There is a misconception that it takes
“new” money to drive share prices up but this is not so. All that happens in a share transaction is
that the name of the owner in the share register changes and the amount of money
involved in the deal (with a bit taken off for tax and the stock broker) moves
from one bank account to the other. This happens over and over again and it
does not matter at what price the deal is struck. What drives a bull market is
the continual willingness of buyers to pay sellers a price that is above the
previous recorded trade. The market is indifferent to who owns the shares and
who holds the cash. Similarly when sentiment changes and it is the seller who
agrees to trade at a lower price than the one previously recorded, we have the
makings of a bear market. Note that neither a bull nor a bear market increases
the amount of cash held in aggregate in all the accounts. This is, however, not true of the total valuation of the shares!
Hence the old saying: “In a bull market who needs analysts but in a bear market
who needs shares?”
Both buyers and sellers use dozens of
different methods to determine the prices they are prepared to bid or
offer. Suspicion and concern has
recently been growing that buyers are running out of ideas while sellers are
accumulating them. Some notable and large companies have been presenting
half-year results that are worrying. One day, perhaps soon, holding cash
instead of shares will become popular again.
The seismic results and geophysical mapping
for the location of South
Africa’s first really deepwater oil
exploration borehole must be particularly interesting. The delightfully named
Brulpadda-1AX wildcat well has just been spudded 180km south of Mossel Bay
in 1500m of very uncooperative ocean. Oil horizons may lie 3000m or more below
the sea floor. The estimated cost of this exercise is R2bn and if anything
interesting is found the state will claim a fifth of the profits. Oil
exploration is not for the risk-averse! Please note the oilfield jargon – a
legacy of some years in that business a very long time ago.
There has been a welter of really
depressing news spewing from state controlled mouthpieces recently. It’s all about
new laws, regulations and processes that will replace market forces with policy
– a lethal development for growth. The increasingly inane and insane thread of
rejecting skill, experience and knowledge in favour of race, gender and age
runs through everything. Reportedly there are five new pieces of legislation
about land ownership and use on the way. Cue an outbreak of small and mean
offices staffed by even smaller and meaner officials unable to do anything except
pass the problem to someone else and unreel another roll of red tape. And then
it has been proclaimed that the inability to distinguish the difference between
a kilowatt and a kumquat may not impede employment in the energy sector. Meanwhile
our newest political party has spent more time destroying public property and
trust than it has arguing that their policies (if there are any beyond a
bizarre dress code) will drive the nation’s progress.
There are two huge events which are
causing great excitement in the kingdom this weekend. A wedding and a rugby
match. Unlike the latter, the former is a home fixture with about 30 000
spectators expected to travel to Ulundi as King Zwelithini weds his 6th
(possibly) wife. Those of us who have not been invited or are unable to be
there will be represented by the Premier of the Province who has (presumably
also on our behalf) already delivered “not a small gift” for the happy couple.
Details of the wedding breakfast are not for the faint hearted. How many Sharks supporters will be present at
the Super 15 semi-final versus the Crusaders in Christchurch is unknown, but a large number
back here will undoubtedly be moving straight from their much more modest
breakfast table to the TV room tomorrow morning. Only the outcome of the
wedding can be predicted with certainty. The match will be harrowing. And what can be said about the test cricket
in Sri Lanka
other than to repeat that it is a funny old game.
James Greener
25th July 2014
