THE BUMPY ROAD TO CHRISTMAS

Governor Mboweni seemed rather distracted yesterday when he rambled his way through the speech and finally got to the bit about cutting rates by a half percent. His heart was clearly not in the task and he almost failed to read out the crucial bit. Perhaps he, like the rest of us, has no interest in the long list of meaningless numbers and alleged facts and statistics that someone has laboriously copied onto the page for him. Or maybe he is looking forward to a spell in a garish shirt on the beach close to a supply of drinks with fruit and little umbrellas in them.

In fact no one was that worried by what our central bank governor had to say but strangely later in the day everyone panicked on the news that the US government decided that it was not keen to hand over cash to the chaps who make cars that US citizens don’t buy. The issues about supporting that once great industry are deep and complex and I am sure that other areas of manufacturing will soon also be getting on their bikes to Washington with a hard-luck story. Understandably these metal-bashers are aggrieved that the bankers were right at the front of the queue and received considerable state-support for their anxiety about their vulnerable bonuses. They just can’t understand why no one will send Ben Bernanke to hover over Detroit with large sacks of notes

For most of the week JSE investors chose to declare that the bear was dead and that they could see nothing but value wherever they looked. Resource shares enjoyed particular attention. The All Share index made a determined run at the 22 000 level. But the aforementioned news has reversed things a bit as we start the silly season. Next Tuesday’s public holiday really sets the mood until about the middle of January!

It would be interesting to compile a list of events that are alleged to have caused a noticeable reaction in the markets in these last few months of overall collapse. I suspect that there has been no predictable response in the various markets to items which were apparently broadly similar. One day a failing bank is bullish the next day a flailing regulator is bearish. One day tax collection shortfalls are good news but then the next day the rising government borrowing requirement is bad for interest rates. But through all this noise there shines one crystal clear signal. Business is slowing down quickly and profit growth if not profits themselves are under severe threat.

One day of course this economic cycle will reach the bottom and a recovery will start. It is alleged in some circles that the market’s recent recovery is an example of its ability to forecast the future. In other words the market now judges that the worst is over and it can see that bottom if not the recovery already. We bears are never sure about this. We fret about pessimistic trading statements and rising unemployment and are doubtful that the prime interest rate at 15% rather than 15.5% will have any effect except to make income earners feel poorer and less inclined to spend. We also are horrified by having one’s neighbours dying of thirst and illness and feel that denial is an appalling response. I therefore see no need to rush about buying into this run which I believe will soon become exhausted. Just wait for those pull back periods and new lows and resume the nibbling and topping-up program.

The next edition of Tidemarks will I hope be written while gazing at the Indian Ocean over the keyboard. When that will be is hard to predict, however, as the forthcoming house move is not unfolding as a smooth and well-marked highway. Internet connection is one of the many potholes to be negotiated. Getting the fridge plugged in and the Castle quarts into it enjoys a much higher priority.

James Greener

12^th December 2008.

SOLID SUPPORT DISCARDED

The UK base rate was crushed down to 2% this week and the pound sterling disappeared into a hole, losing more than 5% of its value against most other currencies including our own battered runt. Dropping interest rates would appear to be the only remedy occurring to central bankers when they watch with horror as people stop spending and start saving. The concept of punishing the wise and encouraging the profligate is rather cruel and unusual and I think that somewhere there are rules against that sort of thing.

But rules are discarded when the leaders sense that they are in great danger of it being found out that they really are powerless against the momentum of the approaching recession. They will of course deny that they and their predecessors of the last few decades were responsible for the endless and numerous small tweaks of policy that have slowly accumulated until the present crisis became inevitable.

My opinion that the political allocation of resources is unsustainable is now getting tested. Suddenly several of the world’s most important economies have reached the point where too many citizens were benefiting while too few were contributing.  It is simply not possible for everyone simultaneously to ignore the boring old saws like “neither a lender nor a borrower be” or “ save for a rainy day” or even “buy cheap and sell expensive, but not necessarily in that order”. It is of course simply splendid if you are one of those who can travel upstream against this wisdom for a while and to do so is one of the great benefits of entering a career in politics.

But now the contributors are losing their jobs and their homes and that will mean that the beneficiaries will soon also start to feel chilly which is why they are frantically yelling at people over at the central bank to turn up the heat. In the USA the president-elect appears to have given Governor Bernanke instructions to get the engines on the helicopter warmed up and the sacks of money loaded. Inauguration Day in Washington will see the crowds showered with dollar bills. No wonder it is a sell-out affair.

Although it might feel as if the JSE has been indulging in a bit of a recovery the truth is that it has been a bad week for most of the big names. The all share index is hovering about midway between its recent high and low points. There is no reason to believe that the bear has been banished to his lair. With next week’s interest rate announcement by Governor Mboweni and futures close out a week after that there are still several matters available in 2008 for investors to fret over. Share volumes have not yet really displayed any sign of slumping into their holiday trough. Stockbrokers are obviously still making a decent living.

The elderly are, however, battling in this environment. Why else would Mr Roderick Stewart be strutting around a large stage last night rasping out his greatest hits? It was wonderful to attend a gathering at Kings Park where the star was older than me but I did rather worry about him slipping on the wet stage and breaking a hip or something as he scrambled about collecting the female undergarments being thrown at him. Given the average age of the audience some of the flimsies looked rather stouter than he might have wished.

This weekend’s ball sport is golf from Sun City. I shall watch if only for the sight of blue skies and the great yellow orb. This Durban overcast weather is getting tiresome.

James Greener

5^th December 2008.