where even illegal clothing is welcome now that winter has arrived? Have you spotted that the Lords of the Round Ball have discovered a way to renege on their commitment to allow the vuvuzela to blast its way into soccer history? They have warned that should a single one of these plastic tubes be flung onto a pitch, then that will be evidence of its use as a weapon and bingo – a ban will be issued. Watch this space.
Nevertheless the city is definitely starting to get revved up. Flags and “mirror gloves” are blooming and the cleaned up beach front is wonderful. This is going to be great party. All I have to do now is learn the offside rule. I am a little anxious about the ‘bokke in Cardiff though.
James Greener
4th June 2010.
